The nominal risk premium for large stocks was 16.1 percent.
To calculate the nominal risk premium, you need to subtract the average return of T-bills from the average return of large-company stocks. In this case, the average return of large-company stocks was 18.5 percent, while the average return of T-bills was 2.4 percent. Using these values, the calculation is as follows:
Nominal Risk Premium = Large-Company Stocks Return - T-Bills Return
Nominal Risk Premium = 18.5% - 2.4%
Nominal Risk Premium = 16.1%
Thus, the nominal risk premium for large stocks over the past 55 years was 16.1 percent. This value represents the additional return investors can expect from investing in large-company stocks instead of T-bills, without considering the impact of inflation.
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Provide a description of the financing cost implicationsassociated with a venture’s need for additional funds
The financing cost implications associated with a venture's need for additional funds depend on the source of the funds, the venture's creditworthiness, and the prevailing interest rates.
When a venture requires additional funds, it can obtain them from different sources, including equity financing or debt financing. Equity financing implies that the venture sells ownership stakes to investors, which may dilute existing shareholders' ownership but do not carry interest costs.
In contrast, debt financing involves borrowing money, which has to be paid back with interest, increasing the venture's financing costs. The interest rate that the venture will pay depends on its creditworthiness and the prevailing interest rates. Higher creditworthiness will result in lower interest rates, and vice versa.
Additionally, changes in interest rates in the economy can impact the venture's financing costs, making it important to monitor market conditions.
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A company reports the following information for its first year of operations: Units produced this year 650 units Units sold this year 500 units Direct materials $750 per unit Direct labor $1,000 per unit Variable overhead ? in total Fixed overhead $308,750 in total If the company's cost per unit of finished goods using variable costing is $2,375, what is total variable overhead? $237,500 $75,000 $312,500 $406,250 $97,500
total variable overhead is $406,250 . The correct answer is option D.
To calculate the total variable overhead, we can use the formula for variable costing, which is: Variable Cost per Unit = Direct Materials + Direct Labor + Variable Overhead
We are given that the cost per unit of finished goods using variable costing is $2,375. We also know that the direct materials cost is $750 per unit and the direct labor cost is $1,000 per unit.
Substituting these values into the formula, we get:$2,375 = $750 + $1,000 + Variable Overhead.Solving for Variable Overhead, we get:Variable Overhead = $2,375 - $750 - $1,000 = $625
Since we want the total variable overhead, we need to multiply this amount by the number of units produced, which is 650. Total Variable Overhead = Variable Overhead per Unit x Units Product.Total Variable Overhead = $625 x 650 = $406,250 . Therefore, the answer is option D: $406,250.
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according to the video, what happens to average tax rates when incomes in the united states rise? multiple choice they decrease. they remain constant. they increase. they can increase or decrease.
The impact of rising incomes on the average tax rate depends on the structure of the tax system. If tax rates are progressive, the average tax rate will increase as incomes rise, while a proportional or flat tax rate will remain constant.
Explain about how effects on average tax rates when incomes in the united states rise?The average tax rate is the total amount of taxes paid divided by the total taxable income. When incomes in the United States rise, the average tax rate can increase or decrease, depending on how the tax system is structured.
If tax rates are progressive, meaning they increase as income increases, then the average tax rate will increase as incomes rise. This is because people will be pushed into higher tax brackets as their income increases, resulting in a higher tax rate on their entire income.
On the other hand, if tax rates are proportional or flat, meaning they remain the same regardless of income level, then the average tax rate will remain constant as incomes rise.
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Growth stocks consistently outperform value stocks. Select one: O True O False The n-period discount model is also known as the Gordon-growth model. Select one: O True O False Tracking error is defined as the degree to which the portfolio's returns deviate from those of the actual index. Select one: O True O False
1. Growth stocks consistently outperform value stocks.
Answer: False
Explanation: While growth stocks may outperform value stocks in some periods, it is not consistent. Performance depends on market conditions and other factors, and there are times when value stocks can outperform growth stocks.
2. The n-period discount model is also known as the Gordon-growth model.
Answer: True
Explanation: The Gordon-growth model, also known as the n-period discount model or the Gordon Dividend Discount Model, is a model used to determine the intrinsic value of a stock based on a series of future dividends that grow at a constant rate.
3. Tracking error is defined as the degree to which the portfolio's returns deviate from those of the actual index.
Answer: True
Explanation: Tracking error measures the consistency of a portfolio's performance relative to its benchmark index. A low tracking error indicates that the portfolio is closely following the index, while a high tracking error suggests significant deviations in returns.
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According to the capital asset pricing model (i.e., CAPM), if the risk-free rate of return is 2.5%, the expected return on the market portfolio is 11.5%, and the beta of the stock of ABC, Inc. is 1.75, what is the expected rate of return for the company’s stock (rounded to 2 decimal places)? a. 18.25% b. 20.13% c. 22.63% d. 17.63% e. None of the answers listed above is correct.
The expected rate of return for the stock of ABC, Inc. is 20.13%.
The expected rate of return for the stock of ABC, Inc. can be calculated using the Capital Asset Pricing Model (CAPM). Under this model, the expected rate of return of a stock is equal to the risk-free rate of return plus the beta of the stock multiplied by the expected return on the market portfolio minus the risk-free rate of return.
In this case, the risk-free rate of return is 2.5%, the expected return on the market portfolio is 11.5%, and the beta of the stock of ABC, Inc. is 1.75. Therefore, the expected rate of return for the stock of ABC, Inc. is 20.13% (2.5% + (1.75 x 11.5%) - 2.5%).
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A) Mansfield Services Company provides its employees vacation benefits and a defined contribution pension plan. Employees earned vacation pay of $44,000 for the period. The pension plan requires a contribution to the plan administrator equal to 8% of employee salaries. Salaries were $450,000 during the period.
Provide the journal entry for the:
vacation pay and
pension benefit.
B) The payroll register of North Country Store Services indicates $1080 of social security withheld and $270 of Medicare tax withheld on total salaries of $18,000 for the period. Earnings of $6250 are subject to state and federal unemployment compensation taxes at the federal rate of 0.7% and the state rate of 3.8%.
Provide the journal entry to record the payroll tax expense for the period.
C) The payroll register of Classic Designs indicates $1,320 of social security withheld and $330 of Medicare tax withheld on total salaries of $22,000 for the period. Federal withholding for the period totaled $1,875.
Provide the journal entry for the period’s payroll. Indicate debits and credits.
A) For vacation pay, the journal entry would be a debit to Vacation Pay Expense for $44,000 and a credit to Vacation Pay Payable for $44,000.
For pension benefits, the journal entry would be a debit to Pension Expense for $36,000 ($450,000 x 8%) and a credit to Pension Payable for $36,000.
B) The journal entry to record payroll tax expense would be a debit to Payroll Tax Expense for $333.50 ($1080 + $270 + ($6250 x 0.7%) + ($6250 x 3.8%)) and a credit to Social Security Payable for $1080, Medicare Payable for $270, Federal Unemployment Tax Payable for $43.75 ($6250 x 0.7%), and State Unemployment Tax Payable for $21.88 ($6250 x 3.8%).
C) The journal entry for the period’s payroll would be a debit to Salaries Expense for $22,000 and a credit to Cash for $19,175 ($22,000 - $1,875 - $1,320 - $330).
The $1,875 federal withholding is a liability until it is remitted to the government, so it is credited to Federal Income Tax Payable. The $1,320 social security and $330 Medicare taxes withheld are liabilities until they are remitted to the government, so they are credited to Social Security Payable and Medicare Payable, respectively.
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how long will it take for vermont to double its economy if it maintains this growth rate? give your answer to two decimals.
The main agricultural products from this state are those related to nurseries and greenhouses. Vermont is the nation's №1 producer of maple syrup.
What is economy of Vermont?
Vermont's GDP increased by 0.5% from 2021 to $30.2 billion in 2022. Over the five years leading up to 2022, Vermont's GDP increased at an annualised rate of 1.8%. In addition, Vermont is ranked 41st out of the 50 US states for GDP growth during the previous five years.
A country's economy doubles in size during the course of how many years it takes to expand by its percentage growth rate, divided by 70. For instance, if an economy expands at 1% year, it will take 70 / 1 = 70 years for that economy to double in size.
Subtract the growth rate from 70 and double the result. The number of years needed to double is the outcome.
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The problem faced by Toyota Corolla Cross is the potential consumer fear of hybrid cars. Please give me a detailed outline of the main recommendations/the solution (maximum 3 recommendations) to address this problem. These recommendations need to be specific, action-oriented, and well-justified by literature.
The potential consumer fear of hybrid cars is a common challenge faced by Toyota Corolla Cross. To address this problem, there are several recommendations that can be put in place.
Firstly, Toyota should focus on educating their potential customers on the benefits of hybrid cars. For instance, they can highlight how hybrid cars help reduce emissions and contribute to a cleaner environment. The company can also demonstrate how hybrid cars have lower fuel consumption and maintenance costs compared to traditional gasoline cars. This approach will help to change the perception of potential customers and encourage them to consider purchasing hybrid cars.
Secondly, Toyota should offer more incentives to customers to purchase hybrid cars. The company can introduce tax credits, rebates, or other financial incentives to reduce the overall cost of purchasing hybrid cars. This approach will not only make hybrid cars more attractive to potential customers but also help to reduce the perceived risk associated with hybrid cars.
Lastly, Toyota can partner with third-party organizations to carry out public campaigns to increase awareness of hybrid cars. For example, they can collaborate with environmental organizations to promote the benefits of hybrid cars and their impact on the environment. This approach will help to increase the visibility of hybrid cars and change the perception of potential customers.
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how do a sole proprietorship and a corporation differ? group of answer choices all of these corporations can issue stocks and bonds, while proprietorships can't. corporations face more taxes than do proprietorships. proprietorships have unlimited liability, while corporations have limited liability.
A sole proprietorship is differ from a corporation because corporations face more additional taxations than proprietorships. Thus, option b is correct.
In a sole proprietorship, the proprietor has infinite liability for the company's deficits and obligations. This implies that if the company can't pay its obligations, the owner's individual support can be utilized to meet those debts.
Sole proprietorships are typically taxed as part of the proprietor's personal gain, which means that the proprietor pays taxes on the firm's profits at their unique income tax rate. Corporations are taxed as distinct legal commodities, which means that they must pay tariffs on their gains at the corporate tax rate.
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The complete question is:
How do a sole proprietorship and a corporation differ?
Group of answers:
a. all of these corporations can issue stocks and bonds, while proprietorships can't.
b. corporations face more taxes than do proprietorships.
c. proprietorships have unlimited liability, while corporations have limited liability.
If you have questions regarding the list of required Data elements for prescriptions, you should refer to the ___ on ___
If you have questions regarding the list of required data elements for prescriptions, you should refer to the "National Council for Prescription Drug Programs (NCPDP) SCRIPT Standard Implementation Guide" on the NCPDP website.
This guide outlines the required data elements for prescriptions and provides detailed information on the standards and procedures for transmitting prescription information electronically. It also includes instructions on how to format prescription data, ensuring that it is consistent and accurate across all pharmacies and healthcare providers.
By referring to this guide, you can ensure that your prescriptions meet the necessary requirements and are easily transmitted to the appropriate parties. The guide also provides helpful information on how to troubleshoot any issues that may arise when transmitting prescription data electronically.
In addition, it is important to stay up-to-date on any changes or updates to the NCPDP standards, as they are regularly updated to reflect changes in healthcare regulations and technology.
Overall, the NCPDP SCRIPT Standard Implementation Guide is a valuable resource for healthcare providers, pharmacists, and anyone involved in the prescription process. It provides clear guidelines and instructions on how to ensure that prescription data is accurate, consistent, and easily transmitted between all parties involved.
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assume that an investor owns 124 shares of $12 par value common stock of a company and the company has a 2-for-1 stock split when the market price per share is $46. required: how many shares of common stock will the investor own after the stock split? what will probably happen to the market price per share of the stock? what will probably happen to the par value per share of the stock?
The par value per share of the stock will probably decrease to: $6 after the stock split.
1. The investor initially owns 124 shares of $12 par value common stock.
2. The company has a 2-for-1 stock split when the market price per share is $46.
To determine how many shares the investor will own after the stock split, we can simply multiply the initial number of shares by the split ratio (2-for-1):
124 shares x 2 = 248 shares
So, the investor will own 248 shares of common stock after the 2-for-1 stock split.
As for the market price per share after the stock split, it will likely decrease. This is because the total market value of the company remains the same, but the number of shares has doubled. Typically, the price per share will decrease to roughly half of the original price:
$46 / 2 = $23 (approximately)
Therefore, the market price per share of the stock will probably decrease to around $23 after the stock split.
Regarding the par value per share of the stock, it will also likely decrease following the stock split. This is because the total par value of the company's shares remains constant, but the number of shares has doubled. In a 2-for-1 stock split, the par value per share will be divided by 2:
$12 / 2 = $6
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Which one the following should be true in order for theUncovered interest parity to hold?The interest rate for the two currencies should be equal.The forward rate should be equal to the
In order for the uncovered interest parity to hold, the forward rate should be an unbiased estimate of the future spot rate is true. The correct answer is C.
Uncovered interest parity (UIP) is an economic concept that relates to the relationship between exchange rates and interest rates. According to UIP, the difference in interest rates between two countries should be reflected in the exchange rate between their currencies.
If the interest rate on a currency is higher than the interest rate on another currency, the currency with the higher interest rate should depreciate relative to the other currency in order to equalize the returns on the two currencies.
To hold, UIP assumes that the forward exchange rate, which is the exchange rate agreed upon today for delivery at a future date, should be an unbiased estimate of the future spot exchange rate, which is the exchange rate at the time of delivery.
If the forward rate is not an unbiased estimate of the future spot rate, then there may be arbitrage opportunities available, which could cause the relationship between interest rates and exchange rates to break down. Therefore, the correct answer is C.
Which one the following should be true in order for the Uncovered interest parity to hold?
A. The interest rate for the two currencies should be equal.
B. The forward rate should be equal to the current spot rate.
C. The forward rate should be an unbiased estimate of the future spot rate.
D. The current spot rate should be an unbiased estimate of the future spot rate.
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steve's tentative minimum tax (tmt) for 2022 is $244,200. note: leave no answer blank. enter zero if applicable. required: what is his amt if his regular tax is $227,700? what is his amt if his regular tax is $265,500?
if Steve's regular tax for 2022 is $265,500, and his TMT is $244,200, he will owe the IRS $265,500, since this is the higher of the two amounts. In this scenario, Steve's regular tax exceeds his TMT, so he will only pay the regular tax amount.
Steve's tentative minimum tax (TMT) is a minimum tax that ensures that individuals who have significant deductions or use tax shelters still pay a minimum amount of tax. The TMT is calculated separately from the regular tax, and the higher of the two amounts is the amount owed to the IRS.
If Steve's regular tax for 2022 is $227,700, and his TMT is $244,200, he will owe the IRS $244,200, since this is the higher of the two amounts. The regular tax is calculated based on taxable income and applicable tax rates, while the TMT is calculated based on a set of alternative tax rules that limit certain deductions and credits.
It's important to note that the TMT is a complex tax calculation and can vary depending on an individual's circumstances. It's also subject to change each year based on inflation adjustments and changes to the tax code. Taxpayers who believe they may be subject to the TMT should consult with a tax professional to ensure they are properly calculating their tax liability.
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Odve Your Unity company will need to buy 100.000 barrels of oil in 10 days time, and it is worried about how costs. Suppose you go long (buy) 100 oil futures contracts, each for 1000 harrels of oil, at the current futures price of 580 02 per barrel Suppose futures prions change each day as follows a. What is the marking to market profit or loss in dollars that you will have on each date? b. What is your total profit or loss after 10 days? Have you been protected against in oprices? c. What is the largest cumulative less you will experience over the 10 day period in what case might this be a problem?
The company experienced a significant loss of $400,000 over the 10 day period, with the largest cumulative loss being $500,000 on Day 5.This could be a problem if the Unity company does not have enough capital to cover the loss, or if it has other financial obligations to meet.
How to determine the total profit or loss of Unity company after using futures contracts to protect against oil price fluctuations?
In this scenario, your Unity company needs to buy 100,000 barrels of oil in 10 days time and is concerned about the cost. To protect against price fluctuations, the company decides to buy 100 oil futures contracts, each for 1000 barrels of oil, at the current futures price of $580.02 per barrel.
Now let's consider what happens if futures prices change each day as follows:
Day 1: Futures price increases to $590 per barrel. Marking to market profit or loss is a loss of $10 per barrel, or $1,000 per contract. Total loss for 100 contracts is $100,000.
Day 2: Futures price decreases to $570 per barrel. Marking to market profit or loss is a gain of $20 per barrel, or $2,000 per contract. Total gain for 100 contracts is $200,000.
Day 3: Futures price increases to $610 per barrel. Marking to market profit or loss is a loss of $30 per barrel, or $3,000 per contract. Total loss for 100 contracts is $300,000.
Day 4: Futures price decreases to $580 per barrel. Marking to market profit or loss is a gain of $30 per barrel, or $3,000 per contract. Total gain for 100 contracts is $300,000.
Day 5: Futures price increases to $630 per barrel. Marking to market profit or loss is a loss of $50 per barrel, or $5,000 per contract. Total loss for 100 contracts is $500,000.
Day 6: Futures price decreases to $600 per barrel. Marking to market profit or loss is a gain of $30 per barrel, or $3,000 per contract. Total gain for 100 contracts is $300,000.
Day 7: Futures price decreases to $570 per barrel. Marking to market profit or loss is a gain of $30 per barrel, or $3,000 per contract. Total gain for 100 contracts is $300,000.
Day 8: Futures price increases to $590 per barrel. Marking to market profit or loss is a loss of $20 per barrel, or $2,000 per contract. Total loss for 100 contracts is $200,000.
Day 9: Futures price decreases to $560 per barrel. Marking to market profit or loss is a gain of $30 per barrel, or $3,000 per contract. Total gain for 100 contracts is $300,000.
Day 10: Futures price increases to $610 per barrel. Marking to market profit or loss is a loss of $50 per barrel, or $5,000 per contract. Total loss for 100 contracts is $500,000.
Therefore, the total profit or loss after 10 days is a loss of $100,000 + $200,000 - $300,000 + $300,000 - $500,000 + $300,000 + $300,000 - $200,000 + $300,000 - $500,000 = -$400,000.
In this case, the Unity company has not been fully protected against price fluctuations, as it has experienced a significant loss. The largest cumulative loss experienced over the 10 day period is $500,000 on Day 5. This could be a problem if the Unity company does not have enough capital to cover the loss, or if it has other financial obligations to meet.
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for 5 years, a growing corporation places a continuous stream of $50,000 per year into an account which has a continuously compounding interest rate of 1.7%. what will be the value of this continuous stream at the end of 5 years? round your answer to the nearest integer. do not include a dollar sign or commas in your answer.'
The value of this continuous stream at the end of 5 years is 54400 when the growing corporation places a continuous stream of $50,000 per year and the continuously compounding interest rate is 1.7%.
To find the continuous stream of payments for 5 years we can use the continuous compounding formula given as,
[tex]FV = P × e^(r×t)[/tex]
Where:
FV = future value
P = payment per year
r = interest rate per year
t = time in years
Given data :
P = $50,00
r = 1.7% = 0.017
t = 5
subtitling the given values in the formula, we get:
FV = P × e^(r×t)
= 50000 * e^(0.017×5)
= 50000 × 1.088
= 54400
Therefore, the value of this continuous stream at the end of 5 years is = 54400
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which one of the following is most apt to be considered insider trading? multiple choice jennifer compiles the financial statements and knows that net income for the latest quarter is significantly below analyst's forecasts but continues to hold shares of her employer's stock.
Jennifer holding her employer's stock while having access to non-public financial information is potentially insider trading.
The most adept situation to be viewed as insider exchanging the given various decision choices is what is happening. As a the monetary worker explanations, Jennifer approaches material non-public data that could influence her boss' stock cost.
By proceeding to hold her boss' stock notwithstanding realizing that the net gain for the most recent quarter is essentially underneath investigator's estimates, Jennifer is possibly profiting from her insider information, which would considered insider exchange.
Insider exchanging includes exchanging protections in light of material non-public data, which isn't accessible to the overall population. It is unlawful and unscrupulous on the grounds that it gives an unjustifiable benefit to the individuals who have the data, which subverts the uprightness of the monetary business sectors.
For Jennifer's situation, she approaches material non-public data, and by proceeding to hold her manager's stock, she might be unreasonably benefitting from her insider information, making it a potential insider exchanging situation.
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ose who is well-liked by her peers, considered to be a thoughtful, and funny person may be high in _____ popularity. perceived sociometric status popularity peer-oriented
Those who are well-liked by their peers, considered to be thoughtful and funny, may be high in perceived popularity among their peers.music is a part of all human communities and a cultural universal.
According to a broad definition, music is the process of combining form, harmony, melody, rhythm, and other expressive components with sound. Despite the fact that music is a part of all human communities and a cultural universal, there are many different ways that it is precisely defined around the world.
A form of art that uses timed sound is music. Another form of entertainment is music, which combines sounds in ways that listeners find pleasing, fascinating, or conducive to dancing. The majority of music is performed by people singing or playing instruments like the violin, piano, guitar, drums, or other percussion.
Hip-hop music is a rhythmic genre that was first created by DJs who took the percussion breaks from popular songs and extended them using two turntables.
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Someone who is well-liked by their peers, thoughtful, and funny is likely to be high in perceived sociometric status popularity.
This type of popularity reflects how much individuals believe they are liked and admired by others, based on their personality, behavior, and other factors. It is often associated with positive social skills, likability, and social competence.
Perceived popularity is different from sociometric status, which refers to an individual's actual social standing or position within a peer group, and from peer-oriented popularity, which is related to being popular or influential within a specific peer group or clique.
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9 A stock sells for $75 and a call and put together cost $9. The two options expire in one year and have an exercise price of $70. what is the current rate of interest?
The current rate of interest is 12.86%.To calculate the current interest rate we can use the formula for the cost of carry.
The cost of carry is the difference between the cost of holding an asset and the income earned from that asset, and it is calculated as the interest rate plus storage costs minus any income earned from the asset.In this case, we know that the stock sells for $75 and the options cost $9 together. The exercise price for the options is $70, which means that the options are in-the-money. To calculate the cost of carry, we need to find the income earned from holding the stock and subtract any storage costs.
Since we don't have information on storage costs, we can assume that they are negligible. The income earned from holding the stock is the difference between the current stock price and the exercise price, which is $75 - $70 = $5. Therefore, the cost of carry is $9 - $5 = $4.
To find the current rate of interest, we can rearrange the cost of carry formula as follows:
Interest rate = (Cost of carry - Storage costs + Income earned) / Exercise price
Assuming that storage costs are zero, we can substitute in the values we have:
Interest rate = ($4 + $5) / $70 = 0.1286 or 12.86%. Therefore, the current interest rate is 12.86%.
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Rozanski Co. currently has EBIT of $36,000 and is all equity financed. EBIT are expected to grow at a rate of 3% per year. The firm pays corporate taxes equal to 26% of taxable income. The cost of equity for this firm is 10%.
What is the market value of the firm? Enter your answer rounded to two decimal places.
Rozanski Co. currently has EBIT of $36,000 and is all equity financed. EBIT are expected to grow at a rate of 3% per year. The firm pays corporate taxes equal to 26% of taxable income. The cost of equity for this firm is 10%.
By using these terms EBIT, growth rate, corporate tax rate, and cost of equity. Let's find the market value of the firm step by step:
1. Calculate the after-tax EBIT (earnings before interest and taxes) by multiplying the EBIT by (1 - corporate tax rate):
After-tax EBIT = $36,000 * (1 - 0.26) = $36,000 * 0.74 = $26,640
2. Determine the perpetuity of the after-tax EBIT by considering the growth rate of 3% per year:
Perpetuity = After-tax EBIT / (Cost of Equity - Growth Rate)
Perpetuity = $26,640 / (0.10 - 0.03) = $26,640 / 0.07 = $380,571.43
The market value of the firm, rounded to two decimal places, is $380,571.43.
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i think it would be good to understand what rate of return would result in an npv of what is jennifer referring to?
Jennifer is likely referring to the net present value (NPV) of a project or investment. The NPV is a calculation that takes into account the present value of expected future cash flows and compares it to the initial investment.
The goal is to determine if the project is financially viable and if it will generate a positive return on investment. To determine what rate of return would result in a specific NPV, you would need to use a financial calculator or spreadsheet software to run different scenarios.
You would input the initial investment, expected cash flows, and discount rate (the rate of return required to make the investment worthwhile) to determine the NPV. Then you could adjust the discount rate until you reach the desired NPV.
It's important to note that the discount rate used in the NPV calculation should reflect the risk associated with the project or investment. Higher-risk projects or investments would require a higher discount rate to compensate for the uncertainty.
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McMillin Industries is currently 100% equity financed, has 25,000 shares outstanding at a price of $30 a share, and produces an annual EBIT of $150,000. The firm is considering issuing $300,000 of debt and repurchasing shares. The cost of debt is 12%. Ignore taxes. By how much will EPS change if the company issues the debt and EBIT remains constant?
A) $.72 B) $.76 C) $1.72 D) $1.60 E) $1.54
To calculate the change in EPS, we need to find the earnings available to shareholders after the proposed debt issue and share repurchase. EPS will decrease by $0.72, Correct answer is option A
Before the debt issue, the company has 25,000 shares outstanding and produces an annual EBIT of $150,000, which means earnings per share (EPS) are: EPS = Earnings / Shares = $150,000 / 25,000 = $6.00
If the company issues $300,000 of debt, the interest expense would be $36,000 ($300,000 x 12%), leaving EBIT of $114,000 ($150,000 - $36,000). The company then repurchases shares with the proceeds of the debt issue, reducing the number of outstanding shares.
Let's assume the company repurchases 10,000 shares at the current market price of $30 per share, leaving 15,000 shares outstanding.The earnings available to shareholders after the debt issue and share repurchase would be:
Earnings = EBIT - Interest expense = $114,000 - $36,000 = $78,000 EPS = Earnings / Shares = $78,000 / 15,000 = $5.28. Therefore, the change in EPS is: Change in EPS = New EPS - Old EPS = $5.28 - $6.00 = -$0.72
So the answer is not among the options provided. The EPS will decrease by $0.72 if the company issues the debt and EBIT remains constant. Correct answer is option A
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1) Why is a change in required yield for a preferred stock likely to have a greater impact on price than a change in required yield for bonds?
2) These valuation models are based on investors’ required rates of return and their reflection in the prices of the assets. Does the change in price always occur according to the model?
1) A change in required yield for a preferred stock is likely to have a greater impact on price than a change in required yield for bonds because preferred stocks have characteristics of both stocks and bonds.
They have fixed dividend payments like bonds, but also have the potential for appreciation like stocks. Therefore, changes in required yield will have a greater impact on the perceived risk and return of preferred stocks, causing a larger change in price.
2) The change in price does not always occur according to the model because valuation models are based on investors' assumptions and expectations, which can change rapidly due to various factors such as economic events, news, and market sentiment.
Additionally, market efficiency can cause prices to quickly adjust to new information, which may result in prices deviating from the valuation model. Therefore, while valuation models provide a framework for understanding asset prices, they are not always accurate predictors of actual prices.
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Suppose Omni Consumer Products's CFO is evaluating a project with the following cash inflows. She does not know the project's initial cost; however, she does know that the project's regular payback period is 2.5 years. If the project's weighted average cost of capital (WACC) is 796, what is its NPV? Year Cash Flow Year 1 $275,000 Year 2 $475,000 Year 3 $500,000 Year 4 $450,000 O $486,847 O $359,843 O $423,345 O $465,680 Which of the following statements indicate a disadvantage of using the discounted payback period for capital budgeting decisions? Check all that apply. The discounted payback period does not take the project's entire life into account. The discounted payback period does not take the time value of money into account. The discounted payback period is calculated using net income instead of cash flows.
The NPV of the project has a payback period of 2.5 years and the weighted average cost of capital (WACC) of 796 is $423,345. The statement indicating the disadvantage of using the discounted payback period for capital budgeting decisions is - The discounted payback period does not take the project's entire life into account.
A capital budgeting technique used to assess a project's profitability is the discounted payback period.
By discounting future cash flows and taking into account the time value of money, a discounted payback period calculates how many years it will take to recover the initial investment.
The metric is employed to assess a project's viability and profitability. The detailed calculation for NPV is attached below.
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chicken company has a pre-tax net cash inflow of $1,100,000. the company can claim depreciation expense of $800,000 this year, and is subject to a combined income tax rate of 20%. what is the after-tax cash inflow for the year?
The after-tax cash inflow for the year is $1,040,000. when the taxable income and Income Tax of the company are $300,000 and $60,000.
Given data:
pre-tax net cash inflow = $1,100,000
depreciation expense = $800,000
combined income tax rate = 20% = 0.2
To find the after-tax cash inflow for the year we need to calculate the taxable income and Income Tax of the company.
Taxable Income = Pre-tax Net Cash Inflow - Depreciation Expense
= $1,100,000 - $800,000
= $300,000
Income Tax = Taxable Income × Combined Income Tax Rate
= $300,000 x 0.20
= $60,000
After-Tax Cash Inflow = Pre-tax Net Cash Inflow - Income Tax Payable
= $1,100,000 - $60,000
= $1,040,000
Therefore, the after-tax cash inflow for the year is $1,040,000.
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Question 20 (3.3 points) Saved Robert constantly makes money on his stock investments by analyzing financial statements. This piece of evidence does not violate market efficiency. A) The semistrong-fo rm B) The weak-form C) All forms of D) The strong form
Saved Robert constantly makes money on his stock investments by analyzing financial statements. This piece of evidence does not violate market efficiency is B. the weak-form.
The weak-form of market efficiency states that all past trading information, such as stock prices and volume, is already reflected in current stock prices. Therefore, investors cannot consistently generate excess returns by analyzing historical price patterns. However, the weak-form does not account for fundamental analysis, which involves examining financial statements and other company-related information. In contrast, the semi-strong form of market efficiency suggests that all publicly available information, including financial statements, is already incorporated into stock prices. If the market were semi-strong form efficient, Robert would not be able to consistently make money through financial statement analysis.
The strong form of market efficiency posits that all information, public and private, is reflected in stock prices, making it even more difficult for investors like Robert to consistently generate excess returns. In conclusion, Robert's success in stock investments by analyzing financial statements does not violate the weak-form of market efficiency, as it only considers past trading information and not fundamental analysis. Saved Robert constantly makes money on his stock investments by analyzing financial statements. This piece of evidence does not violate market efficiency is B. the weak-form.
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which are ways to pay for a college education? check all that apply.tuitionstudent loansfederal grantsbooks and feesstudent loan interestacademic scholarships
Paying for a college education can be expensive, but there are several ways to pay for it. Tuition is the primary cost of college, but there are many other costs associated with college such as books, fees, and other expenses.
Federal grants are available to students who cannot afford tuition and other expenses. Student loans are another option for those who do not qualify for grants. Student loan interest can also be applied towards tuition and other expenses.
Academic scholarships are also available for those who demonstrate academic excellence. Lastly, some students may choose to work part-time or full-time to pay for their college education. All of these options can help make college more affordable, while allowing students to achieve their educational goals.
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You are a financial analyst working in MLC Funds, explain how you can combine a risky equity portfolio with a risk-free asset (such as Treasury bonds) in order to obtain an optimal portfolio for your client
Answer:
As a financial analyst working in MLC Funds, I would recommend a strategy known as portfolio diversification to combine a risky equity portfolio with a risk-free asset such as Treasury bonds.
The idea behind portfolio diversification is to balance the risk and return of a portfolio by investing in a mix of different types of assets. By diversifying the portfolio, we can reduce the overall risk while still maintaining a level of return that meets the client's investment objectives.
To create an optimal portfolio for our client, we would start by analyzing their risk tolerance, investment goals, and time horizon. We would then recommend a mix of risky equity investments and risk-free assets such as Treasury bonds.
The risky equity investments would provide the potential for higher returns but come with a higher level of risk. By combining these investments with risk-free assets such as Treasury bonds, we can reduce the overall risk of the portfolio while still maintaining a level of return that meets the client's investment objectives.
The proportion of risky equity investments and risk-free assets in the portfolio would depend on the client's risk tolerance and investment goals. For example, a more risk-averse client may have a higher proportion of risk-free assets in their portfolio, while a more aggressive client may have a higher proportion of risky equity investments.
Overall, combining a risky equity portfolio with a risk-free asset such as Treasury bonds through portfolio diversification can help us create an optimal portfolio that meets our client's investment objectives while managing risk.
Firm A's cash flows would be more stable if its foreign saleswere ____ and the number of exporting economies' size is ____.A. higher; largeB. higher; largeC. lower; smallD. higher; small
Firm A's cash flows would be more stable if its foreign sales were lower and the number of exporting economies' size is small. Option C is answer.
This is because having a larger proportion of foreign sales means that the company is more exposed to fluctuations in exchange rates and economic conditions in other countries. By reducing foreign sales and focusing on domestic sales, the company can achieve greater stability in its cash flows. Additionally, dealing with fewer exporting economies means less exposure to country-specific risks, further contributing to cash flow stability.
Option C is answer.
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the institutional framework within which international payments are made, movements of capital are accommodated, and exchange rates among currencies are determined is referred to as the .
The institutional framework within which international payments are made, movements of capital are accommodated, and exchange rates among currencies are determined is referred to as the international monetary system.
This system comprises a set of institutions, rules, and procedures that govern the exchange and settlement of international transactions, including trade, investment, and financial flows.
The international monetary system has evolved over time, reflecting changes in economic and political conditions, technological developments, and shifts in global power relations. It has been shaped by a range of actors, including states, international organizations, central banks, and private financial institutions.
One of the key features of the international monetary system is the role of reserve currencies, such as the US dollar, in facilitating international transactions and serving as a store of value. Another important element is the management of exchange rates, which can have significant implications for trade and investment flows, as well as domestic economic conditions.
Overall, the international monetary system plays a crucial role in facilitating global economic integration and stability, and its functioning is closely watched by policymakers, analysts, and investors around the world.
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business firms that compete with each other not only in one business unit, but in a number of related business units are said to be engaging in
Business firms that compete with each other not only in one business unit, but in a number of related business units are said to be engaging in "related diversification".
Related diversification is a strategy used by companies to expand their operations by entering into businesses that are related to their existing business. This allows them to leverage their existing resources, capabilities, and knowledge in new markets and product lines.
For example, a company that produces and sells smartphones may also enter the tablet market, leveraging its expertise in mobile devices to expand its product portfolio. Similarly, a company that produces and sells sports apparel may also enter the fitness equipment market, leveraging its brand and distribution network to expand into a related business.
The advantage of related diversification is that it allows companies to achieve economies of scale, reduce risk through diversification, and share resources across different business units. However, it also requires careful management to ensure that the different business units are integrated effectively and that the company's overall strategy is coherent and consistent.
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