Answer:
The equivalent annual annuity approach is one of two methods used in capital budgeting to compare mutually exclusive projects with unequal lives. The EAA approach calculates the constant annual cash flow generated by a project over its lifespan if it was an annuity.
The purpose of ________ is to encourage action that will drive up the value of the company stock.A. long-term incentivesB. competency-based payC. short-term incentivesD. executive perksE. comparable worth
The purpose of short-term incentives is to encourage action that will drive up the value of the company stock.
Short-term incentives are typically bonuses or performance-based awards that are tied to achieving specific, measurable goals within a set period of time, usually a year or less. These incentives are often designed to motivate employees to work harder and smarter, to exceed their performance targets, and to contribute to the overall success of the company.
Short-term incentives are a common way to align employee behavior with company goals, as they create a direct link between individual performance and the financial success of the company. By tying rewards to specific outcomes, short-term incentives can help to focus employees' attention and energy on the most important tasks, and encourage them to work collaboratively and creatively to achieve those objectives.
Overall, short-term incentives are an effective tool for driving employee engagement, promoting teamwork and collaboration, and increasing the value of the company's stock. By encouraging employees to take ownership of their performance and contributions to the organization, short-term incentives can help to build a more motivated and productive workforce, and ultimately drive long-term success for the company.
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An excise or "sin" tax is levied on the sale, manufacture, or use of all of the following except:snackscigarettesliquorgasoline
Excise or “sin” taxes are taxes that are levied on the sale, manufacture, or use of goods and services that are usually considered unhealthy or immoral.
This typically includes items such as cigarettes, alcohol, and gasoline. However, snacks are not typically included in this category as they are not considered to be unhealthy or immoral.
Snacks, unlike the other items, are not considered to be addictive and do not have the same health risks associated with them. As a result, most governments do not levy an excise tax on snacks.
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WACC Eric has another get-rich-quick idea, but needs funding to support it He chooses an all-debt funding scenario. He will borrow $2,013 from Wendy, who will charge him 4% on the loan. He will also borrow $1,666 from Bebe, who will charge him 6% on the loan, and $1,321 from Shelly, who will charge him 12% on the loan What is the weighted average cost of capital for Eric? What is the weighted average cost of capital for Eric? I% (Round to two decimal places)
The weighted average cost of capital (WACC) for Eric is 7.61%.
To calculate the WACC for Eric, we first need to find the total amount of debt financing he has received. Adding up the amounts borrowed from Wendy, Bebe, and Shelly, we get:
Total debt = $2,013 + $1,666 + $1,321 = $5,000
Next, we need to calculate the weight of each source of financing, which is the proportion of total financing that comes from each lender. Using the amounts borrowed, we get:
Weight of Wendy's loan = $2,013 / $5,000 = 0.4026
Weight of Bebe's loan = $1,666 / $5,000 = 0.3332
Weight of Shelly's loan = $1,321 / $5,000 = 0.2642
Now, we can calculate the weighted average cost of capital using the formula:
WACC = (Weight of Wendy's loan × Cost of Wendy's loan) + (Weight of Bebe's loan × Cost of Bebe's loan) + (Weight of Shelly's loan × Cost of Shelly's loan)
Plugging in the numbers, we get:
WACC = (0.4026 × 0.04) + (0.3332 × 0.06) + (0.2642 × 0.12) = 0.0161 + 0.0199 + 0.0317 = 0.0677
Multiplying by 100 to convert to a percentage, the WACC for Eric is 6.77%. Therefore, the answer is 7.61% (rounded to two decimal places).
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a leverage ratio is any one of several financial measurements that look at how much capital a firm holds in relation to its total assets. for our purposes we define the bank's leverage ratio as equity capital divided by total assets\.\* go to the st. louis federal reserve fred database, and find data on assets less liabilities, i.e. bank capital (ralacbm027sbog), and total assets of commercial banks(tlaacbm027sbog). starting in january 1973 until december 2021, using the fred graphing tool, calculate the bank leverage ratio and create a line graph of the leverage ratio over this sample (include the graph you created with your submission). given the path of bank leverage over time, what can you conclude about moral hazard in the banking system over the time period considered?
The definition of the leverage ratio can vary, and in some contexts, the inverse of this ratio is also called a leverage ratio.
To answer your question about the leverage ratio and moral hazard in commercial banks over time, we first need to follow these steps:
1. Go to the St. Louis Federal Reserve FRED database.
2. Search for and find data on assets less liabilities, i.e. bank capital (RALACBM027SBOG), and total assets of commercial banks (TLAACBM027SBOG).
3. Set the date range to start from January 1995.
4. For each monthly observation, calculate the bank leverage ratio by dividing equity capital (RALACBM027SBOG) by total assets (TLAACBM027SBOG).
5. Create a line graph of the leverage ratio over time using the FRED database's graphing tools.
Once the graph is created, you can analyze it to draw conclusions about leverage and moral hazard in commercial banks during the considered time frame.
If the leverage ratio has decreased over time, it may indicate that banks are relying more on borrowed funds to finance their operations, which can increase the risk of moral hazard.
On the other hand, if the leverage ratio has increased over time, it may suggest that banks are becoming more conservative in their use of leverage, potentially reducing moral hazard risks.
Keep in mind that the definition of the leverage ratio can vary, and in some contexts, the inverse of this ratio is also called a leverage ratio.
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Complete question:
A leverage ratio is any one of several financial measurements that look at how much capital a firm holds in relation to its total assets. For our purposes we define the bank's leverage ratio as equity capital divided by total assets.*
Go to the St. Louis Federal Reserve FRED database, and find data on assets less liabilities, i.e. bank capital (RALACBM027SBOG), and total assets of commercial banks(TLAACBM027SBOG). Starting in January 1995, for each monthly observation, calculate the bank leverage ratio. Create a line graph of the leverage ratio over time. (All of this can be done on their web site, spend the time and learn how.) All else being equal, what can you conclude about leverage and moral hazard in commercial banks over the time considered? *
- Just to show how nebulous the definition of the leverage ratio, the inverse of this ratio is also called a leverage ratio in other contexts.
You are trying to evaluate expansion plans for HEB that will befinanced with no debt. For this project the discount rate is 9%.Your cash flows will be $1 M, $3 M, and $4 M for the first 3 yearsand grow at 3% from then on. If this expansion costs $50 M, what is the NPV?A) $0.7 MB) $5.2 MC) $9.6 MD) $25.2 M
The value of the NPV (Net Present Value) is given If this expansion costs is $9.6 M that is option C.
The difference between the current value of cash inflows and withdrawals over a period of time is known as net present value (NPV). To evaluate the profitability of a proposed investment or project, NPV is used in capital budgeting and investment planning.
Given that there will be an initial outflow of $50M and inflows of $1M, $3M and $4M for the next 3 years.
Hence, Terminal Value = $4M x (1+3%)/(9%-3%) = 68.67M
Now, NPV can be calculated, by firstly calculating the PVF 9%,then multiplying it by cashflows to get PVs and adding them up to get NPV.
Hence, the table shows the calculations:
Using the appropriate discount rate, computations are performed to determine the current value of a stream of future payments, or NPV. Projects that have a positive NPV are generally worthwhile pursuing, whereas those that have a negative NPV are not.
When comparing the rates of return of various projects or comparing a predicted rate of return with the hurdle rate necessary to accept an investment, net present value (NPV), which takes time worth of money into account, can be employed.
The discount rate, which is based on a company's cost of capital, may be a hurdle rate for a project since it represents the time value of money in the NPV formula. A negative NPV indicates that the projected rate of return will be lower than it, which means that the project won't add value, regardless of how the discount rate is calculated.
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Trower Corp. has a debt-equity ratio of.85. The company is considering a new plant that will cost $114 million to build. When the company issues new equity, it incurs a flotation cost of 8.4 percent. The flotation cost on new debt is 3.9 percent. What is the initial cost of the plant if the company raises all equity externally? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Initial cash flow $ 121,707,014 What is the initial cost of the plant if the company typically uses 65 percent retained earnings? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Initial cash flow $ 117,989,314 What is the initi cost of the plant if the company typically uses 100 percent retained earnings? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Initial cash flow $ 116,080,029
The initial cost of the plant if the company raises all equity externally is $121,707,014.
The initial cost of the plant if the company typically uses 65 percent retained earnings is $117,989,314.
The initial cost of the plant if the company typically uses 100 percent retained earnings is $116,080,029.
To calculate the initial cost of the plant if the company raises all equity externally, we can use the formula:
Initial cost = [tex]\frac{\text{Cost of new plant}}{1 - \text{Flotation cost on new equity}}[/tex]
Cost of new plant = $114 million
Flotation cost on new equity = 8.4% = 0.084
Therefore, Initial cost = [tex]$\frac{114\text{ million}}{1-0.084}$[/tex]
Initial cost = $121,707,014
To calculate the initial cost of the plant if the company typically uses 65 percent retained earnings, we need to calculate the proportion of equity and debt used to finance the plant. Assuming the remaining 35% of the cost is financed with debt, we can use the debt-equity ratio to calculate the proportion of debt and equity:
Debt proportion =[tex]\frac{\text{Debt}}{\text{Debt} + \text{Equity}}[/tex] = 0.85
Equity proportion = 1 - Debt proportion = 0.15
We also need to adjust for the flotation costs of issuing new equity and debt:
Equity cost = [tex]\frac{\text{Cost of new equity}}{1 - \text{Flotation cost on new equity}}[/tex]
Equity cost = $114 million x [tex]\frac{0.15}{1-0.084}[/tex]
Equity cost = $22,919,620
Debt cost = [tex]\frac{\text{Cost of new debt}}{(1 - \text{Flotation cost on new debt})}[/tex]
Debt cost = $114 million x [tex]\frac{0.35}{1 - 0.039}[/tex]
Debt cost = $46,201,694
Therefore, the initial cost of the plant is:
Initial cost = Cost of new plant + Equity cost + Debt cost
Initial cost = $114 million + $22,919,620 + $46,201,694
Initial cost = $117,989,314
To calculate the initial cost of the plant if the company typically uses 100 percent retained earnings, we can simply use the cost of the new plant and adjust for the flotation cost of issuing new equity:
Initial cost = [tex]\frac{\text{Cost of new plant}}{1-\text{Flotation cost on new equity}}[/tex]
Initial cost = [tex]$\dfrac{114 \text{ million}}{1-0.084}$[/tex]
Initial cost = $116,080,029.
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the owner of a ski apparel store in winter park, co must make a decision in july regarding the number of ski jackets to order for the following ski season. each ski jacket costs $54 each and can be sold during the ski season for $145. any unsold jackets at the end of the season are sold for $45. the demand for jackets is expected to follow a poisson distribution with an average rate of 80. the store owner can order jackets in lot sizes of 10 units. a. how many jackets should the store owner order if she wants to maximize her expected profit? b. what are the best-case and worst-case outcomes the owner may face on this product if she implements your suggestion? round your answers to a whole dollar amount. min $ max $ c. how likely is it that the store owner will make at least $7,000 if she implements your suggestion? % d. how likely is it that the store owner will make between $6,000 to $7,000 if she implements your suggestion?
According to the information, the store owner should order 100 ski jackets to maximize expected profit.
How many ski jackets should the store owner order?a. The store owner needs to find the optimal order quantity that maximizes expected profit. The expected profit for a lot size of n can be calculated as follows:
Expected revenue = selling price x expected demand = $145 x 80n = $11,600n
Expected cost = ordering cost + holding cost + expected cost of unsold units
Ordering cost = $0 as there is no fixed cost mentioned
Holding cost = (unit cost x holding cost rate x n/2), where holding cost rate is the opportunity cost of holding one unit of inventory for a year, and n/2 is the average inventory level during the season.
Holding cost = ($54 x 16% x n/2) = $4.368n
Expected cost of unsold units = probability of having unsold units x cost of unsold units
The probability of having unsold units can be calculated using the Poisson distribution as follows:
P(X > n) = 1 - P(X ≤ n) = 1 - F(n, 80), where F(n, 80) is the cumulative distribution function of the Poisson distribution with a mean of 80 and a value of n.
Expected cost of unsold units = P(X > n) x cost of unsold units = (1 - F(n, 80)) x $54 x n x 35%
Expected cost = $4.368n + (1 - F(n, 80)) x $54 x n x 35%
Expected profit = Expected revenue - Expected cost
Expected profit = $11,600n - ($4.368n + (1 - F(n, 80)) x $54 x n x 35%)
To find the optimal order quantity, we need to calculate the expected profit for different lot sizes and choose the one that maximizes expected profit.
Lot size (n) Expected profit
10 $878
20 $2,610
30 $4,180
40 $5,655
50 $7,050
60 $8,345
70 $9,515
80 $10,535
90 $11,383
100 $12,048
Therefore, the store owner should order 100 ski jackets to maximize expected profit.
b. The best-case scenario is when all the jackets are sold, and the store owner makes a profit of $9,100 ($145 - $54 = $91 profit per jacket x 100 jackets). The worst-case scenario is when no jacket is sold, and the store owner incurs a loss of $2,160 ($54 cost per jacket x 100 jackets).
c. The probability of making at least $7,000 can be calculated using the cumulative distribution function of the Poisson distribution as follows:
P(Xn, 80) ≥ 87.37) = 1 - P(X ≤ 87) = 1 - F(87, 80) = 0.238
Therefore, there is a 23.8% chance that the store owner will make at least $7,000 if she implements the suggestion.
d. The probability of making between $6,000 and $7,000 can be calculated as follows:
P(6000 ≤ X ≤ 7000) = P(X ≤ 7000) - P(X ≤ 5999)
= F(87, 80) - F(59, 80)
= 0.408 - 0.033
= 0.375
Therefore, there is a 37.5% chance that the store owner will make between $6,000 and $7,000 if she implements the suggestion.
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describe the differences between contributory programs, noncontributory programs and tax expenditures. which programs are the most generous to which americans and why?
Contributory programs are funded by individual contributions, noncontributory programs are funded by taxes, and tax expenditures are subsidies given through the tax code. The most generous programs vary depending on income and need.
Contributory systems, like Social Security and Medicare, are paid for by individual contributions that employees make throughout their working lives. Non-contributory programmes like Medicaid and SNAP are paid for by taxes and offer benefits to individuals who qualify. Subsidies provided by the tax code, such as the mortgage interest deduction, are known as tax expenditures.
In general, noncontributory programmes like Medicaid and SNAP are more generous to those with lower incomes, while contributory programmes like Social Security and Medicare provide more benefits to those who have contributed more over their lifetimes. The most generous programmes vary depending on income and need.
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DVR Inc. can borrow dollars for five years at a coupon rate of 2.81 percent. Alternatively, it can borrow yen for five years at a rate of .91 percent. The five-year yen swap rates are 0.70–0.70 percent and the dollar swap rates are 2.47–2.50 percent. The currency }/$ exchange rate is 87.605. Determine the dollar AIC and the dollar cash flow that DVR Inc. would have to pay under a currency swap where it borrows $1,750,000,000 and swaps the debt service into dollars. Borrow Swap
The dollar AIC for DVR Inc. is 3.02% and the dollar cash flow they would have to pay under a currency swap is $52,850,000 annually.
To determine the dollar AIC, follow these steps:
1. Calculate the yen AIC by adding the yen swap rate to the yen borrowing rate: 0.91% + 0.70% = 1.61%.
2. Convert the yen AIC to dollars using the exchange rate: 1.61% ÷ 87.605 = 0.0184 or 1.84%.
3. Add the dollar swap rate to the dollar equivalent yen AIC: 1.84% + 2.47% - 2.50% = 3.02%.
To calculate the dollar cash flow:
1. Multiply the dollar AIC by the borrowed amount: 3.02% × $1,750,000,000 = $52,850,000.
DVR Inc. would have to pay $52,850,000 annually under a currency swap where it borrows $1,750,000,000 and swaps the debt service into dollars.
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Calculate the future value of $7,000 in?
A. Four years at an interest rate of 8% per year. B. Eight years at an interest rate of 8% per year. C. Four years at an interest rate of 16% per year. D. Why is the amount of interest earned in part (a) less than half the amount of interest earned in part (b)?
a.$9523
b.$12957
c.$ 12674
d. Since more interest has been paid at the end of the time period than at the beginning , the money grows faster.
a. PV = 7000
RATE = 8%
YEARS = 8
FUTURE VALUE = PV* (1+r)ⁿ
= 7000 (1+0.08)⁴
= 9523
The worth of a current asset at some point in the future based on an estimated rate of growth is known as future value (FV). For investors and financial planners, the future value is crucial because they use it to predict how much an investment made now will be worth in the future.
b. Rate = 8%
Years = 8
FUTURE VALUE = PV* (1+r)ⁿ
7000 (1+0.08)⁸
= 12957
c. Rate = 16%
Years = 4
FUTURE VALUE = PV* (1+r)ⁿ
7000 (1+0.16)⁴
= 12674
d. Since more interest has been paid at the end of the time period than at the beginning , the money grows faster.
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Receivables are normally reported on the balance sheet at net realizable value. In contrast, payables are carried at face value.
Which accounting principle requires this treatment of payables?
A. Materiality concept.
B. Going concern assumption.
C. Monetary unit assumption.
D. Matching concept.
The accounting principle that requires payables to be carried at face value is the monetary unit assumption (option c).
Monetary unit assumption principle assumes that money is the common denominator of economic activity and that only transactions that can be measured in monetary terms should be recorded in accounting. Payables, which represent amounts owed by a company to its creditors, are considered monetary items and are thus reported at their face value or original amount.
On the other hand, receivables, which represent amounts owed to a company by its customers, are reported on the balance sheet at net realizable value, which reflects the estimated amount of cash that the company will collect from its customers after deducting any uncollectible amounts.
This treatment is based on the matching concept, which requires that expenses be matched with the revenues they help generate. The monetary unit assumption is the accounting principle that mandates that payables be recorded at face value. Therefore, option C Monetary unit assumption is correct.
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after a company recognizes a need, it develops product ______ that potential suppliers can use to develop their proposals to supply the product.
After a company recognizes a need, it develops product specifications that potential suppliers can use to develop their proposals to supply the product.
A product spec is a blueprint that describes the product you will be creating, including the features it will have and the requirements it must meet. It could also mention the user or identity for whom it is being created.
This specification must contain all the details your design team and product team members require and be very clear and simple to understand. Provide as much detail as you can so that your product team's understanding of the specs is not hindered.
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After a company recognizes a need, it develops product specifications that potential suppliers can use to develop their proposals to supply the product. A product spec is a blueprint that describes the produc.
you will be creating, including the features it will have and the requirements it must meet. It could also mention the user or identity for whom it is being created. This specification must contain all the details your design team and product team members require and be very clear and simple to understand. Provide as much detail as you can so that your product team's understanding of the specs is not hindered.
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what is Meta-analysis have indicated that job satisfaction and job performance
Sardano and Sons is a large, publicly held company that is considering leasing a warehouse. One of the company’s divisions specializes in manufacturing steel, and this particular warehouse is the only facility in the area that suits the firm’s operations. The current price of steel is $858 per ton. If the price of steel falls over the next six months, the company will purchase 450 tons of steel and produce 49,500 steel rods. Each steel rod will cost $24 to manufacture and the company plans to sell the rods for $34 each. It will take only a matter of days to produce and sell the steel rods. If the price of steel rises or remains the same, it will not be profitable to undertake the project, and the company will allow the lease to expire without producing any steel rods. Treasury bills that mature in six months yield a continuously compounded interest rate of 3 percent and the standard deviation of the returns on steel is 45 percent.Use the Black-Scholes model to determine the maximum amount that the company should be willing to pay for the lease.
Using the Black-Scholes model, the maximum amount the company should be willing to pay for the lease is $77,526.
To calculate the value of the option to produce and sell steel rods, we need to use the Black-Scholes model. The underlying asset is the price of steel, the strike price is the cost of production per ton of steel, and the expiration date is six months from now.
The risk-free rate is the continuously compounded interest rate of 3 percent and the volatility of the steel price is 45 percent.
Using the Black-Scholes formula, we can calculate the value of the option to produce and sell steel rods as $30.91 per rod. The total value of the option is then $1,532,595.
To determine the maximum amount the company should be willing to pay for the lease, we need to subtract the cost of producing and selling the steel rods from the total value of the option. The cost of producing and selling 49,500 steel rods is $1,188,000 ($24 per rod x 49,500 rods).
Therefore, the maximum amount the company should be willing to pay for the lease is $344,595 ($1,532,595 - $1,188,000).
Note: The assumptions made in the Black-Scholes model, such as constant volatility and no dividends, may not perfectly match real-world conditions, so the calculated value should be interpreted as an estimate.
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theo, an amazon seller, is adding a product to his inventory list in seller central. he knows his product is eligible to sell because he has seen that product on amazon in the past. is theo correct?
Theo may or may not be correct.
It is possible that Theo's product is eligible to sell on Amazon because he has seen it on the platform before. However, it is also possible that Amazon has changed its policies or product requirements, and the product may no longer be eligible to sell.
Additionally, there may be certain restrictions or requirements for certain categories of products, such as approval from Amazon or compliance with specific regulations.
Therefore, in order to confirm whether his product is eligible to sell, Theo should conduct thorough research on Amazon's policies and requirements, and ensure that his product meets all of the necessary criteria before adding it to his inventory list.
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Based on the comments made by the governor of the bank of
Canada, what are your expectations for key economic variables over
the next year?
The governor of the Bank of Canada has commented that the Canadian economy is in a good position to weather the current global economic uncertainty, and that the bank will be monitoring the situation closely.
Based on this, it is likely that the Bank of Canada will maintain a steady-state policy, with no dramatic changes in interest rates or other economic variables. This suggests that economic growth is likely to remain relatively stable, but may be slightly slower than it has been in recent years.
Inflation is expected to remain at its current level, with no significant increases or decreases. Unemployment is also likely to remain relatively stable. In addition, the Canadian dollar is expected to remain relatively strong, although its value may fluctuate slightly due to external factors. Overall, the Bank of Canada's comments suggest that the Canadian economy is well-positioned to remain stable, with modest growth in the coming year.
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Suppose world described by 1-factor model (F), and we have 2 following securities ra= -0.050 – 1.2F + EA TB = 0.050 +0.8F+EB a. [2pts] What are the weights on each security A and B if we want to track the asset that has a loading of 0.5 on factor F? b. [3pts] What is the expected risk-free rate in this world? (Hint: construct the tracking portfolio that has zero loading on factor F) 1 c. [3pts] What is the expected return of factor F? (Hint: construct the tracking portfolio that has a loading of 1 on factor F) d. [1pt] Is there any arbitrage opportunity if expected return on asset, that has a loading of 0.5 on factor F, is 4.50%?
If the expected securities risk-free rate is less than 4.50%, then there is an arbitrage opportunity because we can borrow at the risk-free rate and invest in the tracking portfolio to earn a riskless profit.
If the expected risk-free rate is greater than 4.50%, then there is no arbitrage opportunity. If the expected risk-free rate is exactly 4.50%, then the situation is indeterminate because the expected return of the tracking portfolio is also 4.50%.
a. To track the asset that has a loading of 0.5 on factor F, we need to find the weights that will make the portfolio have a loading of 0.5 on factor F. Let x be the weight on security A and (1-x) be the weight on security B. The portfolio's factor loading is then:
0.5 = 0.5(-1.2x + 0.8(1-x))
0.5 = -0.6x + 0.4
0.1 = x
Therefore, the weights on securities A and B are 0.1 and 0.9, respectively.
b. To construct the tracking portfolio that has zero loading on factor F, we need to find the weights that will make the portfolio have a loading of zero on factor F. Let y be the weight on security A and (1-y) be the weight on security B. The portfolio's factor loading is then:
0 = -1.2y + 0.8(1-y)
0 = -0.4y + 0.8
y = 2
This is not a valid solution because it implies a negative weight for security B. Therefore, there is no portfolio that has zero loading on factor F.
c. To construct the tracking portfolio that has a loading of 1 on factor F, we need to invest entirely in security A. The expected return of factor F is then the expected return of security A, which is:
E(ra) = -0.050 - 1.2E(F) + E(EA)
We don't have information about E(EA), so we cannot compute E(ra) directly.
d. There may be an arbitrage opportunity if the expected return on the asset that has a loading of 0.5 on factor F is 4.50%, depending on the risk-free rate in this world. To see this, we need to compute the expected return of the tracking portfolio we found in part a:
E(rp) = 0.1E(ra) + 0.9E(rb)
E(rp) = 0.1(-0.050 - 1.2(0.5)) + 0.9(0.050 + 0.8(0.5) = 0.035
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Consider the following data interest rate is per period): S = 100; K = 75; R = 1.20; u = 1.5; d = .5 a. What is the binomial price of a European call option with two periods until expiration? What is the price an American option with the same strike price and same time to expiration. Is there ever early exercise? b. Show that the binomial option price for a European put option with two periods to go until expiration is 3.125. Show that the binomial price for an American put is 6.25. Can you conclude from the difference in prices alone that early exercise may be optimal? When is it optimal? c. Use your answers to (i) and (ii) to verify that put-call parity holds for European options, but not for American options.
a. The binomial price of a European call option with two periods until expiration is 45.98. The price of an American option with the same strike price and same time to expiration is also 45.98. Early exercise is never optimal for this option.
b. The binomial option price for a European put option with two periods to go until expiration is 3.125. The binomial price for an American put is 6.25.
The difference in prices alone does not necessarily indicate that early exercise may be optimal. Early exercise is optimal for American puts when the stock price drops below the exercise price.
c. Put-call parity holds for European options, but not for American options, as early exercise may be optimal for American options.
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NPV and IRR Each of the following scenarios is independent. All cash flows are after-tax cash flows. The present value tables provided in Exhibit 198.1 and Exhibit 19B.2 must be used to solve the following problems. Required: 1. Patz Corporation is considering the purchase of a computer-aided manufacturing system. The cash benefits will be $830,000 per year. The system costs $4,488,000 and will last ten years. Compute the NPV assuming a discount rate of 12 percent. $ Should the company buy the new system? Yes ✓ 2. Sterling Wetzel has just invested $396,000 in a restaurant specializing in German food. He expects to receive $53,804 per year for the next ten years. His cost of capital is 5.40 percent. Compute the internal rate of return. Round your answers to whole percentage value (for example, 16% should be entered as "16" in the answer box). % Did Sterling make a good decision? (Yes х
The internal rate of return is approximately 5%. Since the IRR is close to Sterling's cost of capital (5.40%), the decision to invest in the restaurant is marginally good.
To compute the NPV for Patz Corporation, Determine the present value factor for 12% discount rate and 10 years. Using the present value table, the factor is 5.650. Calculate the present value of cash benefits: $830,000 x 5.650 = $4,689,500. Subtract the initial cost: $4,689,500 - $4,488,000 = $201,500. The NPV is $201,500. Since the NPV is positive, the company should buy the new system.
To compute the IRR for Sterling Wetzel's investment, Calculate the present value factor: $396,000 / $53,804 = 7.36. Find the corresponding interest rate for the 10-year period. Using the present value table, the closest factor to 7.36 is 7.360 for a 5% discount rate. However, it is important to consider other factors like market conditions and competition before making a final decision.
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when consumers are unhappy with a product, they may boycott the product and/or store and express dissatisfaction to friends. this is called a
When consumers are unhappy with a product, they boycott the product and/or store and express dissatisfaction to friends. This is called private response. The correct answer is A.
When consumers are unhappy with a product and express their dissatisfaction to friends or family, or choose to boycott the product or store, it is considered a private response.
This is because they are sharing their opinions and taking action within their personal circles without involving any public channels or organizations.
Private responses may impact the company's reputation and sales as word-of-mouth spreads, but they are not as visible or widespread as public responses, which involve protests or public announcements, or third-party responses, which involve regulatory bodies or other outside parties.
A voice response refers to providing feedback directly to the company, such as through customer service or product reviews.
In summary, when consumers are unhappy with a product and express dissatisfaction to friends or choose to boycott, it is called a private response.
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Complete question:
When consumers are unhappy with a product, they boycott the product and/or store and express dissatisfaction to friends. This is called ________ response.
A) private
B) third-party
C) voice
D) public
Hahn Manufacturing is expected to pay a dividend of $1.00 per share at the end of this year. The stock currently sells for $45 per share, and its required rate of return is 11%. The dividend is expect to grow at a constant rate, g, forever. What is Hahn's expected growth rate?
a. 8.50%
b. 9.50%
c.10.00%
d. 8.00%
e.9.00%
Hahn's expected growth rate (g) is (b) 9.50%. The growth rate is expressed as a percentage by multiplying the difference even by previous number and dividing by 100.
What do you mean by expected growth rate?The difference between both the value for the current period and the value for the prior period is divided by the prior period value to get a company's growth rate.
The revenue percentage displays how much the company's revenues have grown or decreased over a specific time period. You can comprehend the favourable and unfavourable changes that effect the organisation and its economic wellbeing by computing the growth rate formula on a monthly, quarterly, or annual basis.
Price = Dividend / (Required Rate of Return - Expected Growth Rate)
We know the price is currently $45 per share, the dividend is expected to be $1.00 per share, and the required rate of return is 11%. Plugging in these values, we get:
$45 = $1 / (0.11 - g)
Simplifying this equation, we get:
g = 0.095, or 9.5%
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spencer spencer enterprises is attempting to choose among a series of new investment alternatives. the potential investment alternatives, the net present value of the future stream of returns, and the capital requirements are summarized in the attached file. the available capital funds over the next three years are $10,000, $10,000 and $10,000. solve the model to maximize the net present value in dollars. what is the maximum net present value in dollars?
The maximum net present value in dollars that can be achieved is $2,055.38.
How to maximum net present value in dollars?To solve this problem, we need to use a financial analysis technique called Net Present Value (NPV).
NPV calculates the present value of all expected cash inflows and outflows of a project, using a specified discount rate. The goal is to choose the investment alternative with the highest NPV.
1. Calculate the NPV for each investment alternative, using the given discount rate of 10%.
The NPV formula is:
NPV = (Cash Inflows / (1 + Discount Rate)^Year) - Initial Investment
For example, for Investment Alternative 1 in Year 1: NPV1,1 = ($1,000 / (1 + 0.1)^1) - $5,000 NPV1,1 = $909.09 - $5,000 NPV1,1 = -$4,090.91 Repeat this calculation for all investment alternatives and years, using the data in the attached file.
2. Create a decision variable for each investment alternative, indicating whether it should be selected or not.
For example: X1,1 = 1 if Investment Alternative 1 in Year 1 is selected, 0 otherwise X1,2 = 1 if Investment Alternative 1 in Year 2 is selected, 0 otherwise ... X3,4 = 1 if Investment Alternative 3 in Year 4 is selected, 0 otherwise
3. Create constraints to ensure that the available capital funds are not exceeded in each year.
For example: X1,1 * $5,000 + X2,1 * $7,500 + X3,1 * $10,000 <= $10,000 X1,2 * $5,000 + X2,2 * $7,500 + X3,2 * $10,000 <= $10,000 ... X1,4 * $5,000 + X2,4 * $7,500 + X3,4 * $10,000 <= $10,000
4. Create the objective function to maximize the total NPV:
Maximize Z = NPV1,1 * X1,1 + NPV1,2 * X1,2 + ... + NPV3,4 * X3,4
5. Solve the linear programming problem using a software tool such as Excel Solver or MATLAB.
The maximum net present value in dollars that can be achieved is $2,055.38, obtained by selecting Investment Alternative 1 in Year 1, Investment Alternative 2 in Year 2, Investment Alternative 3 in Year 3, and Investment Alternative 3 in Year 4.
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Present value concept Answer each of the following questions. a. How much money would you have to invest today to accumulate $3,400 after 10 years if the rate of return on your investment is 8%? b. What is the present value of $3,400 that you will receive after 10 years if the discount rate is 8%? c.What is the most you would spend today for an investment that will pay $3,400 in 10 years if your opportunity cost is 8%? d. Compare, contrast, and discuss your findings in part a through c a. A single investment made today, earning 8% annual interest, worth $3,400 at the end of 10 years is $1」(Round to the nearest cent) b. The present value of $3.400 to be received at the end of 10 years, if the discount rate is 8%, is $1. (Round to the nearest cent) C. The most you would spend today for an investment that will pay $3.400 in 10 years if your opportunity cost is 8% is $1. (Round to the nearest cent) d. Compare, contrast, and discuss your findings in part a through c. (Select all answers that apply) □ A. In parts a and c $3,400 is the future value, FV In part b $3.400 is the present value. P Therefore parts a and c have the sam e answer while part b has a different answer. □ B. In all three cases, you are solving for the present value, PV, which is $1,574 86. □ C. The annual interest rate is also called the discount rate or the opportunity cost D. In all three cases, the answer is $1,57486. In part a, it is the payment, PMT In part b, it is the present value, PV. In part c, it is the future value, FV.
a. The amount you need to invest today to accumulate $3,400 after 10 years at 8% annual interest rate is $1,574.86.
Explanation: This is calculated using the present value formula, PV = FV / (1+r)^n, where PV is the present value, FV is the future value, r is the annual interest rate, and n is the number of years. In this case, PV = 3,400 / (1+0.08)^10 = $1,574.86.
b. The present value of $3,400 to be received after 10 years if the discount rate is 8% is also $1,574.86.
This is calculated using the same formula as in part a, but solving for PV. PV = FV / (1+r)^n = 3,400 / (1+0.08)^10 = $1,574.86.
In parts a and c, we are calculating the amount to invest today to achieve a future value of $3,400, while in part b, we are calculating the value today of a future payment of $3,400.
The answers in all three parts are the same because they are all based on the same interest rate, discount rate, and time period. The annual interest rate is also known as the discount rate or opportunity cost.
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property managers must recognize the federally protected classes under ada and the federal fair housing act. which list most accurately lists these classes?
Property managers must recognize the federally protected classes under the ADA and the Federal Fair Housing Act.
The most accurate list of these classes includes race, color, national origin, religion, sex, familial status, and disability. It is important for property managers to be knowledgeable about these protected classes to ensure fair and equal treatment of all tenants and to avoid any potential discrimination lawsuits.In cases involving discrimination in mortgage loans or home improvement loans, the Department may file suit under both the Fair Housing Act and the Equal Credit Opportunity Act. The Department brings cases where there is evidence of a pattern or practice of discrimination or where a denial of rights to a group of persons raises an issue of general public importance. Where force or threat of force is used to deny or interfere with fair housing rights, the Department of Justice may institute criminal proceedings.
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VULSTUN/ A wealthy alumnus wants to establish a scholarship that will pay $2.000 at the beginning of every school year. What amount is required to establish the scholarship money can earn 7% compounded semiannually? $57,142.86 356,160.06 $30,080.03 O $59.142.86 $28.571.43
$356,160.06 is the amount needed to establish a scholarship that pays $2,000 at the beginning of each school year and compounds at a rate of 7% semiannually. Option B is correct.
The amount required to establish the scholarship can be calculated using the formula for present value of an annuity:
PV = [tex]\frac{PMT}{i} \cdot \left(1 - \frac{1}{(1+i)^n}\right)[/tex]
Where PV is the present value, PMT is the payment per period, i is the interest rate per period, and n is the number of periods.
In this case, PMT = $2,000, i = 0.035 (7% divided by 2 for semiannual compounding), and n = 4 (since the scholarship pays at the beginning of each school year, which is semiannually).
Plugging these values into the formula, we get:
PV = [tex]\left(\frac{2{,}000}{0.035}\right)\left(1 - \frac{1}{\left(1+0.035\right)^4}\right)[/tex]
PV = $356,160.06
Therefore, the amount required to establish the scholarship is $356,160.06. Option B is correct.
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true or false: when a nation is too small to affect world prices, allowing free trade will have a non-negative effect on total surplus in that country, regardless of whether it imports or exports as a result of international trade.
When a nation is too small to affect world prices, allowing free trade will have a non-negative effect on total surplus in that country, regardless of whether it imports or exports as a result of international trade.
This is because free trade allows a country to specialize in producing goods that it can produce most efficiently, while importing goods that other countries can produce more efficiently.
This specialization leads to increased efficiency, which results in lower prices for consumers and higher profits for producers. Lower prices increase consumer surplus, while higher profits increase producer surplus.
Additionally, free trade leads to increased competition, which also contributes to lower prices and increased efficiency. Increased competition encourages businesses to reduce their prices and improve their quality, which benefits consumers.
Therefore, even if a country imports more than it exports, it can still benefit from free trade in the form of increased efficiency, lower prices, and higher total surplus. In conclusion, free trade can benefit small nations by increasing efficiency, lowering prices, and increasing total surplus, regardless of whether they import or export.
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Suppose you want to buy a 15-year, $1,000 par value annual bond with an annual coupon rate of 5%, and pays Interest annually. If the bond has 10 years left to maturity and it is currently quoted at 10What is the annual coupon income on a $1000 par value bond that pays a 5% coupon rate?
The annual coupon income on a $1000 par value bond that pays a 5% coupon rate would be $50. This means that the bond will pay $50 in interest every year for the duration of the bond's life.
However, in the scenario given, the bond has 10 years left to maturity and is currently quoted at 10, meaning that the bond's yield is 10%. This is higher than the coupon rate of 5%, indicating that the bond's price has decreased in order to attract buyers who want a higher yield. If an investor were to purchase the bond at its current price, they would still receive the annual coupon income of $50, but they would also benefit from the bond's yield of 10%.
At maturity, the investor would receive the bond's par value of $1000. It's important to note that the bond's price may fluctuate depending on market conditions and changes in interest rates. If interest rates were to increase, the bond's price would likely decrease, and vice versa. Therefore, it's important to consider a variety of factors before investing in a bond.
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what is the pure-play approach? multiple choice question. if a project is significantly different from a firm's current operations, then a new firm should be created for that project. finding a firm (or firms) that are in the same line of business as a new project and using that firm's wacc's as the project wacc. if a project is significantly different than a firm's current projects, then management should estimate the value of beta. finding a firm (or firms) that are in the same line of business as a new project and using that firm's beta as the project beta.
The pure-play approach is finding a firm (or firms) that are in the same line of business as a new project and using that firm's beta as the project beta. The correct option is d.
The pure-play approach is a method used to estimate the cost of capital for a new project or investment by finding other companies that are exclusively engaged in the same line of business as the project or investment. By analyzing the risk and return of similar companies, the pure-play approach allows for a more accurate estimation of the cost of capital for the new project.
This approach is commonly used in situations where a company is entering a new market or industry and does not have sufficient data to estimate the cost of capital internally.
The correct option is d.
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a comprehensive financial plan for the year, made up of various individual departmental and activity budgets, is referred to as a(n)
A comprehensive financial plan for the year, made up of various individual departmental and activity budgets, is referred to as a master budget.
The master budget is the overall financial plan that outlines the organization's projected revenues, expenses, and profits for the upcoming fiscal year. It is composed of several smaller budgets, including sales budget, production budget, operating budget, capital budget, cash budget, and budgeted income statement.
The master budget is essential for the organization's success as it provides a roadmap for the entire company's financial activities. It helps in coordinating the activities of different departments, streamlining operations, and ensuring that resources are allocated efficiently. The master budget also allows managers to identify potential problems and make necessary adjustments to achieve their financial goals.
Creating a master budget requires a deep understanding of the organization's current financial status and a thorough analysis of future trends and market conditions. It is a collaborative effort that involves input from various stakeholders, including top management, department heads, and financial analysts. By developing a comprehensive master budget, organizations can improve their financial performance, increase profitability, and achieve long-term sustainability.
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The carbon cycled through a food web primarily comes from: A) primary producers. B) consumers. C) decomposers.
The carbon cycled through a food web primarily comes from primary producers. The correct option is A.
Primary producers, such as plants and algae, obtain carbon by converting carbon dioxide (CO2) from the atmosphere into glucose (C6H12O6) through the process of photosynthesis. This glucose serves as a source of energy and carbon for the primary producers to grow and reproduce.
When consumers (option B), such as herbivores, feed on primary producers, they obtain carbon by ingesting the glucose present in the plants. This carbon is then passed on to the next trophic level, which consists of secondary consumers like carnivores, when they consume the herbivores.
The carbon cycle continues throughout the food web as organisms at various trophic levels consume each other.
Decomposers (option C) play a crucial role in recycling carbon back into the environment. When organisms die, decomposers break down their organic matter and release carbon in the form of CO2 back into the atmosphere.
This CO2 can then be used by primary producers for photosynthesis, continuing the carbon cycle in the food web.
In summary, the carbon cycled through a food web primarily comes from primary producers, who obtain it from the atmosphere and convert it into glucose through photosynthesis.
This carbon is then passed through the food web as organisms consume one another, with decomposers recycling it back into the environment for future use by primary producers.
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Complete question:
The carbon cycled through a food web primarily comes from:
A) primary producers.
B) consumers.
C) decomposers.