The arithmetic average return for the stock over the past six years is -3.17%.
To calculate the arithmetic average return, we add up all the returns and divide by the number of years:
(5.5% + 3% - 5.3% - 8.5% - 11% - 6.8%) / 6 = -3.17%
The negative sign indicates that the stock had an overall decrease in value over the time period.
The arithmetic average return can be used as a measure of the stock's performance, but it is important to also consider other factors such as volatility and risk when making investment decisions.
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Cambridge Construction Company follows the percentage-of-completion method for reporting long-term contract revenues. The percentage-of-completion is based on the cost of materials shipped to the project site as a percentage of total expected material costs. Cambridge’s major debt agreement includes restrictions on net worth, interest coverage, and minimum working capital requirements. A leading analyst claims that "the company is buying its way out of these covenants by spending cash and buying materials, even when they are not needed." Explain how this might be possible.
If Cambridge Construction Company is following the percentage-of-completion method for reporting long-term contract revenues based on the cost of materials shipped, then they may be incentivized to purchase more materials than necessary in order to increase their reported completion percentage.
This could lead to increased spending on materials, even if they are not needed for the project, which could be interpreted as an attempt to buy their way out of the debt agreement covenants.
By inflating their reported completion percentage, Cambridge may be able to convince lenders that they have enough working capital to meet their obligations, even if they are actually using cash reserves to purchase excess materials.
This practice could allow them to continue to borrow and spend, but it also carries risks of cost overruns, waste, and project delays if the excess materials are not effectively used.
Ultimately, it will be important for Cambridge to balance the pressures of meeting debt covenants with the need for responsible project management and cost control.
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Today is your 21th birthday, and you are opening up an investment account. You plan to contribute $2,000 per year on your birthday. The first contribution will be made today, and the 45th, and final, contribution will be made on your 65h birthday. If you earn 10% a year on your investments, how much money will you have in the account on your 65h birthday, immediately after making your final contribution?
The amount of money that you will have in the investment account after making the final contribution is $126,934.74
To calculate the amount of money in your investment account on your 65th birthday after making your final contribution, we'll use the future value of an ordinary annuity formula:
FV = P * [(1 + r)^n - 1] / r
where:
FV is the future value of the annuity
P is the annual contribution ($2,000)
r is the interest rate (0.1 or 10%)
n is the number of years (45)
Now, let's plug in the values and calculate the future value:
FV = $2,000 * [(1 + 0.1)^45 - 1] / 0.1
FV = $2,000 * [63.46737064]
FV = $126,934.74
So, on your 65th birthday, immediately after making your final contribution, you will have $126,934.74 in your investment account.
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the involvement of the united states in the international monetary fund and world bank was designed to .
The involvement of the United States in the International Monetary Fund (IMF) and the World Bank was designed to: promote global economic stability, facilitate international trade, and encourage sustainable economic growth in developing countries.
To begin with, the United States played a pivotal role in establishing both institutions during the Bretton Woods Conference in 1944. The primary aim was to ensure global economic stability and prevent the economic crises that contributed to the Great Depression and World War II.
The IMF was created to monitor exchange rates, provide short-term financial assistance to countries facing balance of payment problems, and promote international monetary cooperation. The World Bank, on the other hand, was set up to finance long-term development projects and reduce poverty in developing nations.
Moreover, the United States' involvement in these organizations helps in maintaining an open and rules-based international trade system, which is crucial for its own economy and global economic growth.
The IMF and the World Bank promote trade liberalization and provide technical assistance to countries in need, thus facilitating international trade.
Lastly, the US participation in the IMF and the World Bank aims at fostering sustainable economic growth in developing countries.
The World Bank provides funding for essential infrastructure projects, such as roads, schools, and hospitals, while the IMF offers policy advice and capacity building assistance to help countries implement sound economic policies.
In conclusion, the involvement of the United States in the International Monetary Fund and the World Bank is designed to promote global economic stability, facilitate international trade, and encourage sustainable economic growth in developing countries.
This engagement benefits not only the global community but also supports the US's interests in maintaining a stable and prosperous world.
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united states v. stein addressed the question of whether the constitutional rights of the defending accountants were violated when the government pressured their former employer into ending its policy of paying attorney fees. how did the court rule?
In Joined Together States v. Stein, the court did not address the address of whether the protected rights of the protecting bookkeepers were abused when the government forced their previous boss into finishing its approach of paying lawyer expenses.
the case centered on the address of whether the mail and wire extortion statutes may be utilized to arraign the bookkeeping firm for its part in advancing false charge covers. The court eventually ruled that the bookkeeping firm might be indicted beneath these statutes, dismissing the contention that the firm's activities did not constitute extortion since they included complex and novel legitimate speculations.
By and large, Joined Together States v. Stein was a vital case within the domain of white-collar criminal law because it clarified the scope of the mail and wire extortion statutes and set up that people who advance false charge covers can be held criminally obligated for their activities.
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an example of institutional property would be a building that: group of answer choices generates rental income for the corporation that owns it is occupied by the corporation that owns it is rented from the owner by the corporation that occupies it none of the above
The correct answer is option B. An example of institutional property would be a building that: Is occupied by the corporation that owns it.
Business and other organisations' real estate is referred to as institutional property. Examples of institutional property include the structures and other real estate that the company owns and occupies.
This could include office complexes, manufacturing facilities, storage facilities, retail establishments, and other real estate owned and used by the firm. Since the company owns and uses the facilities it inhabits for its own operations and activities, they are regarded as institutional property.
The advantages of owning and occupying institutional property include greater control over the surroundings, greater control over the standard of the structures and other physical assets, and the capacity to make money from the rental or sale of the structures.
Complete Question:
An example of institutional property would be a building that:
Group of answer choices
A. Generates rental income for the corporation that owns it
B. Is occupied by the corporation that owns it
C. Is rented from the owner by the corporation that occupies it
D. None of the above
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a cylinder shaped can needs to be constructed to hold 450 cubic centimeters of soup. the material for the sides of the can costs 0.03 cents per square centimeter. the material for the top and bottom of the can need to be thicker, and costs 0.07 cents per square centimeter. find the dimensions for the can that will minimize production cost.
The dimensions of the cylinder that will minimize production cost are r = √(0.07/0.03)/2 and h = 2√(0.07/0.03).
How to find the dimensions that will minimize production costTo find the dimensions that will minimize production cost, we need to use optimization techniques. Let's first start by defining the variables we need.
Let r be the radius of the cylinder, and h be the height of the cylinder.
We know that the volume of the cylinder is given by V = πr^2h.
We also know that the total cost C of constructing the can is given by C = 2πr^2(0.07) + 2πrh(0.03).
Now, we can use calculus to find the critical points of the cost function.
We differentiate with respect to r and set it equal to zero:
dC/dr = 4πr(0.07) + 2πh(0.03) = 0
Simplifying, we get:
r = h/2
Next, we differentiate with respect to h and set it equal to zero:
dC/dh = 2πr(0.03) + 2π(0.07) = 0
Simplifying, we get:
r = √(0.07/0.03)
Substituting r = h/2 from the first equation, we get:
h = 2√(0.07/0.03)
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which of the following would cause the balance of cash in the bank statement to be greater than the balance of cash in the accounting records? select one: a. the company deposited a customer check that was found by the bank to have insufficient funds. b. the company has cash receipts that have not been deposited in the bank. c. the company purchased supplies using a debit card. d. the company wrote checks that have not cleared the bank.
The option that would cause the balance of cash in the bank statement to be greater than the balance of cash in the accounting records is the company wrote checks that have not cleared the bank.
So, the correct answer is D.
Understanding bank statementWhen a company writes checks for various expenses, the accounting records immediately reflect the decrease in the cash balance.
However, the bank statement only reflects this decrease when the checks are actually presented and cleared by the bank.
In the time between the company issuing the checks and the bank clearing them, there can be a discrepancy between the cash balance on the bank statement and the accounting records.
This is because the accounting records have already accounted for the decrease in cash due to the written checks, while the bank statement still shows the original cash balance before the checks were presented.
This difference is temporary and will be resolved once the checks clear the bank. In the meantime, it causes the bank statement's cash balance to appear greater than the cash balance in the accounting records.
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You have decided to support your Alma Mater with a scholarship that provides $10,000 to one student per year, in perpetuity. Now you don't have the money, but you expect to be able to make your gift in 12 years, so you're going to make deposits at the end of each of the next 12 years, which will be invested at 10% compounded annually. Suppose your Alma Mater also invests at that rate.
a. Determine the amount of the donation you will make in year 12 to your Alma Mater.
b. Determine the annuities that will allow you to achieve your goal.
A. You will make a donation of approximately $3,192.47 to your Alma Mater in year 12.
B. To achieve your goal, you need to make annual deposits of approximately $536.59 for the next 12 years.
A. To determine the donation amount in year 12, we need to calculate the future value of an annuity due with annual deposits of $10,000 for 12 years at a rate of 10% compounded annually. Using the formula for future value of an annuity due, we get:
FV = A x [((1+r)^n - 1)/r] x (1+r)
where A = annual deposit, r = interest rate, n = number of years
FV = $10,000 x [((1+0.1)^12 - 1)/0.1] x 1.1
FV = $3,192.47
Therefore, you will make a donation of approximately $3,192.47 to your Alma Mater in year 12.
To determine the annuity amount that will allow you to achieve your goal, we need to calculate the present value of an annuity due with annual deposits of A for 12 years at a rate of 10% compounded annually, and set it equal to the future value of the scholarship of $10,000 per year.
Using the formula for present value of an annuity due, we get:
PV = A x [1 - (1+r)^-n]/r x (1+r)
where A = annual deposit, r = interest rate, n = number of years
PV = $10,000 x [1 - (1+0.1)^-12]/0.1 x (1+0.1)
PV = $62,418.16
Therefore, you need to make annual deposits of approximately $536.59 for the next 12 years to achieve your goal.
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under what circumstances may it make sense not to prepare a business forecast? group of answer choices the forecast horizon is 40 years. no data is readily available. the future will be no different from the past. there is no consensus among informed individuals. the industry to forecast is undergoing dramatic change.
There are several circumstances where it may make sense not to prepare a business forecast, including long forecast horizons, lack of available data, consistency in the past and present, lack of consensus among informed individuals, and rapid industry change. In such cases, it may be more beneficial for companies to focus on more immediate and concrete factors and adjust their strategies and plans as circumstances evolve.
Preparing a business forecast can be a useful tool in planning and decision-making for a company, but there are certain circumstances where it may not make sense to prepare one. One such circumstance is if the forecast horizon is very long, such as 40 years, as it can be difficult to accurately predict changes and developments that far into the future. Additionally, if no data is readily available, it may not be feasible to create a reliable forecast.
If there is no reason to believe that the future will be any different from the past, then there may be little value in preparing a forecast as well.Another circumstance where it may not make sense to prepare a business forecast is if there is no consensus among informed individuals, such as experts in the industry or market analysts.
In such cases, the lack of agreement may suggest that the future is too uncertain or volatile to make an accurate forecast. Finally, if the industry that is being forecasted is undergoing dramatic change, then it may be challenging to create a forecast that accurately reflects the likely developments and outcomes.
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If you are the writer of a call option a. You believe that the price of the underlying asset will decrease b. Collect a premium from the call holder O c. Are obligated to buy the underlying asset for
If you are the writer of a call option C, you are obligated to buy the underlying asset at the strike price of the option if the call holder chooses to exercise their right.
As the writer, you collect a premium from the call holder, which is your compensation for taking on this obligation. This means that you will make money if the price of the underlying asset decreases or stays the same, as you will not have to buy the asset at the strike price.
However, if the price of the underlying asset increases, you will incur a loss, as you will be obligated to buy the asset at the strike price, which is higher than the market price.
Therefore, correct option is C.
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Option c: If the call holder decides to exercise their right, you, as the call option writer, are required to purchase the underlying asset for the option's strike price.
A call option, commonly called a "call" in finance, is an agreement between a buyer and a seller to exchange a security at a specified price. The call option buyer is entitled to receive from the option seller a specified quantity of a specified instrument or financial instrument (underlying asset) at a specified price (strike price) on or before a specified date; No responsibility. Please check the date (expiration date) before purchasing. The owner currently has a long position in the offered asset. If the Buyer decides to purchase a product or financial instrument, the Seller (or "Writer") is obligated to do so.
As a result, the seller now has her position short of the specified asset. Buyers must pay a fee (called a premium) for this right. The term "call" was coined because the owner has the power to "call" the shares from the seller.
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Restex has a debt-equity ratio of 0.72, an equity cost of capital of 15%, and a debt cost of capital of 8%. Restex's corporate tax rate is 38%, and its market capitalization is $185 million. a. If Restex's free cash flow is expected to be $10 million one year from now and will grow at a constant rate, what expected future growth rate is consistent with Restex's current market value? b. Estimate the value of Restex's interest tax shield. a. If Restex's free cash flow is expected to be $10 million one year from now and will grow at a constant rate, what expected future growth rate is consistent with Restex's current market value? If Restex's free cash flow is expected to be $10 million in one year, the expected future growth rate is ____%. (Round to two decimal places.) b. Estimate the value of Restex's interest tax shield. Interest tax shield value is $____million. (Round to the nearest million.)
9.46% is the predicted growth rate, in line with Restex's current market value.
The interest tax shield for Restex is worth $8 million (rounded to the nearest million).
a. To determine the expected future growth rate, we can use the Gordon growth model:
Market value = Free cash flow / (Cost of equity - Growth rate)
Rearranging the equation, we get:
Growth rate = Cost of equity - Free cash flow / Market value
Substituting the given values, we get:
Growth rate = 15% - $10 million / $185 million
Growth rate = 9.46%
Therefore, the expected future growth rate consistent with Restex's current market value is 9.46%.
b. The value of Restex's interest tax shield can be calculated using the formula:
Value of interest tax shield = Debt * Cost of debt * (1 - Tax rate)
Substituting the given values, we get:
Value of interest tax shield = 0.72 * $185 million * 8% * (1 - 38%)
Value of interest tax shield = $8.16 million
Therefore, the value of Restex's interest tax shield is $8 million (rounded to the nearest million).
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Concepts used in cash flow estimation Capital budgeting analysis not only requires the evaluation of cash flows but also requires the understanding of the origin of those cash flows. Based on your understanding of cash flows in a firm, answer the following questions: The present value of___can be used to determine the basis of a firm's value. Which of the following best describes incremental cash flows? They are the difference between the cash flows the firm will have if it accepts the project versus the cash flows it will have if it rejects the project. Incremental cash flows are not relevant because they will occur whether or not the project is accepted. Understanding the nature of projects Capital budgeting analysis often involves decisions related to expansion projects and/or replacement projects. Based on your understanding of expansion and replacement projects, answer the following: If a clothing store opens second retail location on the other side of town, this project would be considered___project. What are sunk costs? Sunk costs are___in the capital budgeting analysis. The role of externalities A cell phone company recently gave customers the ability to buy applications that they can download to their cell phones. Allowing customers to use these applications increased cell phone sales. This is an example of___externality.
The present value of future cash flows can be used to determine the basis of a firm's value.
Incremental cash flows are the difference between the cash flows the firm will have if it accepts the project versus the cash flows it will have if it rejects the project.
Capital budgeting analysis involves evaluating the potential cash flows from a project and their timing. The present value of future cash flows is used to determine the current value of a firm's operations. Incremental cash flows are the cash flows that will occur as a result of accepting or rejecting a project.
These cash flows are relevant to capital budgeting decisions because they help to determine the net present value of a project.
Expansion projects involve increasing the size of a business or adding new products or services. Replacement projects involve replacing existing assets or products with new ones.
Sunk costs are costs that have already been incurred and cannot be recovered. These costs are not relevant in capital budgeting analysis because they do not affect future cash flows.
Externalities are the effects that a decision or action has on parties that are not involved in the decision or action. In the example given, the cell phone company's decision to allow customers to buy applications that they can download to their cell phones had a positive externality on cell phone sales.
This is because it provided an incentive for customers to buy more cell phones, which led to an increase in sales.
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A firm expects to receive a payment of CAD 650,000 four yearsfrom now. The risk-free rate of return is 0.86 percent in the U.S.and 2.10 percent in Canada. Assume the current exchange rate isCAD1 = $.74. How much will the payment four years from now be worth in U.S. dollars?
The payment of CAD 650,000 four years from now will be worth approximately $545,356.92 in U.S. dollars, assuming the current exchange rate and the given risk-free rates of return.
To calculate the value of CAD 650,000 in U.S. dollars four years from now, we need to first calculate the future value of CAD 650,000 in four years at the Canadian risk-free rate of 2.10 percent. Using the formula FV = PV x (1 + r)^n, where FV is the future value, PV is the present value, r is the interest rate, and n is the number of periods, we get:
FV = CAD 650,000 x (1 + 0.0210)^4
FV = CAD 738,303.31
Next, we need to convert this future value from Canadian dollars to U.S. dollars using the current exchange rate of CAD1 = $0.74. Therefore, we get:
FV in USD = CAD 738,303.31 x $0.74
FV in USD = $545,356.92
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Most frauds are detected byA) external auditors. B) hotline tip. C) internal auditors. D) forensic accountants.
Most frauds are detected by hotline tip (option b). Hotline tips are a crucial tool for organizations in detecting fraudulent activities. These tips can come from various sources, such as employees, customers, vendors, or even anonymous individuals who have observed or suspected fraudulent behavior.
External auditors, internal auditors, and forensic accountants also play important roles in detecting and preventing fraud. External auditors are responsible for independently reviewing an organization's financial statements to ensure their accuracy and compliance with regulations.
Internal auditors, on the other hand, focus on assessing the effectiveness of an organization's internal controls and risk management processes, which may include identifying potential fraud risks. Forensic accountants are specialized professionals who use their accounting, auditing, and investigative skills to detect and analyze evidence of financial fraud.
However, hotline tips have been found to be the most effective method of detecting fraud as they provide firsthand information from those who have witnessed or suspect fraudulent activities. This information can be vital in initiating an investigation and uncovering the extent of the fraud, thereby allowing organizations to take necessary actions to mitigate the risks and recover any losses.
Encouraging employees and stakeholders to report any suspected fraud through a hotline can help create a culture of transparency and accountability, ultimately reducing the likelihood of fraud going undetected.
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The Big Mac Standard constructs a fairly standardized market basket for PPP comparisons, and the basic ingredients are standardized and internationally traded. The result of international comparisons on this standard is (a) clear evidence against absolute PPP. (b) clear evidence in favor of absolute PPP. (c) clear evidence in favor of long-run PPP. (d) clear evidence in favor of relative PPP. (e) none of these responses are correct
The anwer is C.The result of international comparisons using the Big Mac Standard provides clear evidence in favor of relative PPP, as it compares the prices of the same product (Big Mac) in different countries.
The Big Mac Standard provides a standardized market basket for comparing purchasing power parity (PPP) across countries. However, it does not provide clear evidence for absolute PPP or long-run PPP.
It is important to note that the Big Mac Standard is just one of many methods for comparing PPP, and each method has its own strengths and limitations.
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among the resource-based consideration a firm faces when deciding whether to enter foreign markets is:
One of the resource-based considerations that a firm faces when deciding whether to enter foreign markets is the availability and accessibility of key resources in those markets.
Resources can include physical assets such as raw materials, manufacturing facilities, distribution networks, or access to technology, as well as intangible assets such as knowledge, expertise, and intellectual property.
Firms need to assess whether they have the necessary resources to enter and operate in foreign markets effectively. This may involve evaluating the availability, quality, cost, and legal/regulatory aspects of accessing key resources in foreign markets.
For example, a firm may need to consider whether it can obtain the necessary raw materials at a reasonable cost, whether it can establish manufacturing or distribution facilities in a foreign country, or whether it can protect its intellectual property rights.
The consideration of resources is critical for firms to determine their competitive advantage and ability to compete in foreign markets.
Inadequate access to key resources may pose barriers to entry or hinder a firm's ability to establish a sustainable competitive advantage in a foreign market.
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small gatherings of deliberately selected people who participate in planned discussions that are intended to secure consumer perceptions about particular topics are called focus group. is it true or false
The given statement "small gatherings of deliberately selected people who participate in planned discussions that are intended to secure consumer perceptions about particular topics are called focus group." is true because focus groups are a qualitative research method in which a small group of participants are deliberately selected to participate in planned discussions.
The goal of these discussions is to gather consumer perceptions and opinions about a particular product, service, or topic. Focus groups are typically conducted in a comfortable and relaxed setting, where participants are encouraged to share their thoughts and feelings openly. A moderator guides the discussion and ensures that all participants have an opportunity to contribute.
The data gathered from focus groups can be used to develop new products, refine existing products or services, or gain insights into consumer behavior and attitudes. Focus groups are a valuable research tool because they allow researchers to explore consumer perceptions in depth, uncovering insights that may not be apparent from quantitative data alone.
Overall, focus groups are an effective way to gather rich, detailed information about consumer perceptions and opinions. They can be used by businesses, marketers, and researchers to gain insights into consumer behavior, preferences, and attitudes, and to inform product development and marketing strategies.
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A $320,000 house in Hamilton was purchased with a down payment of 20.00% of its value and a 25 year mortgage was taken for the balance. The negotiated fixed interest rate was 3.25% compounded semi-annually for a three-year term, with repayments made at the end of every month. a. Calculate the size of the monthly payments. $0.00 € Round to the nearest cent b. Complete the partial mortgage schedule for the three-vear term. rounding the b. Complete the partial mortgage schedule for the three-year term, rounding the answers to the nearest cent.
The size of the monthly payments is $1,221.94.
a. To calculate the monthly payments, we first need to find the principal amount of the mortgage
The down payment was 20% of the house value, which is:
$320,000 x 0.20 = $64,000
So the mortgage principal is:
$320,000 - $64,000 = $256,000
Next, we need to calculate the monthly interest rate, which is the annual interest rate divided by 12 (the number of months in a year) and the effective interest rate, which is the nominal interest rate compounded semi-annually:
i = (3.25% / 2) / 100 = 0.01625 per month
j = (1 + i)^6 - 1 = 0.100416
The monthly payment can be calculated using the formula for a mortgage payment:
M = P * [i(1+j)^n] / [(1+j)^n - 1]
where:
M = monthly payment
P = principal amount of the mortgage
i = monthly interest rate
j = effective interest rate
n = total number of payments
For a 25-year mortgage with monthly payments, there are a total of 25 x 12 = 300 payments.
However, we are only interested in the partial mortgage schedule for the three-year term, which is 3 x 12 = 36 payments.
So, substituting the values, we get:
M = $256,000 * [0.01625(1+0.100416)^36] / [(1+0.100416)^36 - 1] = $1,221.94
b. The partial mortgage schedule for the three-year term can be calculated using an amortization table. The table shows the breakdown of each monthly payment into principal and interest, as well as the remaining balance after each payment.
Month Payment Principal Interest Balance
1 $1,221.94 $351.34 $870.60 $255,648.66
2 $1,221.94 $353.31 $868.63 $255,295.35
3 $1,221.94 $355.28 $866.66 $254,940.07
... ... ... ... ...
34 $1,221.94 $411.80 $810.14 $212,036.49
35 $1,221.94 $413.96 $807.98 $211,622.53
36 $1,221.94 $416.12 $805.82 $211,206.41
The principal and interest columns are calculated as follows:
Principal = Payment - Interest
Interest = Balance * i
where i is the monthly interest rate calculated earlier.
Note that the balance decreases with each payment as more of the principal is paid off.
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question content areathomlin company forecasts that total factory overhead for the current year will be $15,500,000 with 250,000 total machine hours. year to date, the actual factory overhead is $16,000,000 and the actual machine hours are 330,000 hours. the predetermined factory overhead rate based on machine hours isa.$62 per machine hourb.$50 per machine hourc.$48 per machine hourd.$45 per machine hour
To calculate the predetermined factory overhead rate based on machine hours, we divide the forecasted total factory overhead by the forecasted total machine hours: The correct answer is (a) $62 per machine hour.
$15,500,000 ÷ 250,000 machine hours = $62 per machine hour
This means that for every machine hour used in production, $62 of overhead costs are allocated.
Given the actual factory overhead of $16,000,000 and actual machine hours of 330,000, we can calculate the actual overhead rate per machine hour:
$16,000,000 ÷ 330,000 machine hours = $48.48 per machine hour
This means that the actual overhead costs per machine hour were lower than the predetermined rate, possibly indicating that the company was able to control its overhead costs better than expected.
Therefore the correct answer is a. $62 per machine hour.
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Assume that a company issued a bond with $1000 face value, 10% coupon rate, 20 years maturity. If the bond is sold after 5 years, how much this bond will be sold if the yield to maturity (YTM) is 8%? What is the current yield?
The bond would be worth $1,199.62 if it were to be sold after 5 years at an 8% YTM. The bond's current yield is 8.34%.
To calculate the price of the bond, we can use the present value formula:
PV = C x (1 - (1 + r)^-n) / r + FV / (1 + r)^n
Where:
PV = Present value of the bond
C = Coupon payment
r = Yield to maturity (YTM)
n = Number of periods
FV = Face value of the bond
In this case, the coupon payment is 10% x $1000 = $100 per year, and the face value is $1000. The number of periods is 20 - 5 = 15.
Using a YTM of 8%, we can calculate the present value of the bond:
PV = $100 x (1 - (1 + 0.08)^-15) / 0.08 + $1000 / (1 + 0.08)^15
PV = $100 x 8.559 + $339.62
PV = $1,199.62
Therefore, if the bond is sold after 5 years with a YTM of 8%, it would be sold for $1,199.62.
To calculate the current yield, we can use the formula:
Current yield = Annual coupon payment / Market price of the bond
The annual coupon payment is $100, and the market price of the bond is $1,199.62. Therefore, the current yield is:
Current yield = $100 / $1,199.62
Current yield = 0.0834 or 8.34%
So the current yield of the bond is 8.34%
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2. Solving for the WACC11.37The WACC is used as the discount rate to evaluate various capital budgeting projects. However, it is important to realize that the WACC is only an appropriate discount rate for a project of average risk—in other words, a project that has the same beta as the company. If a project has less risk than the overall company risk, it should be evaluated with a lower discount rate; if a project is riskier than the overall company risk, it should be evaluated using a discount rate higher than the company WACC.Analyze the cost of capital situations of the following company cases, and answer the specific questions that finance professionals need to address.Consider the case of Turnbull Co.Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2%.If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 14.7%. However, if it is necessary to raise new common equity, it will carry a cost of 16.8%.If its current tax rate is 40%, how much higher will Turnbull’s weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings? (Note: Do not round your intermediate calculations.)a) 0.99%b) 0.65%c) 0.76%d) 0.95%Turnbull Co. is considering a project that requires an initial investment of $570,000. The firm will raise the $570,000 in capital by issuing $230,000 of debt at a before-tax cost of 11.1%, $20,000 of preferred stock at a cost of 12.2%, and $320,000 of equity at a cost of 14.7%. The firm faces a tax rate of 40%. What will be the WACC for this project? (Note: Do not round intermediate calculations.)Consider the case of Kuhn Co.Kuhn Co. is considering a new project that will require an initial investment of $4 million. It has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. Kuhn has noncallable bonds outstanding that mature in 15 years with a face value of $1,000, an annual coupon rate of 11%, and a market price of $1,555.38. The yield on the company’s current bonds is a good approximation of the yield on any new bonds that it issues. The company can sell shares of preferred stock that pay an annual dividend of $9 at a price of $95.70 per share. You can assume that Jordan does not incur any flotation costs when issuing debt and preferred stock.Kuhn does not have any retained earnings available to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently selling for $22.35 per share, and it is expected to pay a dividend of $2.78 at the end of next year. Flotation costs will represent 3% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 9.2%, and they face a tax rate of 40%. Determine what Kuhn Company’s WACC will be for this project.
WACC is a discount rate that is used in financial modelling to determine a business's net present value. It's also the hurdle rate that businesses use when examining potential acquisition targets or new ventures.
Why is WACC employed in valuation as a discount rate?The WACC measures the risk to an organization's expected future cash flows from activities. If the predicted future cash flows from two companies are the same but one has a lower WACC, then it will be worth more.
What happens if the discount rate for all projects is calculated using the WACC?An entity won't favour high- or low-risk projects by utilising the WACC, and it won't raise its total risk level. Generally In general, the risk is generally minimised because the WACC is greater than the commonly applied discount rate.
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A firm issues a 20-year semi-annual payment bond, which is priced at $1213.55. The coupon rate of the bond is 9.00%. The tax rate is 37 percent. What is the after-tax cost of debt? % (to two decimal places)
The after-tax cost of debt is the cost of debt adjusted for the tax savings due to the tax-deductibility of interest payments. The after-tax cost of debt is 4.41%.
The formula for after-tax cost of debt is: After-tax cost of debt = pre-tax cost of debt × (1 - tax rate). First, we need to calculate the pre-tax cost of debt, which can be found using the bond pricing formula:
Bond price = [tex](C × [1 - (1 + r)^(-n)] / r) + (M / (1 + r)^n)[/tex] Where: C = coupon payment, r = semi-annual yield to maturity, n = number of semi-annual periods, M = par value of the bond, Substituting the given values into the formula, we get: $1213.55 = [tex]($45 × [1 - (1 + r)^(-40)] / r) + ($1000 / (1 + r)^40)[/tex]
Solving for r using a financial calculator or spreadsheet software, we get a semi-annual yield to maturity of 3.50%. Next, we can calculate the pre-tax cost of debt: Pre-tax cost of debt = semi-annual yield to maturity × 2, Pre-tax cost of debt = 3.50% × 2 = 7.00%
Finally, we can calculate the after-tax cost of debt: After-tax cost of debt = pre-tax cost of debt × (1 - tax rate) After-tax cost of debt = 7.00% × (1 - 0.37) = 4.41%. Therefore, the after-tax cost of debt is 4.41%.
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last year the price per share of stock x increased by k percent and the earnings per share of stock x increased by m percent, where k is greater than m. by what percent did the ratio of price per share to earnings per share increase, in terms of k and m ?
The percentage increase in the ratio of price per share to earnings per share in terms of k and m is [(k - m) / (1 + m/100)] * 100%.
Let the initial price per share of stock X be P and the initial earnings per share be E.
After the price per share increased by k percent, the new price per share is:
P' = P + (k/100) * P = P(1 + k/100)
After the earnings per share increased by m percent, the new earnings per share is:
E' = E + (m/100) * E = E(1 + m/100)
Therefore, the new ratio of price per share to earnings per share is:
(P') / (E') = (P(1 + k/100)) / (E(1 + m/100))
The percentage increase in this ratio can be calculated as follows:
(P' / E') / (P / E) * 100% - 100%
= [(P(1 + k/100)) / (E(1 + m/100))] / (P / E) * 100% - 100%
= [(1 + k/100) / (1 + m/100)] * 100% - 100%
Using the fact that k > m, we can simplify this expression as follows:
[(1 + k/100) / (1 + m/100)] * 100% - 100%
= [(1 + k/100) - (1 + m/100)) / (1 + m/100)] * 100%
= [(k - m) / (1 + m/100)] * 100%
Therefore, the percentage increase in the ratio of price per share to earnings per share is [(k - m) / (1 + m/100)] * 100%.
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Suppose you just purchased a 6 year. $1.000 par value bond. The coupon rate on this bond is 9% annually, with interest being paid semi-annually. If you expect to earn a 11% rate of return on this bond, how much did you pay for it? (Round your answer to two decimal point)
The answer is $1,073.64.
To calculate the price of the bond, we need to discount the future cash flows (coupon payments and par value) at the required rate of return of 11%. Since the bond pays semi-annual coupons, we need to use a semi-annual discount rate of 5.5%.
Using the bond pricing formula, we can calculate the price of the bond as follows:
Price = (C/2)/(1 + r/2) + (C/2)/(1 + r/2)^2 + ... + (C/2)/(1 + r/2)^11 + (FV)/(1 + r/2)^12
Where:
C = coupon payment = 9% x $1,000 / 2 = $45
r = required rate of return = 11% / 2 = 5.5%
FV = par value = $1,000
Plugging in the values, we get:
Price = ($45/1.055) + ($45/1.055^2) + ... + ($45/1.055^11) + ($1,000/1.055^12)
Price = $531.69 + $497.96 + ... + $318.57 + $523.04
Price = $5,903.12 / 5.5
Price = $1,073.64 (rounded to two decimal points)
Therefore, the price paid for the bond is $1,073.64.
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which of the following did not contribute to the russian currency crisis of 1998? an accelerated flight of capital generally deteriorating economic conditions a surprisingly healthy government surplus that was neither funding internal investment nor external debt service all of the above
The following did not contribute to the Russian currency crisis of 1998:
c. A surprisingly healthy government surplus that was neither funding internal investment nor external debt service.
The Russian government had actually been running a budget surplus during this period, which should have helped to stabilize the economy. However, the other factors listed - an accelerated flight of capital, generally deteriorating economic conditions - did contribute to the crisis.
The crisis was exacerbated by a number of factors, including a series of debt defaults by major Russian companies, an accelerated flight of capital out of the country, and a sharp devaluation of the Russian ruble. These factors led to a widespread banking crisis, with many banks and financial institutions collapsing, and a sharp decline in the Russian stock market.
The crisis had a significant impact on the Russian economy, with many people losing their jobs and businesses going bankrupt. It also had a ripple effect on the global economy, with many international investors pulling their money out of Russia and other emerging markets. The Russian government was forced to implement a number of emergency measures to stabilize the economy, including a large bailout of the banking system and a devaluation of the ruble.
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the periodic method uses a formula to determine the cost of goods available for sale that involves adding beginning inventory to . a. cost of goods sold b. purchases c. ending inventory d. returns
The periodic method uses a formula to determine the cost of goods available for sale that involves adding beginning inventory to the cost of goods. Thus, option A is correct.
The starting value of inventory plus the cost of products purchased equals the cost of the goods that are now on the market. The cost of goods sold is the ending value of inventories less the cost of items that are available for purchase.
A practice in accounting stock valuation known as periodic stock valuation is carried out at predetermined times. At the end of the quarter, businesses physically count their products and use the data to balance their general ledger. The remaining funds are then applied to the start of the new period. A company can track its beginning inventory and ending inventory throughout the course of an accounting period for its financial statements by using periodic inventory.
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NCG Ltd has just issued $5 million worth of 90-day bank bills at the current market interest rate of 6.25% p.a. The total dollar amount NCG Ltd will receive from this issue is closest to:
Group of answer choices
$4,874,115.
$4,911,786.
$4,924,115.
$4,936,443.
The total dollar amount NCG Ltd will receive from issuing $5 million worth of 90-day bank bills at the current market interest rate of 6.25% p.a. is closest to $4,924,115. Therefore, the correct option is option 3.
1. Convert the annual interest rate to a daily rate:
(6.25% / 365 days) = 0.01712% per day
2. Calculate the total interest for 90 days:
(0.01712% * 90 days) = 1.541% total interest
3. Find the dollar amount of the total interest:
($5,000,000 * 1.541%) = $77,050
4. Subtract the total interest from the face value:
($5,000,000 - $77,050) = $4,922,950
The total dollar amount NCG Ltd will receive from this issue is closest to $4,924,115. Hence, the correct answer is option 3: $4,924,115.
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Suppose you have just won a lottery. You will receive a total of 26 annual payment, and each payment is $3,455. You will receive the first payment today. If you can earn 4.9% annual rate of return each year, how much is this lottery worth to you today? (round to the nearest dollar
This lottery is worth $71,988 today. To calculate this, you must first add up the total of all 26 payments, $3,455 x 26 = $89,430.
Then you must use a present value formula to discount the future payments to their equivalent today. The formula for present value is: PV = FV / (1 + r)^n, where FV is the total of the future payments, r is the interest rate and n is the number of periods (in this case, 26). Plugging in the numbers gives: $89,430 / (1 + 0.049)^26 = $71,988.
The present value formula is useful for calculating the current worth of an investment or asset. It takes into account the time value of money, which states that a dollar today is worth more than a dollar in the future. This is because a dollar today can be invested and earn interest over time, whereas a dollar in the future cannot. Therefore, the present value formula discounts future payments to their equivalent today.
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In Book 3, Chapter 2 of the Wealth of Nations, Adam Smith noted that after the fall of the Roman Empire, ongoing barbarian invasions interrupted trade between individuals in towns and those in the countryside. This led to the countryside being underdeveloped and many towns shrinking or disappearing altogether. According to Smiththree particularly counter-productive policies further stifled agricultural progress. Identify and describe them
The Wealth of Nations, Adam Smith identified: three particularly counter-productive policies that further stifled agricultural progress after the fall of the Roman Empire and ongoing barbarian invasions.
1. Entails: Entails were a legal restriction on the inheritance and sale of land, preventing landowners from dividing or selling their estates. This led to the land being concentrated in the hands of a few, hindering investment and innovation in agriculture.
2. Primogeniture: Primogeniture is the practice of passing on the entire estate to the eldest son, leaving younger siblings with little or no inheritance. This practice also concentrated land ownership and wealth, limiting opportunities for agricultural advancement.
3. The feudal system: The feudal system was a hierarchical social and economic system that divided the population into lords and vassals. Lords provided land and protection to their vassals in exchange for loyalty and service. This system created a rigid structure that discouraged agricultural innovation and progress, as vassals had little incentive to improve the land they worked on.
In summary, Adam Smith noted that entails, primogeniture, and the feudal system were three counter-productive policies that stifled agricultural progress following the fall of the Roman Empire and ongoing barbarian invasions. These policies concentrated land ownership and wealth, limiting opportunities for investment and innovation in agriculture.
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Buildmazing Developers need an amount of money to expand their business. They secure a loan at an interest rate of 10,5% per year, compounded annually. The outstanding balance will be repaid in equal payments of R137 828,00 at the end of each year for the next seven years. Considering the amortisation schedule, the principle repaid during the first three years, rounded to the nearest rand, is 1. R227 891 2. R185 593 3. R83 662 4. R413 484
A. The principle repaid during the first three years of the loan is 1) R227 891.
B. The loan is for an amount not specified in the question, but we can determine the outstanding balance by using the present value formula:
PV = FV / (1 + r)^n
where PV is the present value, FV is the future value, r is the interest rate, and n is the number of years.
Using the given information, we can calculate the present value of the loan:
PV = 137828 * ((1 - (1 + 0.105)^-7) / 0.105) = R721,140.60
The outstanding balance at the end of the first year will be the present value minus the payment made:
Balance Y1 = PV - Payment Y1 = R721,140.60 - R137,828 = R583,312.60
The outstanding balance at the end of the second year will be the balance at the end of the first year plus the interest:
Balance Y2 = Balance Y1 * (1 + r) - Payment Y2 = R583,312.60 * 1.105 - R137,828 = R556,845.62
The outstanding balance at the end of the third year will be the balance at the end of the second year plus the interest:
Balance Y3 = Balance Y2 * (1 + r) - Payment Y3 = R556,845.62 * 1.105 - R137,828 = R527,684.71
The principle repaid during the first three years will be the original amount of the loan minus the outstanding balance at the end of the third year:
Principle Repaid Y1-3 = PV - Balance Y3 = R721,140.60 - R527,684.71 = R227 891.
Rounding this value to the nearest rand gives us the answer: 1) R227 891.
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