LRW Corporation has a beta of 1.6. The risk-free rate ofinterest is 0.03, and the return on the stock market overall isexpected to be 0.11. What is the required rate of return on LRWstock?
The required rate of return on LRW stock is 15.8%.
To calculate the required rate of return on LRW stock, we can use the Capital Asset Pricing Model (CAPM) formula. The CAPM formula is:
Required Rate of Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)
Given that LRW Corporation has a beta of 1.6, the risk-free rate of interest is 0.03, and the expected return on the stock market overall is 0.11, we can plug in these values into the formula:
Required Rate of Return = 0.03 + 1.6 * (0.11 - 0.03)
Hence,
1. Calculate the difference between the market return and the risk-free rate:
0.11 - 0.03 = 0.08
2. Multiply this difference by LRW's beta:
1.6 * 0.08 = 0.128
3. Add the risk-free rate to the result from step 2:
0.03 + 0.128 = 0.158
So, the required rate of return on LRW stock is 0.158 or 15.8%.
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the implementation phase of database design includes creating the database storage structure and loading the database, but does not provide for data management.true or false
False. The implementation phase of database design includes creating the database storage structure and loading the database, but does not provide for data management is incorrect.
Arranging data according to a database model is called database design. The relationships between data are determined by the designer. With this knowledge, you can fit the data into your database model. Data is properly managed through a database management system.
Data classification and relationship discovery are important elements of database design. An ontology is a theoretical representation of data. Database design is based on ontologies.
Once the database designer knows what data will be stored in the database, he must determine where dependencies exist within the data. When data changes, other hidden data may also change.
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False. The implementation phase of database design includes creating the database storage structure, loading the database, and also providing for data management through the creation of user interfaces, queries, reports, and other tools for managing and manipulating data within the database.
The statement you provided is false. The implementation phase of database design does include creating the database storage structure and loading the database, but it also provides for data management. Data management is a crucial aspect of the implementation phase, as it involves organizing, maintaining, and ensuring the efficient use of data within the database.
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A regional sales manager position has opened up in your company, and the National Sales Director calls you to encourage you to apply for the position. The position would require significant international travel. Since you've recently adopted a child, the idea of international travel isn't appealing. According to _____ theory, you will not be motivated by the National Sales Director's suggestion.
a. the two-factor
b. Maslow's
c. equity
d. Hawthorne's
e. expectancy
According to the expectancy theory, you will not be motivated by the National Sales Director's suggestion to apply for the regional sales manager position that requires significant international travel. The expectancy theory, developed by Victor Vroom, states that an individual's motivation depends on three factors: expectancy, instrumentality, and valence.
Expectancy is the belief that increased effort will lead to increased performance. Instrumentality is the belief that better performance will lead to desired outcomes or rewards. Valence is the value an individual place on the rewards or outcomes.
In this scenario, you have recently adopted a child, and the idea of international travel is not appealing to you. This affects the valence factor of the expectancy theory. Since the required international travel is not perceived as a desirable outcome or reward, the overall motivation to apply for the position is reduced.
Thus, according to the expectancy theory, you will not be motivated by the National Sales Director's suggestion to apply for the regional sales manager position.
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You manage an equity fund with an expected risk premium of 11.6% and a standard deviation of 30%. The rate on Treasury bills is 6.2%. Your client chooses to invest $60,000 of her portfolio in your equity fund and $140,000 in a T-bill money market fund. What is the expected return and standard deviation of return on your client’s portfolio?
The expected return on the client's portfolio is 8.88% and the standard deviation of the return is 12.44%.
To calculate the expected return, we use the weighted average of the expected returns of the two funds:
Expected Return = (Weight of Equity Fund * Expected Return of Equity Fund) + (Weight of T-bill Fund * Expected Return of T-bill Fund)
Expected Return = (0.6 * 11.6%) + (0.4 * 6.2%) = 8.88%
To calculate the standard deviation of the return, we need to use the formula for the portfolio variance:
Portfolio Variance = (Weight of Equity Fund^2 * Variance of Equity Fund) + (Weight of T-bill Fund² * Variance of T-bill Fund) + 2*(Weight of Equity Fund * Weight of T-bill Fund * Covariance between Equity and T-bill Funds)
Since the T-bill fund has no volatility (standard deviation = 0%), its variance is 0. The covariance between the equity fund and T-bill fund is also 0 since they have no correlation. Therefore, the portfolio variance simplifies to:
Portfolio Variance = Weight of Equity Fund² * Variance of Equity Fund
Portfolio Variance = (0.6)^2 * (0.3)² = 0.0108
The standard deviation of the portfolio is the square root of the portfolio variance:
Standard Deviation = sqrt(0.0108) = 0.104 * 100% = 10.44%
Therefore, the standard deviation of the return on the client's portfolio is 12.44% (since the portfolio is a mix of the equity fund and T-bill fund), and the expected return is 8.88%.
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1.1 Heating degree-day and cooling degree-day futures contracts make payments based on whether the temperature is abnormally hot or cold. Explain why the following businesses might be interested in such a contract: a. Soft-drink manufacturers. b. Ski-resort operators. c. Electric utilities. d. Amusement park operators. 1.2 Suppose the businesses in the previous problem use futures contracts to hedge their temperature-related risk. Who do you think might accept the opposite risk?
Heating degree-day and cooling degree-day futures contracts help businesses like soft-drink manufacturers, ski-resort operators, electric utilities, and amusement park operators manage temperature-related risks by providing financial protection against abnormally hot or cold weather.
a. Soft-drink manufacturers: High temperatures increase soft-drink consumption, so manufacturers may use cooling degree-day contracts to hedge against abnormally low temperatures that could reduce sales.
b. Ski-resort operators: Low temperatures boost skiing demand, so operators may use heating degree-day contracts to hedge against abnormally high temperatures that could lead to fewer visitors.
c. Electric utilities: High temperatures increase electricity demand for air conditioning, and low temperatures increase heating demand. Utilities may use both types of contracts to hedge against abnormal temperatures affecting their revenue.
d. Amusement park operators: Attendance may decline during extreme temperatures, so operators may use both types of contracts to protect against abnormal weather affecting their business.
For question 1.2, counterparties accepting the opposite risk in futures contracts could be insurance companies, financial institutions, or other businesses with opposite temperature-related exposures, as they may benefit from the opposite temperature deviations.
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On May 22, 2020, T. Albinoni Inc. issued a 4.15% coupon bond with a $100 face value, and incurred 2.00% of the face value as a transaction cost. The bond's issue price was $86.34 per share, and its maturity date is September 30, 2029. The firm's corporate tax rate is 21%. a) Calculate the firm's "pre-tax" cost of debt. (2 points) b) Calculate the firm's "after-tax" cost of debt.
The firm's "after-tax" cost of debt is 3.76%.
a) The "pre-tax" cost of debt is the yield to maturity (YTM) of the bond, which is the rate of return that an investor would earn if they purchased the bond at the current market price and held it until maturity. To calculate the YTM, we need to use the bond's current price, face value, coupon rate, and time to maturity.
The bond's current price is $86.34, its face value is $100, and its coupon rate is 4.15%. The bond pays interest semi-annually, so it has 19 coupon payments left until maturity. The time to maturity is 9.38 years (calculated as the number of months until maturity divided by 12).
Using a financial calculator or spreadsheet, we can calculate the YTM as follows:
N = 19
PV = -86.34
PMT = 4.15 / 2 * 100 = 2.075
FV = 100
I/Y = 4.76%
Therefore, the firm's "pre-tax" cost of debt is 4.76%.
b) The "after-tax" cost of debt is the "pre-tax" cost of debt adjusted for the tax savings that the firm receives from deducting the interest expense on its tax return. The tax savings are equal to the interest expense multiplied by the firm's tax rate.
The interest expense is equal to the coupon rate multiplied by the face value of the bond, which is $4.15 per share ($100 face value * 4.15% coupon rate). The transaction cost is also considered an interest expense, as it is a cost incurred in order to obtain financing. Therefore, the total interest expense is $6.15 per share ($4.15 + $2.00 transaction cost).
The tax savings are equal to the interest expense multiplied by the firm's tax rate, which is 21%. Therefore, the tax savings are $1.29 per share ($6.15 * 21%).
The "after-tax" cost of debt is equal to the "pre-tax" cost of debt minus the tax savings, which is:
After-tax cost of debt = Pre-tax cost of debt * (1 - Tax rate)
After-tax cost of debt = 4.76% * (1 - 21%)
After-tax cost of debt = 3.76%.
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You have the possibility of participating in a job training that will cost you $1,900 now in total opportunity costs (both tuition and time away from work). This training is very specific and you will get a bonus in your pay of $1,000 in year one and $1,000 in year two. After that you would need to take another refresher course if you wanted to continue to have the salary bonus. a. Calculate the net present discounted value of participating in the training if the discount rate (interest rate) is 2%. Show all your calculations. Based on this result, is it in your best interest to participate in the training? b. Calculate the net present discounted value of participating in the training if the discount rate (interest rate) is 5%. Show all your calculations. Based on this result, is it in your best interest to participate in the training?
Discount refers to a reduction in the price of a product or service. This reduction can be a percentage of the original price or a fixed amount.
a. To calculate the net present discounted value of participating in the training at a discount rate of 2%, we need to discount the cash flows of the salary bonus back to their present value and subtract the initial cost of the training:
NPV = -1900 + 1000/(1+0.02)^1 + 1000/(1+0.02)^2
= -1900 + 980.39 + 961.17
= $41.56
Since the NPV is positive, it is in your best interest to participate in the training at a discount rate of 2%.
b. To calculate the net present discounted value of participating in the training at a discount rate of 5%, we use the same formula as in part (a), but with a different discount rate:
NPV = -1900 + 1000/(1+0.05)^1 + 1000/(1+0.05)^2
= -1900 + 952.38 + 907.03
= -$40.59
Since the NPV is negative, it is not in your best interest to participate in the training at a discount rate of 5%.
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6. An insurance agent is trying to sell you an immediate retirement annuity that offers $15,000 per year at the end of each of the next 30 years. The price of the investment proposed by the agent is $250,000. If you have the opportunity to earn 10% compounded annually on risky investments comparable to the retirement annuity offered, determine the most you would be willing to pay for the project. Would you buy it?
Since the proposed investment price is $250,000, it is not worth buying at this price. We would only buy it if the price is less than $145,323.
To determine the most you would be willing to pay for the project, you need to calculate the present value of the annuity payments using the given discount rate of 10%.
Using the formula for the present value of an annuity:
PV = C[(1 - (1 + r)⁽⁻ⁿ⁾ / r]
where PV is the present value, C is the annuity payment, r is the discount rate, and n is the number of periods,
PV = $15,000[(1 - (1 + 0.1)⁽⁻³⁰⁾) / 0.1]
PV = $15,000[(1 - 0.03118) / 0.1]
PV = $15,000[9.6882]
PV = $145,323
Therefore, the most you would be willing to pay for the project is $145,323.
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Current Attempt in Progress Wildhorse, Inc., has net income of $11,760,000 on net sales of $367,500,000. The company has total assets of $105,000,000 and stockholders' equity of $50,000,000. Use the extended DuPont identity to find the return on assets and return on equity for the firm. (Round answers to 2 decimal places, e.g. 12.25 or 12.25%.) Profit margin % Total assets turnover times ROA % ROE %
Using the extended DuPont identity, the return on assets (ROA) for Wildhorse, Inc. is 11.20% and the return on equity (ROE) is 23.52%.
To find the return on assets (ROA) and return on equity (ROE) for Wildhorse, Inc., using the extended DuPont identity, we need to calculate the profit margin, and total assets turnover, and then apply these values to find ROA and ROE.
1. Profit margin: Profit margin = (Net income / Net sales) x 100
Profit margin = ($11,760,000 / $367,500,000) x 100
Profit margin = 3.20%
2. Total assets turnover: Total assets turnover = Net sales / Total assets
Total assets turnover = $367,500,000 / $105,000,000
Total assets turnover = 3.5 times
3. ROA: ROA = Profit margin x Total assets turnover
ROA = 3.20% x 3.5
ROA = 11.20%
4. ROE: ROE = ROA x (Total assets / Stockholders' equity)
ROE = 11.20% x ($105,000,000 / $50,000,000)
ROE = 11.20% x 2.1
ROE = 23.52%.
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Sam is looking to purchase a commercial building that has an NOI
of $405,000. If Sam’s lender requires a Debt Coverage Ratio of at
least 1.2, what is the maximum annual Debt Service Sam can pay?
The Debt Coverage Ratio (DCR) is a measure that lenders use to assess a borrower’s ability to make loan payments. It is calculated by dividing a property’s net operating income by its annual debt service.
In this case, if the NOI is $405,000 and the lender requires a DCR of 1.2, the maximum annual debt service that Sam can pay is $337,500 ($405,000 / 1.2).
The debt service is the amount of money that Sam would need to pay each year to cover the loan payments, including principal and interest. A higher DCR indicates that the borrower has more financial flexibility and is a better credit risk. A lower DCR signals that the borrower may not be able to cover loan payments and is an increased risk.
By requiring a DCR of 1.2, the lender is indicating that they feel confident that Sam can cover his loan payments.
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a formula that helps you calculate how long it will take for your savings to double is the rule of 72. true false
True, the Rule of 72 is a formula that helps you calculate how long it will take for your savings to double.
To use the Rule of 72, you simply divide 72 by the annual interest rate (expressed as a percentage) to estimate the number of years it will take for your investment to double in value. For example, if the interest rate is 6%, it would take approximately 12 years (72 ÷ 6 = 12) for your savings to double.
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----------TRUE----------
exercising PEOPLE PROBLEMS The Situation You are the controller at a manufacturing company that sells refrigeration and food packaging equipment worldwide. Your company recently hired a temporary worker, Kelly, to help put a new International sales tax tracking system in place. She's well qualified, a hard worker, a team player, and highly effective at her job. You want to bring her on full time, so you have jumped through all the hoops and created a middle management job for her that would put her on equal footing with her current boss, the accounting manager, Elizabeth (who reports to you. You are going to finish the process as soon as you get back from a week of vacation, The Dilemma While you were gone, Elizabeth obtained Kelly's résume from the temp agency. She noticed some holes in the timeline and met with Kelly in a closed meeting. After the meeting, she had security escort Kelly out of the building and warned her not to retum. She wrote a memo to you stating that in the interview, as she probed some of the discrepancies in the résumé and job application, Kelly revealed that she had struggled with alcohol Issues when she was younger, but now she was 15 years dean and sober. Despite this, Elizabeth felt that Kelly's past made her unqualified for the job, and felt so strongly about it that she, Elizabeth, would resignil kelly was brought back in any capacity, Elizabeth has been with the company for 20 years and runs the accounting department like a tight ship. In fact, it's one of the best departments in the company and always makes you look good in the management meetings QUESTIONS TO ADDRESS S-21. What areas of management functions are involved in this scenario 5-22. What are the ethicales in this situation 5-23What is the logical, busin-bied approach for a man ager to take in this situation! Explain your position 5-21. What would you do and why? 5:25. How would you describe the culture of this company based on the limited information in the scenario exercising PEOPLE PROBLEMS The Situation You are the controller at a manufacturing company that sells refrigeration and food packaging equipment worldwide. Your company recently hired a temporary worker, Kelly, to help put a new international sales tax tracking system in place She's well qualified, a hard worker, a team player, and highly effective at her job. You want to bring her on full time, so you have jumped through all the hoops and created a middle management job for her that would put her on equal footing with her current boss, the accounting manager, Elizabeth (who reports to you). You are going to finish the process as soon as you get back from a week of vacation. The Dilemma While you were gone, Elizabeth obtained Kelly's résume from the temp agency. She noticed some holes in the timeline and met with Kelly in a closed meeting. After the meeting, she had security escort Kelly out of the building and wamed her not to retum. She wrote a memo to you stating that in the interview, as she probed some of the discrepancies in the resume and job application, Kelly revealed that she had struggled with alcohol issues when she was younger, but now she was 15 years clean and sober. Despite this, Elizabeth felt that Kelly's past made her unqualified for the job, and felt so strongly about it that she, Elizabeth, would resign if Kelly was brought back in any capacity, Elizabeth has been with the company for 20 years and runs the accounting department like a tight ship. In fact, it's one of the best departments in the company and always makes you look good in the management meetings QUESTIONS TO ADDRESS 5-21. What areas of management functions are involved in this scenario 5-22 What are the ethical issues in this situation? 5-23. What is the logical, business-based approach for a man- ager to take in this situation? Explain your position 5-21. What would you do and why? 5-25. How would you describe the culture of this company based on the limited information in the scenario
Okay, let's break this scenario down:
5-21. The areas of management involved here are:
- Leadership: You as the controller have to lead in resolving this difficult situation.
- Human resources management: Managing the hiring, performance issues and termination of employees.
- Accounting/Finance: Given that Kelly was brought on to help implement an accounting system and Elizabeth runs the accounting dept.
5-22. The main ethical issues here are:
- Discrimination: Elizabeth may be discriminating against Kelly due to her past struggles, despite her being 15 years sober.
- Fairness: Is it fair to remove Kelly from her new role after she was already hired for it?
- Trust: Did Elizabeth violate trust by reviewing Kelly's private resume behind your back?
5-23. The logical, business-focused approach here would be:
- Weigh the pros and cons of Kelly vs. Elizabeth remaining in their roles. Who is more valuable to the key business needs?
- Determine if either employee's actions warrant discipline or termination. Or if the issues can be resolved professionally.
- Consider if there are any compromises or alternative solutions, e.g. Kelly remaining in a different role, Elizabeth reporting to someone else, etc.
- Make a decision that prioritizes the good of the key business operations and team productivity.
5-21. Given the options, I would try to have a constructive conversation with both Elizabeth and Kelly to find a reasonable resolution, rather than immediately terminating either one.
- Kelly seems a valuable hire, so I would want to try and make the role work if possible.
- Elizabeth also seems a key employee, so losing her should be an absolute last resort.
- With open communication, they may be able to find a way to professionally co-exist or alternative solutions could emerge.
- Only if resolution proves truly impossible would I consider letting either one go. Compromise and pragmatism seem prudent here.
5-25. Based on this limited scenario, I would describe the culture of this company as:
- Fastidious and by-the-book, given how strictly Elizabeth seems to enforce procedures.
- Closed-off, as there is a lack of transparency around key decisions and Elizabeth's actions seem isolating.
- With an undercurrent of politics, as power dynamics and territorialism also seem to be in play.
- However, the company also appears performance-oriented, as under-performing employees would presumably be let go.
- So, a mix of positive and concerning cultural elements based on this dilemma alone. More context would be needed to determine the full culture.
Currently, in 2022, the US Treasury Note yield stands at about 2.03% whereas the core PC stands at 5.2%. Based on this information, how high is the real yield of the
US Treasury Note? Can you see any implications for stocks (and other riskier assets) demand? Please discuss.
The real yield of the US Treasury Note can be calculated by subtracting the core PC (5.2%) from the US Treasury Note yield (2.03%). Therefore, the real yield of the US Treasury Note is currently -3.17%.
This negative real yield implies that investors are essentially losing money by investing in US Treasury Notes after accounting for inflation.
As for implications for stocks and other riskier assets, a negative real yield on US Treasury Notes could potentially lead to increased demand for higher-yielding assets such as stocks, corporate bonds, and other riskier assets. This is because investors may seek higher returns to offset the negative impact of inflation on their investments.
However, it is important to note that investors also take into account other factors such as market volatility, geopolitical risks, and company-specific risks when making investment decisions.
Therefore, the demand for stocks and other riskier assets is not solely determined by the real yield on US Treasury Notes, but rather by a combination of various factors.
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as a manager, tariq has consistently demonstrated an appropriate amount of concern for both people and production. on the leadership grid, tariq's style would be classified as
Tariq's leadership style would likely be classified as "Team Management" on the Leadership Grid, also known as the Blake-Mouton Grid or Managerial Grid.
The Leadership Grid is a model that assesses leadership styles based on two dimensions: concern for people and concern for production. The concern for people dimension measures the leader's level of consideration, support, and respect for the needs and well-being of team members. The concern for production dimension measures the leader's focus on achieving tasks, goals, and results.
A leadership style that demonstrates an appropriate amount of concern for both people and production would fall into the Team Management style, which is characterized by high concern for both people and production. Leaders with this style strive to balance the needs of their team members with the goals and tasks at hand, aiming to achieve both high productivity and employee satisfaction. They emphasize teamwork, collaboration, and effective communication to achieve results while also valuing the well-being and development of their team members.
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Assume that JCP will experience a $1.5 billion net income loss for billion is required for JCP to operate efficiently. Create a pro forma JCP's external funding required by year-end 2013.
The success of JCP will depend on its ability to manage costs, improve operational efficiencies, and create value for its stakeholders.
Based on the assumption that JCP will experience a $1.5 billion net income loss, the company will require external funding of at least $2 billion by year-end 2013 to operate efficiently. This estimate takes into consideration the fact that the company has already taken steps to reduce costs, such as cutting staff and closing stores.
However, it is clear that further funding will be required to support ongoing operations, pay down debt, and invest in new initiatives.
To generate the necessary funding, JCP may need to consider a range of options, such as issuing new debt, selling assets, or raising equity capital through a public offering. Given the current market conditions and the challenges facing JCP, it may be difficult to secure funding on favorable terms.
As such, the company will need to carefully evaluate its options and develop a comprehensive strategy to ensure its long-term viability. Overall, the success of JCP will depend on its ability to manage costs, improve operational efficiencies, and create value for its stakeholders.
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# of days b/t dates/ # of days in reference period * interest earned in reference period
For example: Suppose that the bond principal is $100, coupon payment dates are 3/1 and 9/1, and the coupon rate is 8%. We wish to calculate the interest earned between 3/1 and 7/3.
•(Actual / Actual) = (124 / 184)*$4 = $2.6957
•(30 / 360) = ((4*30+2)/180)*$4 = $2.7111
•(Actual/360)= (124/180)*4= $2.7556
How did we get these numbers?
Okay, let's walk through this step-by-step to understand how these interest earned amounts are calculated:
1) There are 2 coupon payment dates: March 1 (3/1) and September 1 (9/1). So the reference period is from 3/1 to 9/1.
2) In this reference period, there are 184 total days (9/1 - 3/1 = 184 days).
3) The coupon rate is 8% and the bond principal is $100. So each semi-annual coupon payment is $4 (0.08 * $100 / 2).
To calculate the interest earned from 3/1 to 7/3:
(Actual / Actual) method:
* There are actually 124 days between 3/1 and 7/3.
* So the interest earned = (124 / 184) * $4 = $2.6957
(30 / 360) method:
* We assume each month has 30 days and there are 360 days in a year.
* From 3/1 to 7/3 is 4 months and 2 days. 4 months * 30 days/month = 120 days. 2 days = 2 days. So 120 + 2 = 122 days.
* 122 / 360 = 0.3389. So the interest earned = 0.3389 * $4 = $2.7111
(Actual/360) method:
* Although there are actually 124 days, we calculate as if each month has 30 days.
* So from 3/1 to 7/3 is 4 months. 4 months * 30 days/month = 120 days.
* 120 / 180 days in 6 months = 0.667
* So the interest earned = 0.667 * $4 = $2.7556
Does this help explain the calculations? Let me know if you have any other questions!
if you were developing an incentive system designed to help drive successful strategy execution, which compensation and reward system would you not consider in your strategy execution effort?
The salary and reward system should be in line with the overall strategy and goals of the firm.
However, in general, any system that incentivizes activities that are inconsistent with the company's principles or that may lead to unethical practices should be avoided. A system that primarily pays salespeople based on the number of sales they generate, for example, may push them to use aggressive or dishonest tactics to complete deals.
As a result, it is critical to carefully analyze the incentive system's design and ensure that it promotes behaviors that support the company's vision and goal.
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stabilization policy refers to policy actions aimed at: reducing the severity of short-run economic fluctuations. equalizing incomes of households in the economy. maintaining constant shares of output going to labor and capital. preventing increases in the poverty rate.
Stabilization policy refers to policy actions aimed at reducing the severity of short-run economic fluctuations.Option (1)
These policy actions are designed to help stabilize the economy during periods of recession or inflation by influencing aggregate demand through monetary or fiscal policy tools.
The goal of stabilization policy is to achieve full employment and price stability in the economy. While stabilizing the economy, these policies also aim to promote economic growth and development. Therefore, stabilization policies are critical in achieving macroeconomic stability and ensuring the long-term sustainability of the economy.
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Full Question: Stabilization policy refers to policy actions aimed at:
reducing the severity of short-run economic fluctuations. equalizing incomes of households in the economy. maintaining constant shares of output going to labor and capital. preventing increases in the poverty rate.Alpha Centaur Co (AC) has 100 million shares outstanding with a price per share 5.8€ per share. AC plans to now issue debt for 180 MEUR and investors expect this level of debt to be permanent. Suppose the only market imperfections are corporate taxes at 20% and financial distress costs, and that the price per share with the leveraged recapitalization settles at 6€ per share in the market. What is the implied present value of financial distress costs in MEUR, and the number of shares repurchased with the issued debt?
The implied present value of financial distress costs in MEUR can be calculated by first finding the value of the company before and after the leveraged recapitalization. Before the recapitalization, the value of AC is:
100 million shares x €5.8 per share = €580 millionAfter the recapitalization, the value of AC is:(100 million shares x €6 per share) + €180 million debt = €780 million The increase in value due to the recapitalization is:€780 million - €580 million = €200 million.
However, this increase in value is not solely due to the recapitalization but also due to the assumption that the level of debt will be permanent. Therefore, we need to adjust for the tax shield benefit from the interest payments on the debt, which is:
(20% x €180 million) / (1 - 20%) = €36 million
The adjusted increase in value due to the recapitalization is:
€200 million - €36 million = €164 million
This €164 million represents the present value of financial distress costs, which is the amount that investors expect AC to pay in the future due to the increased risk of financial distress from the additional debt.
To find the number of shares repurchased with the issued debt, we can divide the €180 million debt by the price per share after the recapitalization:
€180 million / €6 per share = 30 million
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Shi Import-Export's balance sheet shows $300 million in debt, $50 million in preferred stock, and $250 million in total common equity. Shi's tax rate is 40%, rd = 8%, rps = 7.1%, and rs = 10%. If Shi has a target capital structure of 30% debt, 5% preferred stock, and 65% common stock, what is its WACC? Round your answer to two decimal places.
Shi Import-Export's WACC is 8.10%.
To calculate Shi Import-Export's WACC, we need to first calculate the cost of each component of its capital structure: debt, preferred stock, and common stock.
The cost of debt (rd) is given as 8%, so we can simply use that. The cost of preferred stock (rps) is also given as 7.1%.
To calculate the cost of common stock (rs), we can use the capital asset pricing model (CAPM):
rs = rf + β(rs - rf)
where rf is the risk-free rate (assumed to be 2.5%), β is the company's beta (assumed to be 1.2), and rs - rf is the market risk premium (assumed to be 5%).
Using these values, we can calculate the cost of common stock as:
rs = 2.5% + 1.2(5%) = 8.5%
Next, we need to calculate the weights of each component of the capital structure. Shi's target capital structure is 30% debt, 5% preferred stock, and 65% common stock.
Using these weights and the costs of each component, we can calculate the weighted average cost of capital (WACC) as:
WACC = (0.30 x 0.08) + (0.05 x 0.071) + (0.65 x 0.085) x (1 - 0.40) = 0.081 or 8.10%
Therefore, Shi Import-Export's WACC is 8.10%.
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the rental income an existing, stabilized property is expected to generate, after allowances for vacancies and collection losses, is called
The rental income an existing, stabilized property is expected to generate, after allowances for vacancies and collection losses, is called Effective Gross Income.
Effective Gross Income (EGI) of a rental property is calculated as Potential Gross Rental Income in addition to other income less vacancy and credit charges. By combining prospective gross rental revenue with other sources of income and deducting vacancy and credit charges from a rental property, effective gross income is computed.
Effective Gross Income is crucial in assessing a rental property's worth and the actual positive cash flow it may provide. EGI is crucial for real estate investors because they need to be sure that the property they are thinking about buying generates enough positive cash flow to pay for monthly operating costs as well as any debts or encumbrance they may have taken on to buy the property.
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which of the following refers to the displacement of market middlemen and the creation of a new direct relationship between producers and consumers?question 1 options:network effectdisintermediationfriction-free commercefirst mover advantage
The "disintermediation" refers to the displacement of market middlemen and the creation of a new direct relationship between producers and consumers.
Disintermediation is the process of cutting out intermediaries in a supply chain, such as wholesalers or retailers, and establishing a direct relationship between producers and consumers. This can be facilitated by technology, such as the internet or mobile apps, which allows producers to sell directly to consumers without the need for intermediaries.
The reason of the disintermediation can lead to reduced costs, increased efficiency, and greater control over the distribution and marketing of products. However, it can also disrupt existing business models and create new challenges for traditional intermediaries.
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The 30-day forward rate for the Yen is $0.01500, while thecurrent spot rate of the Yen is $0.01060. What is the annualizedforward premium of the Yen?
The annualized forward premium of the Yen is 41.51%.
To calculate the annualized forward premium, we first need to calculate the forward rate premium, which is the difference between the forward rate and the spot rate.
Forward rate premium = Forward rate - Spot rate
= $0.01500 - $0.01060
= $0.00440
Next, we need to annualize the forward rate premium by dividing it by the spot rate and multiplying by 365/30 (assuming a 360-day year).
Annualized forward premium = (Forward rate premium / Spot rate) x (365/30)
= ($0.00440 / $0.01060) x (365/30)
= 0.4151 or 41.51%
Therefore, the annualized forward premium of the Yen is 41.51%.
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If a firm is expected to report a free cash flow equal to $10 million and that cash flow is expected to grow at 5% for a long time. If the liabilities are $20 million and it has 10 million shares of common stocks outstanding, WACC is 10%, then how much is the intrinsic value per share?
$20
$18
$10
$22
$15
The intrinsic value per share for this firm is $15.
The intrinsic value per share is calculated by using the discounted cash flow (DCF) model. In this model, the free cash flow of the firm is discounted back to the present value at a discount rate which is the Weighted Average Cost of Capital (WACC).
In this case, if the firm is expected to report a free cash flow of $10 million, which is expected to grow at 5% for a long time, the liabilities are $20 million, and the WACC is 10%, the intrinsic value per share can be calculated as follows:
Intrinsic Value Per Share = ($10 million / (1+WACC)) + (Liabilities - Equity) / Shares Outstanding
Therefore, in this case, the intrinsic value per share would be calculated as follows:
Intrinsic Value Per Share = ($10 million / (1+10%)) + ($20 million - $10 million) / 10 million = $15.
Thus, the intrinsic value per share for this firm is $15.
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Marginal benefit minus price equals: A. consumer surplus. B. economic equity. C. producer surplus. D. economic efficiency.
Marginal benefit minus price equals A. consumer surplus.
What is meant by consumer surplus?
Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good or service (i.e., marginal benefit) and the actual price they pay. Therefore, marginal benefit minus price equals consumer surplus.
Marginal benefit represents the additional benefit a consumer receives from consuming an additional unit of a good or service, while price represents the cost of that unit. When you subtract the price from the marginal benefit, you get the consumer surplus. This measures the value that consumers receive from consuming a good or service over and above what they actually paid for it.
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An investor with a 3-year investment horizon is considering purchasing a 10-year coupon bond with a par value of $1,000. The annual coupon rate is 10% and the price is $1,000. The investor expects that she can reinvest the coupon payments at an annual interest rate of 10% and that at the end of the 3-year investment horizon 7-year bonds will be selling to offer a yield to maturity of 15%. What is the total return for this bond?
The total return for this bond over the 3-year investment horizon is 2.7% when the yield to maturity is 15%.
To calculate the total return for the bond, we need to take into account the coupon payments, reinvestment income, and capital gain or loss.
First, let's calculate the annual coupon payment. The coupon rate is 10%, so the annual coupon payment is:
$1,000 x 10% = $100
The bond has a 10-year maturity, but the investor only plans to hold it for 3 years. At the end of the third year, there will be 7 years left until maturity.
Next, let's calculate the total coupon payments over the 3-year investment horizon, assuming the investor reinvests them at 10% annually.
- Year 1: $100 coupon payment, reinvested at 10%, gives $110 at the end of the year
- Year 2: $100 coupon payment, reinvested at 10%, gives $121 at the end of the year
- Year 3: $100 coupon payment, reinvested at 10%, gives $133.10 at the end of the year
So the total reinvestment income at the end of the 3-year horizon is $110 + $121 + $133.10 = $364.10
Next, let's calculate the capital gain or loss when the investor sells the bond at the end of the third year. The bond will have 7 years left until maturity, and bonds with 7-year maturities are expected to offer a yield to maturity of 15%.
Using a bond calculator, we can find that the price of a 7-year bond with a 15% yield to maturity and a par value of $1,000 is:
PV = $1,000 / (1 + 0.15) = $386.48
So if the investor sells the bond at the end of the third year, they will receive $386.48.
Since the investor bought the bond for $1,000, the capital loss is:
Capital loss = $1,000 - $386.48 = $613.52
Finally, let's calculate the total return:
Total return = reinvestment income + captal gain or loss / initial investment
Total return = $364.10 + ($613.52) / $1,000 = 0.027 = 2.7%
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conscientiousness is a trait that is associated with better job performance, higher job satisfaction, better leadership performance, and higher retention. conscientiousness is a trait that is associated with better job performance, higher job satisfaction, better leadership performance, and higher retention. true false
The given statement" conscientiousness is a trait that is associated with better job performance, higher job satisfaction, better leadership performance, and higher retention. conscientiousness is a trait that is associated with better job performance, higher job satisfaction, better leadership performance, and higher retention." is True.conscientiousness is a valuable trait in the workplace and is often sought after by employers when hiring and promoting employees.
They are also more likely to exhibit effective leadership behaviors, such as being organized, planning ahead, and setting goals for their team. Conscientiousness has also been linked to a range of other positive outcomes, including better physical health, higher academic achievement, and greater life satisfaction.
Overall, conscientiousness is a valuable trait in the workplace and is often sought after by employers when hiring and promoting employees.
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The goal of a(n) ______ strategy is to generate profit and establish a new product or service in the market as quickly as possible.
- reference point
- price skimming
- improvement-value
The goal of a value strategy is to generate profit and establish a new product or service in the market as quickly as possible. This strategy focuses on offering a product or service at a lower price than competitors, while still maintaining quality. By doing so, the company aims to attract price-sensitive customers who are looking for a good deal.
In order to implement a successful value strategy, a company must first identify its target market and understand their needs and preferences. The company should then develop a product or service that meets those needs and is priced competitively.
Once the product or service has been developed and priced appropriately, the company should focus on marketing and promotion to reach its target market. This may involve advertising through social media, email campaigns, or other channels that are popular with the target audience.
Overall, a value strategy can be an effective way for companies to generate profit and establish a new product or service in the market quickly. However, it is important to carefully consider the costs involved and ensure that the company can maintain quality while keeping prices low.
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marsha incorporated has the following budgeted data for the coming year: cash balance, beginning $ 15,700 collections from customers 145,700 direct materials purchases 25,700 expenses: operating expenses 51,400 payroll 75,700 income taxes 6,000 other: machinery purchases 30,700 operating expenses include $20,700 depreciation for buildings and equipment. all purchases of materials are paid for in the period of purchase. the company requires a minimum cash balance of $25,000. required: compute the amount the company needs to finance or the excess cash available for marsha to invest
The ending cash balance is negative, it means that the company needs financing of $49,500 to meet its cash requirements for the year. Alternatively, if the company had a positive ending cash balance, it would have excess cash available for investment.
To compute the amount of financing needed or excess cash available for investment, we need to calculate the company's total cash inflows and outflows for the year.
Cash inflows:
Collections from customers = $145,700
Cash outflows:
Direct materials purchases = $25,700
Operating expenses (excluding depreciation) = $51,400
Payroll = $75,700
Income taxes = $6,000
Depreciation = $20,700
Machinery purchases = $30,700
Total cash outflows = $210,900
To determine the company's ending cash balance, we need to add the beginning cash balance to the total cash inflows and subtract the total cash outflows:
Beginning cash balance = $15,700
Total cash inflows = $145,700
Total cash outflows = $210,900
Ending cash balance = Beginning cash balance + Total cash inflows - Total cash outflows
Ending cash balance = $15,700 + $145,700 - $210,900
Ending cash balance = -$49,500
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which of the following is true regarding price? multiple choice question. it should be based on the value that the customer perceives. it should be as high as legally allowed. it should always be based on competitors' prices. it may result in higher-than-necessary margins and profits if it is too low
The statement which is true regarding price is a. it should be based on the value that the customer perceives.
Setting the appropriate pricing may help firms attract clients, produce revenue, and make a profit. Pricing is a crucial component of marketing strategy. Pricing should be determined by the perceived value that consumers place on the provided goods. This implies that when determining pricing, firms should consider both advantages of their commodities as well as the requirements and preferences of their target clients.
A detailed grasp of the market, the competitors, and customer behaviour should serve as the foundation for pricing strategies. Pricing decisions can have a detrimental effect on sales and earnings. It may not be the ideal strategy to set pricing based merely on those of rivals or on regulatory restrictions since it may neglect to consider the special value proposition of the item or service being given.
Complete Question:
Which of the following is true regarding price?
a. it should be based on the value that the customer perceives.
b. it should be as high as legally allowed.
c. it should always be based on competitors' prices.
d. it may result in higher-than-necessary margins and profits if it is too low
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