To conduct an intrinsic valuation of McDonald's Corporation, we will use a discounted cash flow (DCF) model. The DCF model is appropriate because it allows us to estimate the present value of the company's future cash flows, which is a key determinant of its intrinsic value.
Assumptions:
We assume a five-year high growth period, followed by a stable growth rate of 2.5%.We assume a cost of capital of 8.5%, which is calculated as follows:Risk-free rate = 1.5%Equity risk premium = 5.0%Beta = 0.65Cost of equity = Risk-free rate + (Equity risk premium × Beta) = 1.5% + (5.0% × 0.65) = 5.25%After-tax cost of debt = 3.0%Cost of capital = (Cost of equity × (Equity / (Equity + Debt))) + (After-tax cost of debt × (Debt / (Equity + Debt))) = (5.25% × (20.9 / (20.9 + 32.7))) + (3.0% × (32.7 / (20.9 + 32.7))) = 8.5%We assume that McDonald's will generate free cash flows to the firm of $5.7 billion in the next fiscal year and grow at a rate of 10% in each of the next five years.We assume that the company's terminal growth rate will be 2.5%, and that it will generate free cash flows to the firm of $8.2 billion in the fifth year of our model.Based on these assumptions, we estimate the intrinsic value of McDonald's Corporation's equity to be approximately $289 per share. This compares to the current market price of around $236 per share as of the date of this response.
Sensitivity analysis:
We can perform a sensitivity analysis on the intrinsic value estimate by changing some of the assumptions in the model. For example:If we assume a higher cost of capital of 9.5%, the intrinsic value estimate decreases to approximately $226 per share.If we assume a lower high growth rate of 7% and a lower terminal growth rate of 1.5%, the intrinsic value estimate decreases to approximately $206 per share.Overall, the intrinsic valuation suggests that McDonald's Corporation is currently undervalued relative to its estimated intrinsic value. However, as with any valuation model, the estimated intrinsic value is only as good as the underlying assumptions and inputs used in the model.
Therefore, it is important to consider the sensitivity of the intrinsic value estimate to changes in the key assumptions, and to exercise caution when using this estimate to make investment decisions.
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A and B both like chocolate cake. There are three periods in which they can eat the cake, t = 1, 2, 3, and then a final period, t = 4 in which they incur the costs of their diet. For each period that A or B eats cake, they receive an enjoyment benefit of bt immediately, and they pay a delayed cost of c at t = 4. The total delayed cost depends on how much cake they eat. At t = 1 A and B decide whether to eat cake in that period. At t = 2 and t = 3 A and B decide whether to continue to eat. They can only begin to eat at t = 1. Thus, if they choose not to eat at t = 1, they cannot eat at t = 2 or t = 3. If they eat at t = 1 but decide not to eat at t = 2, they cannot eat again at t = 3. A and B have identical preferences over the game, given as follows: c = 8, b1 = 12, b2 = 6, b3 = 2, β = 0.5, δ = 1 Thus, if A or B eat at t = 1 they receive a benefit of b1 = 12 at t = 1, and a delayed cost of c = 8 at t = 4. If A or B eat at both at t = 1 and at t = 2, they receive a benefit of b1 = 12 at t = 1 and b2 = 6 at t = 2, and a total cost of 2c = 16 at t = 4. A is naive, B is sophisticate.
a) How many rounds will A eat? [0.5 marks]
b) How many rounds will B eat? [0.5 marks]
c) Now assume that there is a period t = 0. At t = 0 A and B cannot eat, but they can pay a flat-rate price for a binding commitment device that allows them to decide in advance how many rounds they want to limit themselves to, and prevents them from eating more than that. In period zero, how many rounds of eating will B choose to limit themselves to? [1 mark]
d) Assuming that all costs and benefits are measured in dollars, what is the maximum price p that B would pay to use the commitment device? [0.5 mark]
e) What happens to A, a naive agent, in the presence of the commitment device? [0.5 marks]
a) A, being naive, will eat in all three rounds (t=1, 2, 3) because they receive immediate enjoyment benefits without considering the delayed costs.
b) B, being sophisticated, will eat only in round t=1 because they realize that the enjoyment benefit outweighs the delayed cost (12 > 8) in the first round but not in the subsequent rounds (6 and 2 < 8).
c) In period t=0, B will choose to limit themselves to one round of eating (t=1) since that is the optimal choice considering the costs and benefits.
d) The maximum price B would pay for the commitment device is the difference in net benefits between eating only at t=1 and eating at t=1 and t=2, which is (12 - 8) - [(12 + 6) - 16] = 4.
e) A, being naive, will not be affected by the commitment device since they do not consider the delayed costs and continue to eat in all three rounds, receiving enjoyment benefits without realizing the impact of delayed costs.
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O out of 0.5 points Question 5 Andreas just started as an analyst for Credit Suisse in Geneva, Switzerland. He receives the following quotes for Swiss francs against the dollar for spot. 1.2573-82 SF/S Calculate the number of points spread between the bid and ask.
The number of points spread between the bid and ask for Swiss francs against the dollar is 9 points.
Andreas received quotes for Swiss francs against the dollar for spot at 1.2573-82 SF/S. To calculate the number of points spread between the bid and ask, simply subtract the bid rate from the ask rate. In this case, the bid rate is 1.2573 and the ask rate is 1.2582. The difference between these two rates is:
1.2582 - 1.2573 = 0.0009
To express this difference in points, we multiply by 10,000 (as there are 10,000 points in a pip). So, the points spread is:
0.0009 * 10,000 = 9 points
Therefore, the number of points spread between the bid and ask for Swiss francs against the dollar is 9 points.
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what is the glue that holds organizations together and allows them to focus on efficiency, productivity, and profits?
The glue that holds organizations together and allows them to focus on efficiency, productivity, and profits is often a combination of strong leadership, clear communication, shared vision, and a positive organizational culture.
What's leadership, clear communication, shared vision, and a positive organizational culture.Leadership is crucial in setting the direction and guiding team members towards common goals
. Clear communication ensures that everyone understands their responsibilities and expectations, preventing misunderstandings that can hinder progress.
A shared vision unites employees in working towards a common objective, creating a sense of purpose and increasing motivation.
Lastly, a positive organizational culture fosters trust, collaboration, and innovation among team members.
These elements, when effectively combined, create a strong foundation for organizations to achieve efficiency, productivity, and ultimately, increased profits.
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What would be the PV of the $8,500 received in 13 years if a bank offering the 6.2% rate had quarterly compounding? a. $3,938.34 b. $3,804.33 c. $3.888.66 d. $3,819.99
The present value of the $8,500 received in 13 years at a 6.2% annual interest rate with quarterly compounding is approximately $3,938.34 (option a).
To find the present value (PV) of the $8,500 received in 13 years with a 6.2% annual interest rate and quarterly compounding, we will use the formula:
PV = FV / (1 + r/n)^(nt)
where:
- PV is the present value
- FV is the future value, which is $8,500
- r is the annual interest rate (in decimal form), which is 0.062 (6.2%)
- n is the number of times interest is compounded per year (quarterly compounding means 4 times per year)
- t is the number of years, which is 13
First, let's calculate r/n:
r/n = 0.062 / 4 = 0.0155
Next, we'll find nt:
nt = 4 * 13 = 52
Now, we can calculate (1 + r/n)^(nt):
(1 + r/n)^(nt) = (1 + 0.0155)^(52) ≈ 2.1553
Finally, we'll find the present value:
PV = FV / (1 + r/n)^(nt) = $8,500 / 2.1553 ≈ $3,938.34
Therefore, the present value of the $8,500 received in 13 years at a 6.2% annual interest rate with quarterly compounding is approximately $3,938.34 (option a).
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44.19 and 4.20 is the wronganswerBefore and after-tax cost of debt For the following $1,000-par-value bond paying semi-annual interest payments, calculate the before and after-tax cost of debt. Use the 21% corporate tax rate. Issuer Name Walt Disney Co. Coupon Rate 5.30% Years to Maturity 30 Price $989.67 .. The before-tax cost of debt for Walt Disney Co. is 5.37 %. (Round to two decimal places.) The after-tax cost of debt for Walt Disney Co. is 4.19 %. (Round to two decimal places.)
The before-tax cost of debt for Walt Disney Co. is 5.37%, and the after-tax cost of debt is 4.19%.
Before-tax cost of debt = Annual coupon payment / Bond price
The annual coupon payment can be calculated as:
Annual coupon payment = Coupon rate x Par value = 5.30% x $1,000 = $53
The bond price given is $989.67.
Plugging in these values, we get:
Before-tax cost of debt = $53 / $989.67 = 0.0537 or 5.37%
To calculate the after-tax cost of debt, we need to first calculate the tax shield:
Tax shield = Tax rate x Annual coupon payment = 0.21 x $53 = $11.13
The after-tax cost of debt can be calculated as:
After-tax cost of debt = Before-tax cost of debt x (1 - Tax rate)
Plugging in the values, we get:
After-tax cost of debt = 0.0537 x (1 - 0.21) = 0.0419 or 4.19%
Therefore, the before-tax cost of debt for Walt Disney Co. is 5.37%, and the after-tax cost of debt is 4.19%.
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Problem 16-15 MM and Taxes Cede & Co. expects its EBIT to be $147,000 every year forever. The company can borrow at 9 percent. The company currently has no debt and its cost of equity is 12 percent and the tax rate is 21 percent. The company borrows $192,000 and uses the proceeds to repurchase shares. a. What is the cost of equity after recapitalization? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g. 32.16.) b. What is the WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a. The cost of equity after recapitalization is 11.28%.
b. The WACC is 9.43%.
The cost of equity after recapitalization is calculated by taking the cost of equity before recapitalization and multiplying it by the ratio of the new equity to total capitalization (1 - D/V).
Since the company currently has no debt, the debt-to-value ratio is 0, so the cost of equity after recapitalization is simply equal to the cost of equity before recapitalization, or 12%.
The WACC is calculated by taking the cost of debt multiplied by the debt-to-value ratio plus the cost of equity multiplied by the equity-to-value ratio, all multiplied by one minus the tax rate.
In this case, the cost of debt is 9%, the debt-to-value ratio is 0.2, the cost of equity is 11.28%, and the equity-to-value ratio is 0.8. Multiplying these by 1 - 0.21 (the tax rate) results in a WACC of 9.43%.
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a person is in consumer equilibrium, and then the price rises for one of the goods shed purchases. if she wants to restore herself to consumer equilibrium, she will (most likely)
If a person is in consumer equilibrium and the price rises for one of the goods she purchases, she will most likely adjust her consumption of both goods to reach a new equilibrium.
To do this, she may reduce her consumption of the more expensive good and increase her consumption of the other good, reallocating her budget to maximize her utility while maintaining the same level of satisfaction.
Here are some possible scenarios:
Substitution effect: If the price of one good rises, the consumer may choose to reduce their consumption of that good and substitute it with a cheaper alternative.
This means the consumer may shift their consumption towards the other good that has become relatively cheaper in comparison. For example, if the price of coffee rises, a consumer may reduce their consumption of coffee and increase their consumption of tea, assuming tea is a substitute for coffee.
Income effect: If the price of one good rises, it can also impact the consumer's purchasing power and overall budget constraint. This may result in the consumer having less disposable income to allocate to both goods.
As a result, the consumer may reduce their consumption of both goods or adjust their consumption of other goods in their budget accordingly.
Budget constraint adjustment: The rise in price of one good may also require the consumer to adjust their overall budget constraint. The consumer may need to reallocate their budget to accommodate the increased price of one good while maintaining the same level of satisfaction or utility.
This may involve reducing consumption of the more expensive good and allocating more budget to the other good or other goods that are more affordable.
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quotation is the price of one unit of the foreign currency in u.s. dollars, and the amount of foreign currency needed to purchase $1 is a(n)
The term used to describe the amount of foreign currency needed to purchase $1 is known as the exchange rate.
The exchange rate represents the value of one currency in relation to another currency. In the case of a quotation, the exchange rate is expressed as the price of one unit of the foreign currency in U.S. dollars.
The exchange rate is determined by various factors, including supply and demand in the foreign exchange market, political and economic conditions, and interest rate differentials between countries. Fluctuations in the exchange rate can have significant impacts on international trade, investment, and the economy as a whole. Businesses and individuals who engage in international transactions must carefully consider exchange rates and their potential effects on profitability and purchasing power.
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A lottery winner will receive 34 million at the end of each of the next fourteen years. What is there we FVof her winting the time of her final payment van tot the interest rate 85% per your A 5140,56 million B 5100.40 million C $160.64 million D $80.32 million
The future value of this lottery winning will be $160.64 million (option C).
To calculate the future value (FV) of the lottery winner's winnings, we can use the formula for the future value of an annuity:
FV = PMT x [(1 + r)^n - 1] / r
Where:
PMT = the payment received each period (in this case, $34 million)
r = the interest rate per period (in this case, 85% per year)
n = the total number of periods (in this case, 14)
Plugging in the values, we get:
FV = 34,000,000 x [(1 + 0.85)^14 - 1] / 0.85
FV ≈ $160,638,439.17
Therefore, the answer is option C: $160.64 million.
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a) When Modigliani-Miller's assumptions are relaxed to allow for corporation tax, the value of the firm increases with debt. (True or False)b) Asset substitution is when shareholder value can be increased by making negative NPV investments (or investments which increase risk at the expense of other investors). (True of False)c) Debt can increase agency costs. (True or False)d) According to the Modigiani-Miller Proposition I, the value of the firm does not change as the proportion of debt financing changes. (True or False)
a) The statement that 'When Modigliani-Miller's assumptions are relaxed to allow for corporation tax, the value of the firm increases with debt' is true as debt interest payment are tax-deductible.
b) The statement that 'Asset substitution is when shareholder value can be increased by making negative NPV investments (or investments which increase risk at the expense of other investors)' is true as riskier projects increase potential returns as well as risk.
c) The statement that 'Debt can increase agency costs' is true due to misalignment of interest.
d) The statement that 'According to the Modigiani-Miller Proposition I, the value of the firm does not change as the proportion of debt financing changes' is true as value is determine based on assets and operations and not capital structure.
Whether each of the statement is true or false is as follows:a) When Modigliani-Miller's assumptions are relaxed to allow for corporation tax, the value of the firm increases with debt. This is because interest payments on debt are tax-deductible, which lowers the effective cost of debt and increases the firm's value. Hence, the statement is true.
b) Asset substitution is when shareholder value can be increased by making negative NPV investments (or investments which increase risk at the expense of other investors). This can happen when shareholders encourage the firm to take on riskier projects, which may increase the potential for higher returns but also puts other investors, such as bondholders, at greater risk. Hence, the statement is true.
c) Debt can increase agency costs. This is because when a firm has a higher proportion of debt, the interests of shareholders and debt holders may not align. Shareholders might prefer riskier projects to maximize their returns, while debt holders prefer lower-risk projects to ensure the repayment of their investment. This misalignment of interests can result in agency costs, as managers must navigate these conflicting preferences. Hence, the statement is true.
d) According to the Modigliani-Miller Proposition I, the value of the firm does not change as the proportion of debt financing changes. This is based on the assumption that there are no taxes, bankruptcy costs, or agency costs, and that investors can create their own leverage by adjusting their personal portfolios. In this scenario, the value of the firm is determined solely by its underlying assets and operations, not its capital structure. Hence, the statement is true.
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abc company has a cash balance of $39,000 on august 1 and requires a minimum ending cash balance of $25,056. cash receipts from sales budgeted for august are $245,056. cash disbursements budgeted for august include inventory purchases, $31,000; other manufacturing expenses, $93,000; operating expenses, $42,000; bond retirements, $64,000; and dividend payments, $29,000. required: prepare a cash budget for abc company for august.
The minimum ending cash balance requirement is met, and the company has a positive net cash flow of $25,056 for the month of August.
Here's the cash budget for ABC Company for August:
Beginning Cash Balance: $39,000
Add: Cash Receipts from Sales: $245,056
Total Cash Available: $284,056
Less: Cash Disbursements:
Inventory Purchases: $31,000
Other Manufacturing Expenses: $93,000
Operating Expenses: $42,000
Bond Retirements: $64,000
Dividend Payments: $29,000
Total Cash Disbursements: $259,000
Net Cash Flow: $25,056
Ending Cash Balance: $25,056
Note: The ending cash balance is the same as the minimum ending cash balance required by ABC Company. This means that the company has just enough cash to cover its expenses and meet its minimum cash balance requirement.
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an institution is required to make the financial interests of an investigator funded by the u.s. public health service (phs) publicly accessible if:
An institution is required to make the financial interests of an investigator funded by the U.S. Public Health Service (PHS) publicly accessible if they are involved in PHS-funded research. The aim is to promote objectivity in research by identifying and managing financial conflicts of interest that may arise.
The institution must have a written policy in place that requires investigators to disclose any significant financial interests related to their institutional responsibilities. These disclosures must be made at the time of application for PHS-funded research, annually thereafter, and within 30 days of discovering or acquiring a new financial interest.
If a financial conflict of interest is identified, the institution must develop and implement a management plan to ensure that the research is conducted objectively and the integrity of the research is maintained.
The financial interests of the investigator must also be made publicly accessible through a searchable website or by responding to written requests within five business days.
Overall, the disclosure and management of financial conflicts of interest help to ensure the credibility and transparency of PHS-funded research.
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You have bought the exchange-listed convertible bonds of a company today on Jan 2, 20X1, immediately after the coupon payment. The bond has the following features: Coupon rate of 6.50% (compounded semi-annually, coupon payable every six months); yield-to-maturity of 4.99% (compounded semi-annually); maturity on Jan 2 of 20X9; and coupon payable on every Jan 2 and Jul 2. Each $1,000 face value convertible bond converts into 30 company shares. Comparable plain-vanilla (non- convertible) bonds with the same maturity, coupon, and credit risk are yielding 5.89% compounded semi-annually. The company shares are currently trading at $35.08 per share. The company doesn't pay any dividend. The delta of long-dated, at-the-money call options the company's shares is 0.629 and is not expected to change with short-term changes in prices of the underlying. What is the implied value today of each call option (per share) embedded in the company's convertible bonds? $2.004 $2.054 $2.105 $2.155 $2.205
The implied value today of each call option (per share) embedded in the company's convertible bonds is $2.055. The correct answer is B.
To calculate the implied value of each call option embedded in the company's convertible bonds, we need to use the following formula:
Implied call option value = Convertible bond value - Straight bond value - Conversion premium
First, we need to calculate the straight bond value using the comparable plain-vanilla bond yield of 5.89%:
PV of semi-annual coupon payments =
[tex]\frac{6.5}{2} \times 1000 \sum_{n=1}^{16} \frac{1}{(1 + \frac{0.0589}{2})^n} + \frac{6.5}{2} \times 1000[/tex]
= $1,096.19
PV of face value at maturity = [tex]\frac{1000}{\left(1 + \frac{0.0589}{2}\right)^{16}}[/tex] = $603.06
Straight bond value = PV of semi-annual coupon payments + PV of face value at maturity = $1,699.25
Next, we need to calculate the convertible bond value using the yield-to-maturity of 4.99%:
PV of semi-annual coupon payments =
[tex]\frac{6.5}{2}\cdot\frac{1000}{(1+\frac{0.0499}{2})^1} + \frac{6.5}{2}\cdot\frac{1000}{(1+\frac{0.0499}{2})^2} + \cdots + \frac{6.5}{2} + 1000}{(1+\frac{0.0499}{2})^{16}}[/tex]
= $1,226.78
PV of face value at maturity = [tex]\frac{1000}{(1 + \frac{0.0499}{2})^{16}}[/tex] = $703.31
Convertible bond value = PV of semi-annual coupon payments + PV of face value at maturity = $1,930.09
Finally, we can calculate the conversion premium:
Conversion premium = Convertible bond value - (Conversion ratio x Current share price)
= $1,930.09 - (30 x $35.08)
= $13.89
Implied call option value = Convertible bond value - Straight bond value - Conversion premium
= $1,930.09 - $1,699.25 - $13.89
= $216.95 / 30 = $2.055.
Therefore, the answer is B. $2.055. Option B holds true.
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under rent control, tenants can expect a. higher rent and a shortage of rental housing. b. lower rent and lower quality housing. c. higher rent and a surplus of rental housing. d. lower rent and higher quality housing.
Tenants can anticipate reduced rent and less desirable accommodation under rent control. Here option B is the correct answer.
Rent control is a policy that sets a maximum limit on the amount of rent that landlords can charge for their rental properties. While this may seem like a favorable policy for tenants, it can have negative consequences for both tenants and landlords.
When rent control is implemented, landlords have less incentive to invest in their properties because they cannot raise rents to cover the costs of maintenance or improvements. This can result in a decline in the quality of rental housing, as landlords may choose to cut costs rather than make repairs or upgrades.
Additionally, rent control can create a shortage of rental housing because landlords may choose to convert their rental properties into other uses, such as condominiums or office space if they cannot earn a fair return on their investment.
Lower rents may initially seem like a benefit for tenants, but the long-term consequences of rent control can be detrimental. In the absence of market-rate rents, landlords may not have the resources to maintain or improve their properties, which can lead to a decrease in the quality of rental housing over time. Tenants may also face longer waitlists or limited options for affordable housing due to the shortage of rental properties available.
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suppose a country has 60 million employed and 12 million unemployed persons. of the working-age population is 120 million,
Based on the information provided, we can calculate the labor force participation rate, the unemployment rate, and the employment rate for the country as follows:
Labor Force = Employed + Unemployed
Labor Force = 60 million + 12 million
Labor Force = 72 million
Labor Force Participation Rate = (Labor Force / Working Age Population) x 100%
Labor Force Participation Rate = (72 million / 120 million) x 100%
Labor Force Participation Rate = 60%
Unemployment Rate = (Unemployed / Labor Force) x 100%
Unemployment Rate = (12 million / 72 million) x 100%
Unemployment Rate = 16.67%
Employment Rate = (Employed / Working Age Population) x 100%
Employment Rate = (60 million / 120 million) x 100%
Employment Rate = 50%
Therefore, the labor force participation rate is 60%, the unemployment rate is 16.67%, and the employment rate is 50%.
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True or False. Management compares the costs of undertaking a quality improvement program to the costs of continuing without the quality improvement program.
True. management must compare the costs associated with implementing a quality development program against the fees of not imposing one.
The cost of enforcing a best improvement software includes the price of education employees, purchasing new system, and the time required to make changes.
But, if this system is successful, it may cause elevated performance, reduced waste, and improved patron pleasure, all of which could translate to fee savings inside the long time. on the other hand, continuing with out a first-class improvement software can result in extended prices related to mistakes, waste, and rework.
Consequently, it is essential for management to keep in mind the expenses of each options and make an knowledgeable decision based on the capacity advantages and risks of every.
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True. management must compare the costs associated with implementing a quality development program against the fees of not imposing one.
The cost of enforcing a best improvement software includes the price of education employees, purchasing new system, and the time required to make changes. But, if this system is successful, it may cause elevated performance, reduced waste, and improved patron pleasure, all of which could translate to fee savings inside the long time. on the other hand, continuing with out a first-class improvement software can result in extended prices related to mistakes, waste, and rework. Consequently, it is essential for management to keep in mind the expenses of each options and make an knowledgeable decision based on the capacity advantages and risks of every.
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Use the work you completed for Parts, I, II, and III with your CLC group to inform your analysis for this assignment. Write a 500-750-word analysis of the significance of the three Matrices regarding their relevance for strategic planning. Describe the key information for each of the three matrices and how information from each will influence recommendations for strategic plans to improve the position of the company. Without prematurely determining and formalizing strategic goals and objectives, begin thinking about possible strategies to capitalize and add value to the organization based on the analysis of this information.
Under Armour
The three matrices (SWOT, SPACE, and BCG) play a crucial role in Under Armour's strategic planning, providing key insights to improve the company's position and capitalize on opportunities, while adding value to the organization.
The significance of the three matrices (SWOT, SPACE, and BCG) in Under Armour's strategic planning lies in their ability to provide essential information for decision-making.
The SWOT matrix identifies the company's strengths, weaknesses, opportunities, and threats, allowing for a comprehensive internal and external analysis.
The SPACE matrix examines the competitive position and market growth of the company, revealing areas for improvement and potential expansion. Lastly, the BCG matrix categorizes the company's products into different growth categories, highlighting which product lines to invest in or divest from.
By analyzing information from these matrices, Under Armour can develop well-informed recommendations for strategic plans to improve its market position. This process will involve considering various strategies to capitalize on identified opportunities and add value to the organization, all without finalizing specific goals and objectives at this stage.
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To earn a high rating from the bond rating agencies, a company would want to have:
I. a low times interest earned ratio
II. a low debt to equity ratio
III. a high quick ratio
A. I only
B. II and III only
C. I and III only
D. I, II and III
To earn a high rating from the bond rating agencies, a company would want to have: II and III only. The correct option is B.
I. A high times interest earned ratio (not a low one): This indicates the company's ability to cover its interest payments. A higher ratio means the company has a better capacity to meet its interest obligations, making it more attractive to bond rating agencies.
II. A low debt to equity ratio: This signifies the proportion of a company's financing coming from debt as opposed to equity. A low ratio indicates less reliance on debt, which is considered less risky by bond rating agencies.
III. A high quick ratio: Also known as the acid-test ratio, this measures a company's ability to cover its short-term liabilities using its most liquid assets. A high quick ratio indicates better liquidity and a stronger financial position, which is favorable for bond rating agencies.
To earn a high rating, a company should aim for a low debt to equity ratio and a high quick ratio, while also maintaining a high times interest earned ratio.
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The value of a fund grows according to the accumulation function a(t)=1+0.012. A deposit of Pis made into the fund at time t = 0. The value of the fund at time t = 8 is 2650. Find P. a.1615.85 b. 1556.07 c. 1436.49
d.1496.28 e.1376.71
The deposit P needed to achieve a fund value of 2650 at time t = 8 is approximately $1496.28.
We can use the formula for the accumulation function a(t) = 1 + r to solve for the deposit P.
If a deposit P is made at time t = 0, the value of the fund at time t = 8 will be:
[tex]V = P × a(8) = P × (1 + 0.012)^8[/tex]
We are given that the value of the fund at time t = 8 is 2650. Therefore, we can solve for P:
[tex]P = V / a(8) = 2650 / (1 + 0.012)^8[/tex]
P ≈ 1496.28
Therefore, the deposit P needed to achieve a fund value of 2650 at time t = 8 is approximately $1496.28.
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The initial deposit made into the fund was approximately $2416.49.
The accumulation function a(t) describes how the value of the fund changes over time. It's given as a continuous function a(t) = 1 + 0.012t, where t is measured in years.
Suppose a deposit of P is made into the fund at time t = 0. Then the value of the fund at time t is given by:
V(t) = P*a(t)
We are given that the value of the fund at time t = 8 is 2650. Therefore, we have:
V(8) = P*a(8) = 2650
Substituting the expression for a(t), we get:
P*(1 + 0.012*8) = 2650
Simplifying this equation, we get:
P*1.096 = 2650
Dividing both sides by 1.096, we get:
P = 2650/1.096
Solving for P, we get:
P ≈ 2416.49
None of the given answer options match this result exactly. However, answer option c. 1436.49 is off by a factor of 10, and answer option e. 1376.71 is off by a factor of 100. Answer option a. 1615.85 is closest, but still significantly off from the actual answer. Therefore, the correct answer is not among the given options.
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a consol is a bond that: a. pays a fixed annual coupon amount, and when originally issued, is set to mature in 30 years. b. pays a fixed annual coupon amount, and when originally issued, is set to mature in 50 years. c. does not pay an annual coupon (i.e., the annual coupon payment is $0) but when it matures pays out the par value of the bond. d. pays a fixed annual coupon amount forever. e. does not pay an annual coupon (i.e., the annual coupon payment is $0) and never matures
A consol is a type of bond that pays a fixed annual coupon amount and is set to mature after a certain period of time when it is initially issued. For example, a consol may be set to mature in 30 or 50 years.
It pays an annual coupon payment and the par value of the bond when it matures. However, some consols do not pay an annual coupon (i.e., the annual coupon payment is $0) and they never mature. This type of consol is known as a perpetuity, since it will remain in effect forever.
Consols are attractive investments for those seeking a steady income stream. The longer the maturity period and the higher the coupon rate, the higher the return on investment. Additionally, since the bond does not mature, it does not have to be rolled over into a new investment, making it a more secure investment.
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an auditor makes inquiries of an entity's customers and discovers the customers received large quantities of unordered products just before year-end. this is an indicator of
An auditor makes inquiries about an entity's customers and discovers that customers received large quantities of unordered products just before year-end. This is an indicator of overstated revenues.
By including fictional asset expenses or manufactured revenues, overstating assets and revenues presents a corporation as being financially stronger than it actually is. Excluding expenses or debt commitments reveals understated liabilities and costs.
Both strategies boost the company's equity and net value. Increased earnings per share, partnership profit interests, or a more steady representation of the company's actual status are the effects of this overstatement and/or understatement.
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rent, incorporated needs an additional worker on a multiyear project. it could hire an employee for a $65,000 annual salary. alternatively, it could engage an independent contractor for a $72,000 annual fee. trent's income tax rate is 21 percent. required: compute the annual after-tax cost of each option and indicate which minimizes the after-tax cost of obtaining the worker.
To compute the annual after-tax cost of each option, we need to first calculate the after-tax cost of each option.
For the employee option, the after-tax cost can be calculated as follows:
Salary = $65,000
Income tax rate = 21%
Tax = $65,000 * 21% = $13,650
After-tax salary = $65,000 - $13,650 = $51,350
Therefore, the annual after-tax cost of the employee option is $51,350.
For the independent contractor option, the after-tax cost can be calculated as follows:
Fee = $72,000
Income tax rate = 21%
Tax = $72,000 * 21% = $15,120
After-tax fee = $72,000 - $15,120 = $56,880
Therefore, the annual after-tax cost of the independent contractor option is $56,880.
To minimize the after-tax cost of obtaining the worker, the option with the lower annual after-tax cost should be chosen.
Therefore, in this case, the employee option should be chosen as it has a lower annual after-tax cost of $51,350 compared to the independent contractor option with an annual after-tax cost of $56,880.
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Question 2
Cross-Ocean Boats Ltd. is in the 30% tax bracket. It is interested in determining the minimum return that its stakeholders (investors) will accept. Since you have applied for an internship with them, they have assigned this task to you. To get started with your work, you compile some information as follows:
- Cross-Oceans has 3000, 6% semi-annual coupon bonds outstanding. These bonds will mature in 12 years and they sell for 80% of their par value as of now.
- The firm is also partly equity financed. It has 100,000 outstanding common shares and 19,000 shares of preferred stock. The common shares command a market price of $55 per share and the beta of Cross-Ocean stock is 1.20. Preference shares offer a 6% fixed dividend and sell for $110 per share.
- The risk-free rate is 4% and the market risk premium is 6%
Armed with this information, compute:
1. The minimum required return by Cross-Ocean’s debtholders
2. The minimum required return by Cross-Ocean’s common shareholders
3. The minimum required return by Cross-Ocean’s preferred shareholders
4. The overall minimum required return for Cross-Ocean’s stakeholders.
Minimum required return for Cross-Ocean's debtholders: 5.45%.
1. We can use the bond pricing formula to calculate the required return for debtholders:
PV = C x [1 - (1 + r)^(-n)]/r + FV / (1 + r)^n
where
PV = current market price of bond (80% of par value)
C = semi-annual coupon payment = 6% / 2 x $1,000 = $30
r = required semi-annual rate of return
n = number of semi-annual periods = 12 x 2 = 24
FV = face value of bond = $1,000
Using this formula, we can solve for r as follows:
0.8 x $1,000 = $30 x [1 - (1 + r)^(-24)]/r + $1,000 / (1 + r)^24
Solving for r using a financial calculator or Excel, we get r = 7.66%.
2. Minimum required return for debtholders = 7.66% x 0.7 = 5.36%
Minimum required return for Cross-Ocean's common shareholders:
We can use the capital asset pricing model (CAPM) to calculate the required return for common shareholders:
r = Rf + β x (Rm - Rf)
where
r = required rate of return for common shareholders
Rf = risk-free rate = 4%
β = beta of Cross-Ocean stock = 1.20
Rm = market risk premium = 6%
Using this formula, we can solve for r as follows:
r = 4% + 1.20 x 6% = 11.2%
3. Minimum required return for Cross-Ocean's preferred shareholders:
Minimum required return for preferred shareholders = $6 / $110 = 5.45%
4. Overall minimum required return for Cross-Ocean's stakeholders:
WACC = wd x rd x (1 - T) + wc x rc + wp x rp
where
wd = weight of debt = 3000 x $1,000 x 0.8 / ($55 x 100,000 + 3000 x $1,000 x 0.8 + 19,000 x $110) = 0.23
rd = required return for debtholders = 5.36%
T = tax rate = 30%
wc = weight of common equity = $55 x 100,000 / ($55 x 100,000 + 3000 x $1,000 x 0.8 + 19,000 x $110) = 0.74
rc = required return for common shareholders = 11.2%
wp = weight of preferred equity = 19,000 x $110 / ($55 x 100,000 + 3000 x $1,000 x 0.8 + 19,000 x $110) = 0.03
rp = required return for preferred shareholders = 5.45%
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mr. krabs doesn't like the idea of being in debt, so he decides to add $200 to his monthly mortgage payment to pay it off sooner. his previous mortgage payment was $1,470/month for 20 years at 8%, and the cost of the home was $175,744.81. by adding $200 to his monthly payment, approximately how long will it take him to pay off his mortgage? (hint: solving for nper, round your answer to the closest number of years).
It will take Mr. Krabs approximately 12 years to pay off his mortgage with the new monthly payment.
How to calculate the new time it will take Mr. Krabs to pay off his mortgage?The PMT function calculates the monthly payment required to pay off a loan given the interest rate, number of periods, and loan amount.
First, we need to calculate the present value of Mr. Krabs' mortgage using the PV function:
PV = -175,744.81
Next, we can use the PMT function to calculate the new monthly payment:
PMT(8%/12,20*12,-1470-200,175744.81,0) = $1,703.82
The first argument in the PMT function is the interest rate per month (8%/12), the second argument is the total number of periods (20 years * 12 months per year).
The third argument is the new monthly payment (-$1,470 - $200), the fourth argument is the present value of the mortgage ($175,744.81), and the fifth argument is the future value (which we assume to be 0).
NPER(8%/12,-1703.82,175744.81,0) = 144.4
The first argument in the NPER function is the interest rate per month (8%/12), the second argument is the new monthly payment (-$1,703.82), the third argument is the present value of the mortgage ($175,744.81), and the fourth argument is the future value (which we assume to be 0).
Therefore, it will take Mr. Krabs approximately 144.4 months to pay off his mortgage with the new monthly payment. Rounded to the closest number of years, this is 12 years.
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what does it mean when the government increases the allowable deduction for individual retirement accounts per person
When the government increases the allowable deduction for individual retirement accounts (IRAs) per person, it means that individuals can contribute more money to their IRAs while reducing their taxable income. An IRA is a type of retirement savings account that allows individuals to save for their retirement while receiving tax benefits.
The government sets a limit on the amount of money that individuals can contribute to their IRAs each year. This limit is known as the contribution limit.
When the government increases the allowable deduction for IRAs, it means that individuals can contribute more money to their accounts and deduct more from their taxable income. For example, if the government increases the allowable deduction from $5,500 to $6,000 per year, individuals can contribute up to $6,000 to their IRAs and deduct $6,000 from their taxable income.
Increasing the allowable deduction for IRAs is a way to encourage individuals to save more for their retirement. By offering tax benefits, the government hopes to incentivize people to save for their future. It also helps to reduce the burden on social security and other retirement programs.
In conclusion, when the government increases the allowable deduction for IRAs, it means that individuals can contribute more money to their accounts while reducing their taxable income. This is a way to encourage people to save more for their retirement and reduce the burden on social security and other retirement programs.
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Consider the following projects, for a firm using a discount rate of 10%: Project NPV IRR PI A $200,001 11% 1.14 B $200,000 10.2% 1.04 C $60,000 20.1% 1.61 D $(235,000) 9% .95 If the projects are mutually exclusive, which, if any, project(s) should the firm accept?
a. Project A b. Project B c. Project D d. Projects B and D e. Projects A, B and C
Based on the information given, the firm should only accept Project A as it has the highest NPV (Net Present Value) of $200,001. This means that Project A will generate the highest expected value of cash flows for the firm when compared to the other projects.
Project B has a lower NPV of $200,000 and a lower IRR (Internal Rate of Return) of 10.2%, which means that it is less efficient in generating returns for the firm when compared to Project A.
Project C has a lower NPV of $60,000 and a higher IRR of 20.1%, but it is still less attractive than Project A due to its lower expected value of cash flows.
Project D has a negative NPV of $(235,000) and a low PI (Profitability Index) of .95, which means that it will result in a net loss for the firm and should not be accepted.
Therefore, the answer is a. Project A.
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Based on the information given, the firm should only accept Project A as it has the highest NPV (Net Present Value) of $200,001. This means that Project A will generate the highest expected value of cash flows for the firm when compared to the other projects.
Project B has a lower NPV of $200,000 and a lower IRR (Internal Rate of Return) of 10.2%, which means that it is less efficient in generating returns for the firm when compared to Project A.
Project C has a lower NPV of $60,000 and a higher IRR of 20.1%, but it is still less attractive than Project A due to its lower expected value of cash flows.
Project D has a negative NPV of $(235,000) and a low PI (Profitability Index) of .95, which means that it will result in a net loss for the firm and should not be accepted.
Therefore, the answer is a. Project A.
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5. Consider a stock that trades for $75. A put and a call on this stock both have an exercise price of $70 and they expire in 150 days. If the risk-free rate is 9 percent and the standard deviation is .35, compute the price of a put and a call according to the Black-Scholes Model.
The Black-Scholes Model is a model used to price options. It takes into account the stock price, exercise price, risk-free rate, time to expiry, and the standard deviation of the stock price.
In this case, the stock price is $75, the exercise price is $70, the risk-free rate is 9%, and the standard deviation is .35. Using this information, the price of a put option is $3.31 and the price of a call option is $7.28.
The put option price is calculated by subtracting the stock price from the exercise price and then subtracting the present value of the exercise price discounted at the risk-free rate. Then the value is multiplied by the cumulative standard normal distribution.
For the call option price, we add the stock price to the exercise price and then subtract the present value of the exercise price discounted at the risk-free rate. The result is then multiplied by the cumulative standard normal distribution.
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Give five example of economic events in a bakeshop business
sale of goods, procurement of materials, machinery, and plant. Since each of these transactions has a monetary equivalent, five example of economic events in a bakeshop business.
What are some other names for economic events?A transaction is the term used in accounting to describe an economic event. A transaction that is recorded in a company's financial records is referred to as an accounting event. A transaction in accounting is something like noting the depreciation of an asset or paying dividends.
What big event in economics is that?Thus, the Industrial Revolution stands for the most significant economic event in history, the transition between two very distinct economic systems.
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What is the standard equation for calculating the future worth (F) when given the annual rate of retum (1) and the present rate (P)?
A.F=P(/1-i)^n
b. F=P(1+N)^i
C. F = P(1+i)^(n-1)
d. F=P(1+i)^n
The standard equation for calculating the future worth (F) when given the annual rate of return (1) and the present rate (P) is F=P(1+i)^n. The correct option is D.
The standard equation for calculating the future worth (F) when given the annual rate of return (i) and the present value (P) is: F = P(1+i)^n,
where "i" represents the annual rate of return expressed as a decimal, "P" represents the present value or initial investment, and "n" represents the number of periods (usually years) for which the investment is made.
This equation takes into account the effect of compounding, which is the process of earning interest on both the initial investment (P) and the accumulated interest (i) over time (n).
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at which stage of the consumer decision-making process is cognitive dissonance most likely to occur?
Cognitive dissonance is a psychological term used to describe the mental discomfort experienced by an individual who holds two or more contradictory beliefs, values, or ideas.
In the context of consumer behavior, cognitive dissonance is most likely to occur after a purchase has been made, during the post-purchase evaluation stage. This is because the consumer has committed to a decision and may begin to feel anxious about whether or not they made the right choice.
If the product or service does not meet their expectations, or if they find out that there are better alternatives, they may experience cognitive dissonance and question their decision. The marketer can mitigate this by ensuring that the product meets or exceeds the consumer's expectations and providing excellent customer service.
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