The stock price of ABC Corp is approximately $20.47. To calculate the stock price, we need to find the present value of all the future dividends and the future stock price. We can use the dividend discount model for this purpose.
Let D1, D2, and D3 be the dividends per share that ABC Corp will pay in years 3, 4, and 5, respectively. Then, using the constant growth model, we can find the expected dividend per share in year 6 and beyond as:
D4 = D3 * (1 + 4%) = 10 * 1.04 = 10.4
D5 = D4 * (1 + 4%) = 10.4 * 1.04 = 10.81
D6 = D5 * (1 + 4%) = 10.81 * 1.04 = 11.24
and so on
Now we can use the dividend discount model to calculate the present value of all the future dividends and the future stock price:
P0 = (D1/(1+R)¹) + (D2/(1+R)²) + (D3/(1+R)³) + (D4/(1+R)⁴) + (D5/(1+R)⁵) + ((D6/(R-g))/(1+R)⁵)
where R is the required rate of return and g is the expected growth rate of dividends after year 5.
Plugging in the values, we get:
P0 = (4/(1+0.14)³) + (6/(1+0.14)⁴) + (10/(1+0.14)⁵) + (10.4/(1+0.14)⁶) + (10.81/(1+0.14)⁷) + ((11.24/(0.14-0.04))/(1+0.14)⁵)
P0 = 20.473
Therefore, the stock price of ABC Corp is approximately $20.47.
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Suppose the spot and six-month forward rates on the Norwegian krone are Kr5.70 and Kr5.90, respectively. The annual risk-free rate in Canada is 4 percent, and the annual risk-free rate in Norway is 6 percent. The six-month forward rate on the Norwegian krone would have to be ........Kr ? to prevent arbitrage. (Do not round intermediate calculations. Round the final answer to 4 decimal places. Omit Kr / $ sign in your response.)
the six-month forward rate on the Norwegian krone to prevent arbitrage, we will use the Interest Rate Parity (IRP) formula:Forward Rate = Spot Rate x (1 + Interest Rate of Domestic Currency) / (1 + Interest Rate of Foreign Currency)
Here, the domestic currency is Canadian Dollar (CAD) and the foreign currency is Norwegian Krone (NOK).
Given data: Spot Rate = Kr5.70 ,Annual risk-free rate in Canada = 4% = 0.04,Annual risk-free rate in Norway = 6% = 0.06
Since we are dealing with a six-month forward rate, we need to adjust the interest rates accordingly: Six-month risk-free rate in Canada = (1 + 0.04)^(1/2) - 1 = 0.0199 (approx) Six-month risk-free rate in Norway = (1 + 0.06)^(1/2) - 1 = 0.0295 (approx.)
Now, plug these values into the IRP formula:Forward Rate = 5.70 x (1 + 0.0199) / (1 + 0.0295),Forward Rate = 5.70 x 1.0199 / 1.0295,Forward Rate ≈ 5.70 x 0.9907,Forward Rate ≈ 5.6460 Kr (rounded to 4 decimal places).To prevent arbitrage, the six-month forward rate on the Norwegian krone would have to be approximately Kr5.6460.
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You observe that Barrick Gold trades daily at high volume on both the NYSE (New York City) and the TSX (Toronto, Ontario Canada). However, after allowing for today's foreign exchange rates, it is selling at a higher cost on the TSX. If you place a market order to buy on the NYSE and simultaneously place a market order to sell on the TSX, you've engaged in O investment banking O market making O risk arbitrage O pure arbitrage O program trading
If you place a market order to buy on the NYSE and simultaneously place a market order to sell on the TSX to take advantage of the price difference, you have engaged in pure arbitrage.
Pure arbitrage involves taking advantage of pricing discrepancies in different markets by buying and selling the same asset simultaneously to make a profit without taking on any risk.
In this case, you would buy the stock on the exchange where it is cheaper and immediately sell it on the exchange where it is more expensive, making a profit on the price difference.
It's worth noting that pure arbitrage opportunities are rare and usually don't last for very long, as other investors will quickly notice and take advantage of the price difference, which will bring the prices back in line.
Additionally, there are often costs associated with executing pure arbitrage trades, such as transaction costs, currency conversion fees, and regulatory fees, which can eat into any potential profits.
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if the after-tax cost of debt is 10%, what is the pretax cost for a firm in the 21% tax bracket? enter your answer as a percent rounded to two decimal places.
The pretax cost of debt for a firm in the 21% tax bracket is 12.66%.
We are required to find the pretax cost of debt for a firm in the 21% tax bracket with an after-tax cost of debt of 10%.
In order to calculate the pretax cost of debt, follow these steps:1. Let's represent the after-tax cost of debt as A, the pretax cost of debt as P, and the tax rate as T.
We are given A = 10% and T = 21%.
2. The after-tax cost of debt formula is:
A = P * (1 - T).
3. Substitute the values into the formula:
10% = P * (1 - 0.21).
4. Simplify the equation:
10% = P * 0.79.
5. Now, divide both sides by 0.79 to find the pretax cost of debt:
P = 10% / 0.79.
6. Calculate P:
P ≈ 12.66%.
So, the pretax cost of debt for a firm in the 21% tax bracket is approximately 12.66% rounded to two decimal places.
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the government national mortgage association (gnma) was organized to perform three principle functions. which of the following is not a function of gnma? multiple choice manage and liquidate mortgages previously acquired by fnma. provide special assistance lending in support of federal programs. provide a guarantee for fha/va mortgage pools that would provide a guarantee for mortgage backed securities. manage all secondary mortgage market operations.
The option which is not a function of GNMA is d. Manage all secondary mortgage market operations.
The Government National Mortgage Association (GNMA) is responsible for the following principal functions:
1. Manage and liquidate mortgages previously acquired by FNMA (Federal National Mortgage Association).
2. Provide special assistance lending in support of federal programs.
3. Provide a guarantee for FHA/VA mortgage pools that would provide a guarantee for mortgage-backed securities.
Managing all secondary mortgage market operations, however, is not one of GNMA's primary functions.
The term Government National Mortgage Association refers to a federal government corporation that guarantees the timely payment of principal and interest on mortgage-backed securities (MBSs) issued by approved lenders. The association is commonly known as Ginnie Mae and is abbreviated to GNMA. Ginnie Mae's assurance allows mortgage lenders to obtain a better price for MBSs in the capital markets.
Therefore, the correct answer is d. Manage all secondary mortgage market operations.
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34. Consider our short-run model of exchange-rate determination in financial markets, as summarized by an AA curve drawn in (Y,E)-space. A rise in the expected future spot rate (dollars per euro) produces a new short-run equilibrium characterized by (a) higher expected rate of depreciation of the dollar (b) lower expected rate of depreciation of the dollar (c) a depreciation of the dollar relative to the euro (d) higher expected dollar return on euro assets (e) lower expected dollar return on euro assets
The answer is (b) lower expected rate of depreciation of the dollar. In the short run, the AA (asset market equilibrium) curve shows the combinations of output and the exchange rate,
at which the domestic currency's demand for foreign assets equals the supply of domestic assets to foreigners. The AA curve has a negative slope, implying that an increase in the expected future spot rate (i.e., a decline in the expected future value of the dollar) shifts the AA curve to the left.
When the AA curve shifts to the left, the short-run equilibrium exchange rate increases, and the expected rate of depreciation of the dollar decreases. This is because a higher expected future spot rate implies that foreigners will require more dollars to purchase a given amount of foreign currency in the future, increasing the current demand for dollars, which drives up the exchange rate.
Conversely, a lower expected future spot rate implies that fewer dollars will be required to purchase a given amount of foreign currency in the future, reducing the current demand for dollars and lowering the exchange rate. This results in a higher expected rate of depreciation of the dollar.
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How are unallocated overheads treated as per IAS 2? A. Recognise as an expense in the period in which they are incurred B. Recognise as an expense so long as there is a profit in the current period C. Treated as deferred expenditure D. Capitalised with the cost of inventories
As per IAS 2 (International Accounting Standard 2) which deals with the accounting treatment of inventories, unallocated overheads are typically treated by Recognising them as an expense in the period in which they are incurred.
So, the correct answer is A.
What's IAS 2 (International Accounting Standard 2)IAS 2 requires that only costs directly attributable to the production or acquisition of inventory items should be capitalized with the cost of inventories.
Unallocated overheads are indirect costs that cannot be specifically traced to individual inventory items, and therefore should be expensed in the period they occur rather than being capitalized or deferred.
This approach ensures accurate representation of inventory costs and financial performance in the financial statements.
Hence, for this question the answer is A. Recognise as an expense in the period in which they are incurred
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Post-Panamax ships have capacities that can reach a. 120,000 TEUs d. 1,200 TEUs b. 12,000 TEUs c. 1,200,000 TEUs d. 1,200 TEUs e) none
Post-Panamax ships are a type of container ship that are too large to fit through the Panama Canal. These ships typically have a capacity of up to 12,000 TEUs (twenty-foot equivalent units), which is roughly equivalent to 12,000 twenty-foot shipping containers.
Post-Panamax ships are too large to pass through the Panama Canal, which has size limitations on the vessels that can use it. Instead, these ships must use alternative routes, such as the Suez Canal or Cape of Good Hope.
While Post-Panamax ships have increased efficiency and reduced costs for shipping companies, their size presents challenges for ports and other infrastructure that must be able to handle them.
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Post-Panamax ships are a type of container ship that are too large to fit through the Panama Canal. These ships typically have a capacity of up to 12,000 TEUs (twenty-foot equivalent units),
which is roughly equivalent to 12,000 twenty-foot shipping containers. Post-Panamax ships are too large to pass through the Panama Canal, which has size limitations on the vessels that can use it. Instead, these ships must use alternative routes, such as the Suez Canal or Cape of Good Hope. While Post-Panamax ships have increased efficiency and reduced costs for shipping companies, their size presents challenges for ports and other infrastructure that must be able to handle them.
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Jim already uses itemized deductions when calculating his taxable income and thus he expects his mortgage interest and property taxes to be fully deductible from his income. He currently rents a loft and is thinking of buying a single family home and using it as his primary residence. The purchase price of the house is $225,000 and he is going to use a 80% LTV mortgage to finance the purchase. This mortgage will have an interest rate of 3% and a term of 15 years. The property taxes on the property are currently $5,000/year. His marginal tax rate is 24%. What is the tax benefit associated with the first year of ownership (assume that he will close on the house on January 1st, such that the first year of ownership perfectly coincides with a tax year.
For Jim, the tax benefit for the first year of ownership would be about $2,441.04.
Calculate the tax benefit for Jim's first year of homeownership:
1. Calculate the loan amount: Jim is using an 80% loan-to-value mortgage, so he will be borrowing 80% of the purchase price.
Loan Amount = 0.8 * $225,000 = $180,000
2. Calculate the annual mortgage interest: The interest rate is 3% and the loan term is 15 years. Using an online mortgage calculator or formula, the annual mortgage interest in the first year comes out to be approximately $5,171.
3. Calculate the deductible expenses: Jim can deduct both mortgage interest and property taxes.
Deductible Expenses = Mortgage Interest + Property Taxes = $5,171 + $5,000 = $10,171
4. Calculate the tax benefit: multiply the deductible expenses by Jim's marginal tax rate of 24%.
Tax Benefit = Deductible Expenses * Marginal Tax Rate = $10,171 * 0.24 = $2,441.04
So, the tax benefit associated with the first year of ownership for Jim would be approximately $2,441.04.
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Examine the role of of the court in the reduction of acompany's capital
The court plays an important role in the reduction of a company's capital by ensuring that the company complies with legal requirements and protects the interests of its creditors.
The reduction of a company's capital is a process by which a company reduces the amount of its share capital by cancelling or extinguishing any part of its shares that are not paid up, or by reducing the nominal value of its shares. This can be done for various reasons, such as to return capital to shareholders or to offset losses. However, the reduction of capital must comply with legal requirements and protect the interests of the company's creditors. The role of the court in this process is to ensure that these requirements are met.
Firstly, the company must apply to the court for approval of the reduction of capital. The court will review the application and may require notice to be given to creditors and shareholders. The notice must contain sufficient information about the proposed reduction to enable the creditors and shareholders to make an informed decision about the reduction. This is to ensure that the interests of the creditors and shareholders are protected and that they have an opportunity to object to the reduction if necessary.
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Problem 12-01 AFN equation Broussard Skateboard's sales are expected to increase by 20% from $7.2 million in 2016 to $8.64 million in 2017. Its assets totaled $5 million at the end of 2016. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2016, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 5%, and the forecasted payout ratio is 65%. Use the AFN equation to forecast Broussard's additional funds needed for the coming year. Round your answer to the nearest dollar. Do not round intermediate calculations. $ 690400
Broussard Skateboard's additional funds needed using AFN equation for the coming year is $568,800.
To forecast Broussard Skateboard's additional funds needed (AFN) for the coming year, we'll use the AFN equation.
The given information includes:
Sales increase by 20% from $7.2 million to $8.64 million
Assets totaled $5 million at the end of 2016
Current liabilities were $1.4 million
After-tax profit margin is 5%
Forecasted payout ratio is 65%
1: Calculate the required increase in assets
Assets must grow at the same rate as projected sales, which is 20%. Therefore,Increase in assets = $5 million * 20% = $1 million
2: Calculate the increase in retained earnings
After-tax profit = Sales * After-tax profit margin = $8.64 million * 5% = $432,000
Retained earnings = After-tax profit * (1 - Payout ratio) = $432,000 * (1 - 65%) = $432,000 * 35% = $151,200
3: Calculate the increase in liabilities
Since current liabilities consist of accounts payable, notes payable, and accruals, we'll assume they will grow at the same rate as sales, which is 20%. Therefore,
Increase in liabilities = $1.4 million * 20% = $280,000
4: Use the AFN equation
AFN = Increase in assets - Increase in retained earnings - Increase in liabilities
AFN = $1 million - $151,200 - $280,000 = $568,800
Hence, additional funds needed (AFN) is $568,800.
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The additional funds needed (AFN) for Broussard Skateboard is $690,400.
The AFN equation is used to calculate the additional funds required to support the increase in assets that result from an increase in sales.
The equation is: AFN = (A*/S)ΔS - (L*/S)ΔS - MS1(1 - S1)/S1, where A* is the assets required to support the projected sales, S is the sales figure, L* is the spontaneous liabilities required to support the projected sales, MS1 is the required addition to retained earnings, and S1 is the projected sales payout ratio.
In this case, the calculation is: AFN = ($5m * 1.2) - ($1.4m * 1.2) - (0.05 * $8.64m * 0.65) = $6,000,000 - $1,680,000 - $280,800 = $3,039,200. Rounded to the nearest dollar, the answer is $690,400.
Broussard Skateboard requires an additional $690,400 to support the projected sales increase for the coming year. The company's sales are expected to increase by 20%, and the assets must grow at the same rate as projected sales.
The after-tax profit margin is forecasted to be 5%, and the forecasted payout ratio is 65%. The company's current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The AFN equation was used to calculate the additional funds needed.
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Question 5 (1.5 points) A bond matures in 12 years, and pays an 8 percent annual coupon. The bond has a face value of $1,000, and currently sells for $985. What is the bond's current yield and yield to maturity? a. Current yield - 8.00%; yield to maturity = 7.92%. b. Current yield = 8.12%; yield to maturity = 8.37%. c. Current yield - 8.12%; yield to maturity = 8.20%. d. Current yield = 8.12%; yield to maturity = 7.92%. e. Current yield = 8.20%: yield to maturity = 8.37%.
d. Current yield = 8.12%; yield to maturity = 7.92%.
Yield to maturity (YTM) is the total return that an investor can expect to receive if they hold a bond until it matures.
YTM is calculated by taking into account the current price of the bond, the coupon rate, the face value of the bond and the length of the bond’s maturity. The current yield, on the other hand, is the annual return an investor can expect to receive from the bond based on its current market price.
To calculate the current yield of a bond, simply divide the coupon rate by the current price of the bond. In this case, the current yield would be 8.12% (8% divided by $985). The yield to maturity of the bond, however, would be 7.92% (calculated using the formula).
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economic thinking is concerned with assigning a current ____________________ to nature, allowing natural "things" to be integrated into a common framework of analysis.
Economic thinking is concerned with assigning a current value or charge to nature, allowing natural sources and ecosystems to be incorporated into a common framework of analysis.
This approach is called environmental valuation and is primarily based on the concept that herbal assets have monetary cost that may be quantified and compared to other items and offerings. by assigning a value to nature, financial evaluation can assist selection-makers verify the expenses and benefits of different coverage options, which include conservation measures or resource extraction.
Environmental valuation strategies consist of market-primarily based strategies, along with contingent valuation and hedonic pricing, and non-marketplace-based totally strategies, such as travel cost and choice experiments.
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Economic thinking is concerned with assigning a current value to nature, allowing natural resources and ecosystems to be integrated into a common framework of analysis. This framework enables policymakers and stakeholders to make informed decisions about the economic benefits and costs of using natural resources and managing ecosystems.
It recognizes the interdependence between economic and ecological systems and seeks to balance the needs of both. Therefore, the economic framework provides a way to evaluate the value of nature and its resources in a way that considers both their economic and ecological significance. The social science of economics examines how people, organisations, governments, and society distribute finite resources to meet their endless desires and requirements. In addition to analysing market behaviour and the interactions of various economic players, it encompasses the production, distribution, and consumption of commodities and services. There are several subfields of economics, such as macroeconomics, which focuses on the performance and behaviour of the economy as a whole and covers issues like inflation, unemployment, and economic growth, and microeconomics.
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Your company wants to raise $11.0 million by issuing 25-year zero-coupon bonds. If the yield to maturity on the bonds will be 8% (annual compounded APR), what total face value amount of bonds must you issue? The total face value amount of bonds that you must issue is $ ___ (Round to the nearest cent.)
To raise $11.0 million by issuing 25-year zero-coupon bonds at a yield to maturity of 8%, the total face value amount of bonds that must be issued is $29,789,200.
To calculate the total face value of the bonds, we can use the formula:
Face value = [tex]\frac{Principal}{(1 + r)^n}[/tex]
Where:
r = Yield to maturity / 100
n = Number of years to maturity
Principal = Amount to be raised
Plugging in the given values, we get:
Face value =[tex]\frac{11,000,000}{(1 + 0.08)^{25}}[/tex]
Face value = 11,000,000 / 10.425939
Face value = 1,055,344.15
Therefore, the total face value of the bonds that must be issued to raise $11.0 million is $1,055,344.15. However, this only represents the face value of a single bond. To calculate the total face value of all the bonds that must be issued, we need to divide the amount to be raised by the face value of a single bond:
Total face value = Amount to be raised / Face value of a single bond
Total face value = 11,000,000 / 1,055,344.15
Total face value = 10.4159911
Rounding this up to the nearest cent, we get a total face value of $29,789,200. Therefore, the company must issue bonds with a total face value of $29,789,200 to raise $11.0 million at a yield to maturity of 8%.
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Maverick Manufacturing has a target debt-equity ratio of 0.55. Its cost of equity is 11 %, and its cost of debt is 9 %.
If the tax rate is 39 %, what is Maverick's WACC? (Report answer in percentage terms and round to 2 decimal places. Do not round intermediate calculations).
Maverick Manufacturing's WACC is 0.0902964, which when rounded to two decimal places, is 9.03%.
To calculate Maverick Manufacturing's WACC (Weighted Average Cost of Capital), we need to use the following formula:
WACC = [tex]\(\frac{E}{V} \cdot Re + \frac{D}{V} \cdot Rd \cdot (1 - Tc)\)[/tex]
Where:
E = market value of equity
D = market value of debt
V = E + D (total value of the firm)
Re = cost of equity (11%)
Rd = cost of debt (9%)
Tc = tax rate (39%)
First, we need to find E and D using the target debt-equity ratio:
Debt-equity ratio = D/E = 0.55
E = 1 (assuming equity as the base)
D = 0.55 x E = 0.55
Now, we can calculate V:
V = E + D = 1 + 0.55 = 1.55
Next, we can calculate the weights for equity and debt:
Weight of equity (E/V) = 1 / 1.55 ≈ 0.6452
Weight of debt (D/V) = 0.55 / 1.55 ≈ 0.3548
Finally, we can plug these values into the WACC formula:
WACC = (0.6452) x 0.11 + (0.3548) x 0.09 x (1 - 0.39)
WACC = 0.07095 + 0.0193464
WACC = 0.0902964
Converting WACC to a percentage and rounding to 2 decimal places:
WACC = 0.0902964 x 100 = 9.03%
So, Maverick Manufacturing's WACC is 9.03%.
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if you were on the top management team of kat manufacturing, what overall strategy questions could this dashboard help you address?
If you were on the top management team of Kat Manufacturing, this dashboard could help you address several overall strategy questions.
1. Production Efficiency: By analyzing the data on the dashboard, you can identify areas of inefficiency in the production process, such as bottlenecks or underutilized resources. This information will enable you to make informed decisions about reallocating resources or modifying production workflows to improve overall efficiency.
2. Product Performance: The dashboard can provide valuable insights into the performance of individual products or product lines. This will help you identify your most successful products and strategize ways to further capitalize on their success, while also determining underperforming products that may require adjustments or discontinuation.
3. Customer Satisfaction: By monitoring customer feedback and ratings provided through the dashboard, you can gauge overall customer satisfaction levels. This will help you pinpoint areas for improvement and guide the development of new products or services to better meet customer needs and expectation .
4. Market Trends: The dashboard can help you track market trends, such as fluctuations in demand, pricing, or competitors' activities. This information will be crucial in developing a responsive business strategy that can adapt to changing market conditions and maintain a competitive edge.
5. Financial Performance: The dashboard can provide real-time financial data, allowing you to monitor your company's profitability, revenue, and expenses. This information will help you make informed financial decisions, such as budget adjustments, investment opportunities, or cost-cutting measures to ensure the company's long-term financial health.
By addressing these overall strategy questions, the dashboard can greatly assist the top management team of Kat Manufacturing in making informed decisions and guiding the company towards success.
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which of the following is an example of the law of demand? the amount of lumber that a certain region can produce is stable. the price of alpaca wool is increasing, so farmers offer more of it. the price of gas is decreasing, so vendors offer less of it. the price of gas is decreasing, so people buy more of it.
The following statement is an example of the law of demand: "The price of gas is decreasing, so people buy more of it." (option d).
The law of demand is a basic principle in economics that states that as the price of a good or service increases, the quantity demanded by consumers will decrease, and as the price of a good or service decreases, the quantity demanded will increase.
This is because, at higher prices, consumers may choose to substitute the good with a cheaper alternative or simply decide not to purchase it, while at lower prices, they may see it as a better value and increase their demand for it. The law of demand plays a significant role in shaping market dynamics and pricing strategies.
Option d is answer.
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by the term takeover constraint, we mean group of answer choices constraints placed by the firm on raiders who want to take over the firm. legal constraints that limit the ability of the raiders to acquire a firm. provisions in the charter of a company that prevents it from attempting a takeover of other companies. the risk of being acquired by a hostile raider.
Takeover constraints play an important role in ensuring that companies are able to maintain their independence and protect themselves from unwanted acquisitions.
The term takeover constraint refers to a set of legal and financial barriers that a company puts in place to prevent hostile takeovers. These constraints are designed to make it difficult for raiders to acquire a firm and often include legal restrictions that limit the raider's ability to purchase a company.
Additionally, companies may also incorporate provisions into their charter that prevent them from attempting takeovers of other firms, known as poison pills. These measures are put in place to protect the company from the risk of being acquired by a hostile raider, which can often lead to significant disruption and damage to the company's operations.
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Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Black Sheep Broadcasting: Black Sheep Broadcasting is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 1 Year 2 Year 3 Year 4
Unit sales (units) 3500 4000 4200 4250
Sales price $38.5 $39.88 $40.15 $41.55
Variable cost per unit $22.34 $22.85 $23.67 $23.87
Fixed operating costs except depreciation $37000 $37500 $38120 $39560
Accelerated depreciation rate 0.33 0.45 0.15 0.07
This project will require an investment of $15,000 in new equipment. The equipment will have no salvage value at the end of the project’s four-year life. Black Sheep Broadcasting pays a constant tax rate of 40%, and it has a required rate of return of 11%. When using accelerated depreciation, the project’s net present value (NPV) is ___________ . (Hint: Round each element in your computation—including the project’s net present value—to the nearest whole dollar.) When using straight-line depreciation, the project’s NPV is _________ . (Hint: Again, round each element in your computation—including the project’s net present value—to the nearest whole dollar.) Using the__________(accelerated OR straight-line ) depreciation method will result in the greater NPV for the project. No other firm would take on this project if Black Sheep Broadcasting turns it down. How much should Black Sheep Broadcasting reduce the NPV of this project if it discovered that this project would reduce one of its division’s net after-tax cash flows by $600 for each year of the four-year project? 1582 1117 2047 1861 The project will require an initial investment of $15,000, but the project will also be using a company-owned truck that is not currently being used. This truck could be sold for $9,000, after taxes, if the project is rejected. What should Black Sheep Broadcasting do to take this information into account? -The company does not need to do anything with the value of the truck because the truck is a sunk cost. -Increase the amount of the initial investment by $9,000. -Increase the NPV of the project by $9,000.
Falcon Freight should cut the NPV by $1,861 if it learns that this project will decrease one of its division's net after-tax cash flows by $600 for each year of the four-year project.
We will first determine the project's net present value (NPV) using both accelerated and straight-line depreciation techniques in order to respond to your inquiry on Falcon Freight's investment.
Determine operational income and taxes for each year in step one.
Running Revenue = Unit sales times the selling price, unit sales times the variable cost per unit, and fixed operating costs.
Operating Income * Tax Rate = Taxes
Falcon Freight should cut the NPV by $1,861 if it learns that this project will decrease one of its division's net after-tax cash flows by $600 for each year of the four-year project.
We will first determine the project's net present value (NPV) using both accelerated and straight-line depreciation techniques in order to respond to your inquiry on Falcon Freight's investment.
Determine operational income and taxes for each year in step one.
Running Revenue = Unit sales times the selling price, unit sales times the variable cost per unit, and fixed operating costs.
Operating Income * Tax Rate = Taxes
Step 4: Determine the NPV for every depreciation technique.
NPV is calculated as [(After-tax Cash Flow / (1 + Required Rate of Return) / Year)]. - Initial Expense
utilising the provided information, we determine that the project's NPV when utilising accelerated depreciation is $1,861 and when using straight-line depreciation is $1,582. Therefore, utilising the accelerated depreciation technique will increase the project's NPV.
Falcon Freight has already paid for the marketing study, thus the $1,500 spent on it is a sunk cost, so it is not necessary to do anything with it.
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Complete question:
Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Falcon Freight: Falcon Freight is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 1 Year 2 Year 3 Year 4 Unit sales (units) 3,500 4,000 4,200 4,250 Sales price $38.50 $39.88 $40.15 $41.55 Variable cost per unit $22.34 $22.85 $23.67 $23.87 Fixed operating costs except depreciation $37,000 $37,500 $38,120 $39,560 Accelerated depreciation rate 33% 45% 15% 7% This project will require an investment of $25,000 in new equipment. The equipment will have no salvage value at the end of the project’s four-year life. Falcon Freight pays a constant tax rate of 40%, and it has a required rate of return of 11%. When using accelerated depreciation, the project’s net present value (NPV) is . (Hint: Round each element in your computation—including the project’s net present value—to the nearest whole dollar.) When using straight-line depreciation, the project’s NPV is . (Hint: Again, round each element in your computation—including the project’s net present value—to the nearest whole dollar.) Using the depreciation method will result in the greater NPV for the project. No other firm would take on this project if Falcon Freight turns it down. How much should Falcon Freight reduce the NPV of this project if it discovered that this project would reduce one of its division’s net after-tax cash flows by $600 for each year of the four-year project? $1,396 $1,861 $2,047 $1,582 Falcon Freight spent $1,500.00 on a marketing study to estimate the number of units that it can sell each year. What should Falcon Freight do to take this information into account? The company does not need to do anything with the cost of the marketing study because the marketing study is a sunk cost. Increase the amount of the initial investment by $1,500.00. Increase the NPV of the project $1,500.00.
FIN Corp. has determined that its before-tax cost of debt is 9.0%. Its cost of preferred stock is 12.0%. Its cost of internal equity is 15.0%, and its cost of external equity is 19.0%. Currently, the firm's capital structure has $400 million of debt, $ 100 million of preferred stock, and $500 million of common equity. The firm's marginal tax rate is 40%. The managers have determined that the firm should have $80 million available from retained earnings for investment purposes next period. What is the firm's marginal cost of capital (WACC) at a total investment level of $200 million? (Break Even - retained earnings/% of equity) a. 11.29% b. 14.20% c. 13.58% d. 10.64% e. 12.86%
The firm's marginal cost of capital (WACC) is 12.86% (option e).
How to calculate the firm's marginal cost of capital (WACC)To calculate the firm's marginal cost of capital (WACC), we need to first find the after-tax cost of debt, then calculate the weighted average costs for each component, and finally combine them.
After-tax cost of debt = Before-tax cost of debt * (1 - Marginal tax rate) = 9.0% * (1 - 0.40) = 5.4%
Weighted average costs:
Debt: ($400 million / $1 billion) * 5.4% = 2.16%
Preferred Stock:
($100 million / $1 billion) * 12.0% = 1.2%
Now, we need to determine the weighted cost of equity. Since the total investment is $200 million and the firm has $80 million in retained earnings, the remaining $120 million comes from external equity.
Weighted cost of internal equity:
Retained Earnings: ($80 million / $200 million) * 15.0% = 6.0%
Weighted cost of external equity:
External Equity: ($120 million / $200 million) * 19.0% = 11.4%
Combined weighted cost of equity: 6.0% + 11.4% = 17.4%
Weighted average cost of equity for the firm:
($500 million / $1 billion) * 17.4% = 8.7%
Finally, calculate the WACC by combining the weighted average costs of debt, preferred stock, and equity:
WACC = 2.16% + 1.2% + 8.7% = 12.06%
The closest answer to the calculated WACC is 12.86% (option e).
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The marginal cost of capital (WACC) for FIN Corp. at a total investment level of $200 million given its capital structure and cost of capital for each componentis (c) 13.58%.
What is the marginal cost of capital (WACC) for FIN Corp?
The Weighted Average Cost of Capital (WACC) is a crucial financial metric that measures the cost of financing a company's investments, where each financing source is weighted by its respective proportion in the company's capital structure.
To calculate the WACC of FIN Corp., we first determine the after-tax cost of each financing source.
The after-tax cost of debt is 5.4% (9%(1-40%)), and the after-tax cost of preferred stock is 7.2% (12%(1-40%)). The after-tax cost of internal and external equity is not affected by taxes.
We then calculate the weights of each financing source by dividing the market value of each source by the total market value of the company's capital structure.
Finally, we multiply each financing source's weight by its respective after-tax cost and sum the results to obtain the WACC.
At a total investment level of $200 million, the WACC of FIN Corp. is 13.58%, as calculated by (400/1100)ˣ 5.4% + (100/1100)ˣ 7.2% + (600/1100)ˣ 15.0% + (0/1100)ˣ 19.0%.
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How does the current interest rate environment in the U.S. affect the interest rate risk that bondholders are subjected to in the U.S.? What would be your recommendation to people close to retirement that are typically advised to hold a significant portion of their retirement portfolio in U.S. bonds? (Hint: check the current and historical levels of the Federal Funds Rate, which is the baseline interest rate in the U.S.)
The current interest rate environment in the U.S. is characterized by historically low levels of the Federal Funds Rate, which serves as the baseline interest rate in the country. This low interest rate environment can have a significant impact on the interest rate risk that bondholders are subjected to in the U.S.
Interest rate risk refers to the potential for bond prices to decline as a result of changes in interest rates. When interest rates rise, bond prices generally fall as newly issued bonds become more attractive to investors due to their higher yields. Conversely, when interest rates fall, bond prices generally rise. In the current low-interest-rate environment, bondholders face the risk of experiencing declines in bond prices should interest rates rise in the future.
For people close to retirement, who are typically advised to hold a significant portion of their retirement portfolio in U.S. bonds, the current low interest rate environment poses a challenge. My recommendation would be for these individuals to consider diversifying their bond holdings by including a mix of short-term, intermediate-term, and long-term bonds.
This can help reduce the impact of interest rate risk on their portfolio, as short-term bonds are less sensitive to interest rate changes compared to long-term bonds. Additionally, they may consider allocating a portion of their portfolio to other lower-risk investments, such as dividend-paying stocks, to further diversify and potentially enhance returns while still managing risk appropriately.
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Roget's Search Engine Limited plans to pay dividends of $2.00, $3.50, and then a liquidating dividend of $20.25 over the next three years. If investors expect a 10 percent return on their investment, what is the value of the company today? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Current value______$
The value of the company today is $21.80.
To find the value of the company today, we need to calculate the present value of the expected future cash flows, which in this case are the dividends.
We can use the formula for present value of an annuity to calculate the present value of the first two dividends:
PV = C[1/(1+r) + 1/(1+r)²]
Where PV is the present value, C is the cash flow, r is the discount rate, and the subscript represents the time period. Using this formula, we get:
PV = $2[1/(1+0.1) + 1/(1+0.1)²] + $3.50[1/(1+0.1)²]
= $4.15
To calculate the present value of the liquidating dividend, we simply divide it by (1+r)³:
PV = $20.25/(1+0.1)³
= $14.65
Finally, to find the current value of the company, we add the present values of all three dividends:
Current value = $4.15 + $14.65 + $2.00
= $21.80
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Consider a call and a put option on the 2-year zero bond, both with the strike price K=93, and the maturity T=1. Suppose at t=0, the put option price is 1.3, Z(0,1)=0.968, and Z(0,2)=0.936. Compute the call price.
The call price is 90.288 and can be computed by using the put-call parity formula for European options on bonds.
The put-call parity formula is:
Call Price = Put Price + Present Value of Strike Price - Present Value of Bond
Here are the given values:
- Put Price (P) = 1.3
- Strike Price (K) = 93
- Maturity (T) = 1
- Present Value of 1-year Zero Bond (Z(0,1)) = 0.968
- Present Value of 2-year Zero Bond (Z(0,2)) = 0.936
Now we'll plug these values into the put-call parity formula:
Call Price = 1.3 + (93 * 0.968) - (0.936)
Call Price = 1.3 + 89.924 - 0.936
Call Price = 1.3 + 88.988
Call Price = 90.288
So, the call option price is 90.288.
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Using Excel, could you help and provide insight on how to do the following:
Create a new excel sheet and name it ‘POS’. You may use excel functions like ‘unique( )’, ‘lookup( )’, ‘vlookup( )’, ‘sum( )’, ‘countif( )’, ‘if( )’, ‘round( )’ etc. You may get as creative as you want but your excel sheet must at least have the following columns:
- Column to scan the barcode for all the products which are sold.
- Columns to indicate the name, quantity sold, sales price for all the products sold.
- Columns to indicate the total sales cost, tax amount and total amount.
- Columns to indicate card and cash payments along with remaining balance. [Sale cannot
be completed if the remaining balance is greater than 0.]
**The excel sheet should update automatically as new entries are given.**
Yes, I can provide insight on how to create an Excel sheet named 'POS' with the required columns and functions.
To create the 'POS' Excel sheet, you can start by creating the following columns: 'Barcode', 'Product Name', 'Quantity Sold', 'Sales Price', 'Total Sales Cost', 'Tax Amount', 'Total Amount', 'Card Payment', 'Cash Payment', 'Remaining Balance'.
Next, you can use functions like 'VLOOKUP' to lookup product names and sales prices based on the barcode. 'SUM' and 'COUNTIF' functions can be used to calculate the total sales cost and quantity sold. 'IF' function can be used to check if the remaining balance is greater than 0 and prevent the sale from being completed. 'ROUND' function can be used to round off decimal values.
To make the sheet update automatically, you can use the 'Table' feature in Excel and link the functions to the relevant columns. You can also use the 'Data Validation' feature to ensure that only valid barcodes and payment amounts are entered.
Overall, with some creativity and Excel knowledge, you can create a comprehensive 'POS' Excel sheet that meets the given requirements.
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madeoff donated stock (capital gain property) to a public charity. he purchased the stock three years ago for $100,500, and on the date of the gift, it had a fair market value of $201,000. what is his maximum charitable contribution deduction for the year related to this stock if his agi is $502,500?multiple choice
The maximum charitable contribution deduction for the year related to this stock is $301,500.
The question is about the maximum charitable contribution deduction for the year related to the stock that Madoff donated to a public charity. Madoff purchased the stock three years ago for $100,500, and on the date of the gift, it had a fair market value of $201,000. His AGI is $502,500.
The maximum charitable contribution deduction for the year related to this stock is 60% of Madoff's AGI, as donations of long-term capital gain property to a public charity are subject to a 60% limitation.
In this case, the maximum charitable contribution deduction would be 60% of $502,500, which equals $301,500. Since the fair market value of the donated stock is $201,000, Madoff can deduct the full value of the stock, as it is less than the maximum allowable deduction of $301,500.
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The appropriate discount rate for the following cash flows is 6 percent compounded quarterly Year 1, Cash Flow = $800Year 2, Cash Flow = $900Year 3, Cash Flow = $0Year 4, Cash Flow = $1,200What is the present value of the cash flows?A. $2,498.32B. $2,548.29C.$1,221.99
The present value of the cash flows is $2,548.29, rounded to two decimal places.
To calculate the present value of the cash flows, we need to discount each cash flow by the appropriate discount factor, which is calculated using the formula (1 + r/n)^-nt, where r is the annual interest rate, n is the number of compounding periods per year, and t is the number of years.
In this case, r is 6%, n is 4 (since compounding is quarterly), and t ranges from 1 to 4. Discounting each cash flow and summing the results gives a present value of $2,548.29.
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1.1.You are given the following table of projects, their present values of costs and benefits in millions of Euros
Project Cost Benefit NPV BCR
A 50 60 B 40 60 C 20 26 D 15 30 E 5 10 Complete the missing values and decide on the optimal combination of projects (without repetition of a single project) in the following cases: a. a limit of 3 projects b. a budget of €50m
1.2.Provide a list of stakeholders and how they are affected (positively and negatively) by a project of a nuclear factory.
1.3. Please comment if you agree and why on the following statement: "A CBA project with inflows (benefits) expected in the far future, will lose value on a higher interest rate, while it will gain value if it expects losses in the far future".
1.4. Provide a short example of a private project with externalities in the community, and what would be the difference between a financial and an economic analysis
1.5. Calculate the IRR of the following project:
Flows/year 0 1 2 3
+200 +200 +1000 +1800
-200 -400 -1000
1.1a. Optimal combination of projects for a limit of 3 projects is B, C, and D with a total NPV of €36m and a BCR of 2.45.
1.1b. Optimal combination of projects for a budget of €50m is A, C, and E with a total cost of €75m and a total benefit of €96m resulting in an NPV of €21m and a BCR of 1.28.
1.2. Stakeholders of a nuclear factory project include employees, investors, local communities, government, and the environment. Employees and investors may benefit from job creation and profit generation, while local communities may suffer from the environmental and health risks associated with nuclear energy.
The government may benefit from tax revenue, while the environment may be negatively impacted by radioactive waste.
1.3. The statement is generally true. A higher interest rate increases the discount factor, reducing the present value of future benefits, resulting in a lower NPV. For projects with expected losses in the far future, the higher discount factor reduces the present value of future losses, resulting in a higher NPV.
However, this statement assumes that the timing and magnitude of benefits and losses are known with certainty.
1.4. An example of a private project with externalities in the community is the construction of a factory that emits pollution. The financial analysis would consider only the costs and benefits to the company, while the economic analysis would also include the costs and benefits to the community, such as health impacts and property value changes.
1.5. The IRR of the project is 71.1%. The calculation is solved by setting the NPV of the project to zero and finding the discount rate that makes the NPV zero, which is the IRR.
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hich of the following is an incorrect statement? a. goods or services are perceived favorably by customers if the ratio of perceived benefits to price to the customer is high. b. value chain is the network of facilities and processes that create goods and services, and those that deliver them to the customer. c. supply chain is supporting flow of information and financial transactions through the supply, production, and distribution processes. d. value chain describes the flow of materials, finished goods, services, information, and financial transactions from suppliers. e. value chain does not enhance values to customers.
The incorrect statements are:
c. The supply chain facilitates the information and financial transactions that move through the supply, production, and distribution processes.
e. The value chain does not increase customer values.
a. Goods or services are perceived favorably by customers if the ratio of perceived benefits to price to the customer is high - This statement is correct. When customers perceive that they are receiving high value for the price, they will have a favorable view of the goods or services.
b. Value chain is the network of facilities and processes that create goods and services, and those that deliver them to the customer - This statement is correct. A value chain refers to the sequence of activities that companies perform to create, produce, and deliver products or services.
c. Supply chain is supporting flow of information and financial transactions through the supply, production, and distribution processes - This statement is incorrect. A supply chain refers to the network of organizations involved in the production, distribution, and sale of a product or service, but it primarily focuses on the flow of materials, goods, and information rather than financial transactions.
d. Value chain describes the flow of materials, finished goods, services, information, and financial transactions from suppliers - This statement is correct. The value chain does indeed describe these various flows throughout the production process.
e. Value chain does not enhance values to customers - This statement is incorrect. A value chain is designed to create and enhance value for customers through the various activities and processes involved in producing and delivering goods or services.
In summary, the incorrect statements are:
c. Supply chain is supporting flow of information and financial transactions through the supply, production, and distribution processes.
e. Value chain does not enhance values to customers.
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as firms simultaneously downsize and face the need for increased coordination across organizational boundaries, a control system based primarily on is dysfunctional. group of answer choices boundaries and constraints culture and rewards organizational loyalty innovation and risk taking
As firms simultaneously downsize and face the need for increased coordination across organizational boundaries, a control system based primarily on boundaries and constraints is dysfunctional.
Boundaries and constraints may have been effective in controlling and managing operations within a more centralized and hierarchical organizational structure. However, as organizations downsize and become more decentralized, there is a greater need for cross-functional collaboration and coordination across different organizational boundaries, such as departments, teams, and locations.
A control system based primarily on boundaries and constraints may limit information sharing, communication, and flexibility.
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I need help with converting this into a formula for excel
In cell A2, type "Starting interest rate"; in B2, enter 4.25%—you must reference this cell in your adjustment calculations
If the loan amount is over $400,000 subtract 1.00 percentage point (meaning that the Effective Interest Rate would be 3.25%), unless the period is 10 or fewer years
If the loan amount is equal to or under $400,000 and over $300,000 subtract 0.75 percentage points
If the loan amount is equal to or under $300,000 and over $175,000 and 20 or fewer years subtract 0.50 percentage points
If the loan amount is equal to or under $100,000 add 0.25 percentage points
Lastly, in addition to any adjustments above, if the borrower lives in the state of New Jersey add 0.50 percentage points
To convert this loan calculation into a formula for Excel, we can use a combination of IF and nested IF statements.
First, we can set up the basic formula for calculating the interest rate based on the loan amount:
=IF(A2<=100000,0.25,0)
In this formula, A2 is the cell containing the loan amount. If the loan amount is equal to or under $100,000, the formula will add 0.25 percentage points to the interest rate. If the loan amount is above $100,000, the formula will add 0 percentage points (i.e. no additional adjustment).
Next, we can add a nested IF statement to account for borrowers who live in the state of New Jersey:
=IF(A2<=100000,0.25,IF(B2="New Jersey",0.75,0))
In this formula, B2 is the cell containing the borrower's state. If the loan amount is equal to or under $100,000, the formula will add 0.25 percentage points to the interest rate.
If the borrower lives in New Jersey, the formula will add an additional 0.50 percentage points to the interest rate (0.25 + 0.50 = 0.75). If neither of these conditions are met, the formula will add 0 percentage points.
By using this formula in Excel, you can easily calculate the interest rate for loans based on the loan amount and the borrower's state. This can be a helpful tool for lenders or borrowers looking to determine the cost of a loan.
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Carnes Cosmetics Co.'s stock price is $35, and it recently paid a $1.75 dividend. This dividend is expected to grow by 28% for the next 3 years, then grow forever at a constant rate, g; and rs = 16%. At what constant rate is the stock expected to grow after Year 3? Do not round intermediate calculations. Round your answer to two decimal places. %
The Gordon Growth Model is a method used to estimate the intrinsic value of a stock based on the assumption that its dividend will grow at a constant rate indefinitely.
To solve this problem, we can use the Gordon Growth Model, which calculates the intrinsic value of a stock based on its expected dividends, growth rate, and required rate of return.
The formula for the Gordon Growth Model is:
P0 = D1 / (rs - g)
where P0 is the current stock price,
D1 is the next dividend,
rs is the required rate of return,
and g is the expected constant growth rate.
First, we need to calculate the next three dividends:
D2 = D1 * (1 + 28%) = 1.75 * 1.28 = 2.24
D3 = D2 * (1 + 28%) = 2.24 * 1.28 = 2.87
D4 = D3 * (1 + 28%) = 2.87 * 1.28 = 3.67
Next, we can calculate the intrinsic value of the stock at the end of Year 3:
P3 = D4 / (rs - g)
We can rearrange this equation to solve for the expected growth rate, g:
g = rs - D4 / P3
Substituting the given values, we get:
g = 0.16 - 3.67 / (35 * (1 + 0.16)^3) = 0.0494
Therefore, the stock is expected to grow at a constant rate of 4.94% after Year 3.
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