The cost of the current cash collection system is $533.27 per month.
How to calculate the cost? To calculate the cost, we will use the given information and apply the opportunity investment rate.
The firm receives 74,895 remittances per month, with an average face value of $10.4 each. The average mail delay is 3 days, and the remittance stays at headquarters for 2 days. The opportunity investment rate is 5%.
Step 1: Calculate the total face value of remittances per month
74,895 remittances * $10.4 = $778,908
Step 2: Calculate the average delay in days
3 days (mail delay) + 2 days (at headquarters) = 5 days
Step 3: Convert the delay to a fraction of a year
5 days / 365 days = 0.0137
Step 4: Calculate the opportunity cost
Opportunity cost = Total face value * Opportunity investment rate * Fraction of a year
$778,908 * 0.05 * 0.0137 = $533.27
So, the cost of the current cash collection system is $533.27 per month.
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1.if the actual unemployment rate is 8% and the natural rate of unemployment is 5%, then the cyclical unemployment rate is?
The natural rate of unemployment is subtracted from the actual unemployment rate to arrive at the cyclical unemployment rate.
(8% - 5% = 3%) The cyclical unemployment rate would be 3%.
The cyclical unemployment rate is calculated by subtracting the natural rate of unemployment from the actual unemployment rate. So, in this case, the cyclical unemployment rate would be 3% (8% - 5% = 3%). This represents the portion of unemployment that is due to the current economic cycle or downturn, rather than due to structural or frictional factors.
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a homeowner has been paying her mortgage for several years and has built up equity. she decides to take out a home equity line of credit because she needs some cash. this credit will create
Homeowner who has been paying her mortgage for several years has built up equity in her home. She decides to take out a home equity line of credit (HELOC) because: a flexible borrowing option secured by their home equity.
A home equity line of credit (HELOC) is a type of loan that allows a homeowner to borrow money against the value of their home, specifically the portion they have paid off, which is known as equity. This equity serves as collateral for the loan, and the homeowner can borrow money up to a specified limit, as determined by the lender.
Taking out a HELOC can provide a homeowner with a flexible source of funds for various purposes, such as home improvements, debt consolidation, or emergency expenses. The homeowner can draw from the line of credit as needed and only pays interest on the amount borrowed.
However, it's important to note that taking out a HELOC also comes with risks. Since the loan is secured by the home, failure to repay the borrowed funds can result in the loss of the home through foreclosure. Additionally, the interest rates on HELOCs can be variable, which means they can increase over time and potentially make the loan more expensive.
In summary, a homeowner with built-up equity who takes out a home equity line of credit will create a flexible borrowing option secured by their home equity. This can provide much-needed funds for various purposes, but it's crucial to understand the associated risks and responsibly manage the borrowed money.
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a good definition of lean is ""creating more value for customers with fewer resources.""
The given statement is true because the concept of "lean" refers to a systematic approach to eliminating waste and increasing efficiency in order to create more value for customers with fewer resources.
The focus is on identifying and eliminating any processes, activities, or resources that do not add value for the customer, while maximizing the use of those that do. By doing so, businesses can improve their competitiveness, reduce costs, and enhance customer satisfaction. Ultimately, the goal of lean is to create a more streamlined, efficient, and customer-centric organization that is better able to meet the needs and expectations of its customers.
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g 8. in 2022 the u.s. trade deficit was about 12% larger than the year before (2021). the increase in the trade deficit in 2022 means that u.s. consumption: group of answer choices is larger and there is more borrowing from and/or selling assets to the rest of the world. is larger and there is a a lower household savings rate. is smaller and there is a smaller federal government budget deficit is smaller and there is less borrowing from and/or selling assets to the rest of the world.g
Based on the given information, the increase in the U.S. trade deficit in 2022 indicates that the country imported more goods and services than it exported.
This means that U.S. consumption is larger, as more goods and services were consumed domestically than were produced domestically. To finance this consumption, the U.S. would need to borrow from and/or sell assets to the rest of the world, which is reflected in the larger trade deficit. Therefore, the correct answer is: U.S. consumption is larger and there is more borrowing from and/or selling assets to the rest of the world.
In 2022, the U.S. trade deficit was about 12% larger than the year before (2021). The increase in the trade deficit in 2022 means that U.S. consumption is larger and there is more borrowing from and/or selling assets to the rest of the world. This occurs because a trade deficit indicates that a country is importing more goods and services than it is exporting, thus requiring additional borrowing or selling of assets to finance the excess consumption.
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You have the following debts:
Student loan balance of $17,000 at 5.25% interest, with payments of $225 per month
Visa balance of $800.00 at 18% interest, with a minimum monthly payment of $32.00
Car loan balance of $5,500, with monthly payments of $175
Department store credit card balance of $300 at 24% interest, minimum monthly payments of $25
By paying all of your expenses and living on a very tight budget, you stopped all the little leaks and now have an extra $300 each month and $1,000 in your emergency fund. You now are at war with your debts. Structure a repayment plan, listing the order in which you will pay off debts and when they will be paid off.
To create a repayment plan, we need to follow the debt avalanche method, where we focus on paying off the debt with the highest interest rate first and then moving down the line.
1. Department store credit card: The balance is small, but the interest rate is high at 24%. Since you have an extra $300 per month, pay the entire balance of $300 immediately.
2. Visa balance: With a balance of $800 at 18% interest, the minimum payment of $32.00 barely covers the interest, and it will take years to pay off the balance.
Allocate your $300 extra payment towards this balance, making your total monthly payment $332 ($300 + $32). This will pay off the balance in 3 months.
3. Student loan: This is a substantial balance at 5.25% interest. Since the minimum payment is $225 per month, use the $332 payment you were making towards the Visa balance and add it to your student loan payment.
You will now pay $557 ($225 + $332) per month. At this rate, you will pay off the balance in approximately 34 months.
4. Car loan: The car loan has a low-interest rate, so it is better to focus on paying off the higher interest debt first. Once you have paid off the other debts, you can continue making the regular $175 monthly payments until it is paid off.
By following this repayment plan, you can become debt-free in approximately 3 years and 4 months. After you have paid off all your debts, you can allocate the $557 payment towards your emergency fund or invest it in your retirement account.
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One way to establish credibility is to become more dependent of
government when designing policy
Select one:
True
False
The statement "One way to establish credibility is to become more dependent of government when designing policy" is false because One way to establish credibility is not to become more dependent on the government when designing policy.
Credibility can be established by creating well-researched, evidence-based policies that are transparent and include input from various stakeholders.
Becoming more dependent on the government can limit the scope of perspectives and potentially reduce objectivity. To create credible policies, it's important to remain independent, gather data from multiple sources, engage in consultation with experts and the public, and have clear and accountable decision-making processes.
This approach ensures that policies are well-rounded, evidence-driven, and have the trust and support of the people they aim to serve.
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Had to split question #16 into two photos for words to remain clear and visible.
What is the earnings credit rate? Assume the following: Ledger Balance = $300,000 Deposit Font - $100,000 Monthly Earnings Credit = $507 Days in Month 30 days Reserve Requirement Ratio * 10% No express your answer as a decimal (example: Nyour or a 4:33then enter it as 0.043) Thank you.
The monthly earnings credit is the amount of money a bank credits to a customer's account as compensation for the customer's deposits. The earnings credit rate for this scenario is 3.70%.
It is calculated based on the average daily balance in the account and the earnings credit rate (ECR) set by the bank.
To calculate the earnings credit rate (ECR) for this scenario, we need to use the following formula:
ECR = (Monthly earnings credit / Average daily balance) x (365 / Days in month)
We can calculate the average daily balance as follows:
Average daily balance = (Ledger balance + Deposit float) / Days in month
Average daily balance = ($300,000 + $100,000) / 30
= $13,333.33
We are given that the monthly earnings credit is $507, and the days in the month are 30. The reserve requirement ratio is also given as 10%.
Using the formula for ECR, we get:
ECR = ($507 / $13,333.33) x (365 / 30)
ECR = 0.036975 or 3.70% (rounded to two decimal places)
Therefore, the earnings credit rate for this scenario is 3.70%.
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Your examination of the records of a company that follows the cash basis of accounting tells you that the company’s reported cash-basis earnings in 2017 are $33,900. If this firm had followed accrual-basis accounting practices, it would have reported the following year-end balances.2017 2016Accounts receivable $3,300 $2,200Supplies on hand 1,360 1,530Unpaid wages owed 2,500 2,450Other unpaid expenses 1,720 1,070Determine the company’s net earnings on an accrual basis for 2017.Net earnings on an accrual basis for 2017 $
Net earnings as per accrual basis are $37,360. The calculations are shown in the below section.
The income retained by the company after meeting its operating cost, interest, taxes, and dividends is known as net earnings. It is the measure of the profitability of a company in a particular accounting period.
Calculation of net earnings:
Particulars Amount($)
Net earnings as per cash basis 36,810
Increase in accounts receivables (3,220-2,160) 1,060
Decrease in supplies (1,700-1,3200 (380)
Decrease in unpaid wages (2,330-2,320) (10)
Decrease in unpaid expenses (1,440-1,320) (120)
Net earnings as per accrual basis 37,360
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The company’s net earnings on an accrual basis for 2017 would be $32,980, which is calculated by adding the accounts receivable balance to the reported cash-basis earnings and subtracting the total expenses incurred but not yet paid.
To determine the company’s net earnings on an accrual basis for 2017, we need to consider the adjustments that would be required if the company had followed accrual-basis accounting practices. Accrual accounting recognizes revenue when it is earned and expenses when they are incurred, regardless of when cash is received or paid.
Looking at the provided information, the company had accounts receivable of $3,300 at the end of 2017, indicating that there was revenue earned but not yet received. We also see that the company had unpaid wages owed and other unpaid expenses totaling $4,220, indicating that there were expenses incurred but not yet paid.
To calculate the company’s net earnings on an accrual basis for 2017, we would add the accounts receivable balance of $3,300 to the reported cash-basis earnings of $33,900, giving us a total revenue of $37,200. We would then subtract the total expenses incurred but not yet paid, which is $4,220, giving us a net earnings on an accrual basis for 2017 of $32,980.
In summary, the company’s net earnings on an accrual basis for 2017 would be $32,980, which is calculated by adding the accounts receivable balance to the reported cash-basis earnings and subtracting the total expenses incurred but not yet paid.
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year 2010 ending retained earnings were 2,000,000. year 2011 forecasted sales are $100,000 with 25% net margin and 20% dividend payout ratio. what are the forecasted retained earnings for year 2011?
In the year 2011, the forecasted retained earnings are calculated based on the year 2010 ending retained earnings, the forecasted sales, net margin, and dividend payout ratio.The year 2010 ending retained earnings were $2,000,000, and the year 2011 forecasted sales are $100,000 with a 25% net margin and a 20% dividend payout ratio. First, calculate the net income for 2011: $100,000 (sales) * 25% (net margin) = $25,000.
Next, calculate the dividends paid in 2011: $25,000 (net income) * 20% (dividend payout ratio) = $5,000.
Finally, calculate the forecasted retained earnings for year 2011: $2,000,000 (year 2010 retained earnings) + $25,000 (net income) - $5,000 (dividends) = $2,020,000.
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Supoore you buy a call options on a $100.000 Tranny bondscoact wanxorciso peke of 105 (Note: The price of an option is quoted in ports that mimic the fines contract, 10 oach point corresponds o 1.000 Based on the information on given above the price of the treasure bond is 135 expiration the call option is __
Based on the information given above a fumatongen overige $15.000. the premium for the option is___
The price of the treasury bond is 135. This means that if you were to buy the bond itself, you would be paying $135,000.
However, instead of buying the bond, you are buying a call option on it. This means that you are paying a premium for the right to buy the bond at a specific price (the strike price) at a specific time (the expiration date).
In this case, the strike price is 105, which means that you have the right to buy the bond for $105,000. If the price of the bond goes up above $105,000, you can exercise your option and buy the bond at the lower price. This allows you to make a profit.
The premium for the option is not given, so we cannot calculate the exact cost. However, we do know that the option is "in the money" by $15,000. This means that the current price of the bond is $15,000 higher than the strike price. Since each point corresponds to $1,000, this means that the option is in the money by 15 points. If we assume a premium of $1,000 per point, then the premium for the option would be $15,000.
Overall, buying a call option on a treasury bond can be a way to potentially profit from changes in the bond market without actually buying the bond itself. However, it is important to remember that options trading involves risks and should be approached with caution.
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advertising is relevant for both business-to-business as well as for business-to-consumer approaches. select one: true false
True. advertising is relevant for both business-to-business (B2B) and business-to-consumer (B2C) tactics.
In a B2B context, advertising is often used to sell products or services to other corporations, inclusive of workplace materials or production equipment.
B2B advertising and marketing normally specializes in constructing relationships and generating leads rather than direct sales. In a B2C context, advertising is used to promote products or services without delay to purchasers, which include apparel, food, or entertainment.
B2C advertising and marketing frequently focuses on constructing brand focus and developing emotional connections with customers to inspire them to make purchases.
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True. advertising is relevant for both business-to-business (B2B) and business-to-consumer (B2C) tactics. In a B2B context, advertising is often used to sell products or services to other corporations,
inclusive of workplace materials or production equipment. B2B advertising and marketing normally specializes in constructing relationships and generating leads rather than direct sales. In a B2C context, advertising is used to promote products or services without delay to purchasers, which include apparel, food, or entertainment. B2C advertising and marketing frequently focuses on constructing brand focus and developing emotional connections with customers to inspire them to make purchases.
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If the bank restructures the loan, the terms of the restructuring terms are as follows:
Loan payments will be stretched to 5 years.
Interest rate will be reduced to 5% for the next 5 years.
Principal payment of $1,000,000 in year 3 and principal payments of $1,500,000 in years 4 to 5.
No upfront fee.
The cost of funds for the bank increases to 10% since the risk of the loan increases after restructuring
What would be the present value of the restricted loan? (
The present value of the restructured loan is $4,013,934.
To calculate the present value of the restructured loan, follow these steps:
1. Determine the cash flows: The loan will have annual payments for five years, with a principal payment of $1,000,000 in year 3 and principal payments of $1,500,000 in years 4 and 5.
2. Calculate the annual interest payment: The interest rate is 5%, so the annual interest payment is 5% of the outstanding balance.
3. Calculate the total payment for each year: Add the interest payment and principal payment for each year.
4. Discount the cash flows: Use the bank's cost of funds, which is 10%, as the discount rate to find the present value of each cash flow.
5. Sum the present values: Add the present values of all cash flows to find the present value of the restructured loan.
By following these steps, the present value of the restructured loan can be calculated as $4,013,934.
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A company is expected to pay a dividend of $1.35 per share next year. The dividends are expected to grow at 3% per year indefinitely. If the required return on similar investments is 6%, what is the current price of the stock?
The current price of the stock is $45. This means that if an investor buys the stock at $45, they can expect to receive a dividend of $1.35 next year and this dividend will grow at a rate of 3% per year. The required return on this investment is 6%.
To calculate the current price of the stock, we can use the dividend discount model.
In this case, the company is expected to pay a dividend of $1.35 next year, and this dividend is expected to grow at a rate of 3% per year indefinitely. The required return on similar investments is 6%.
Using the dividend discount model, the current price of the stock can be calculated as:
Price = Dividend next year / (Required return - Dividend growth rate)
Price = $1.35 / (0.06 - 0.03)
Price = $45.Therefore, the current price of the stock is $45.
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a firm has 75,000 shares of common stock outstanding at a price of $42 a share, 10,000 shares of preferred stock at $50 a share, and 3,000 bonds with a price quote of 101.2. how is the weight of preferred stock computed for the firm's wacc?
The weight of preferred stock , based on the mentioned values in the company's WACC is found to be 7.48%.
To calculate the weighted average cost of capital (WACC), we need to determine the proportion of each type of financing (common stock, preferred stock, and debt) in the company's overall capital structure. The weight of each component is determined by dividing the market value of that component by the total market value of the company's capital structure.
To calculate the weight of the preferred stock, we need to determine the market value of the preferred stock.
Market value of preferred stock = Number of preferred shares x Market price per share = 10,000 x $50 = $500,000
Next, we need to determine the total market value of the company's capital structure:
Total market value = Market value of common stock + Market value of preferred stock + Market value of debt
Total market value = (75,000 shares x $42 per share) + $500,000 + (3,000 bonds x 101.2% x $1,000 par value per bond)
Total market value = $3,150,000 + $500,000 + $3,036,000
Total market value = $6,686,000
Now we can calculate the weight of the preferred stock:
Weight of preferred stock = Market value of preferred stock / Total market value
Weight of preferred stock = $500,000 / $6,686,000
Weight of preferred stock = 0.0748 or 7.48%
Therefore, the weight of preferred stock in the company's WACC calculation is 7.48%.
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in kelly evans' presentation on using business research tools, she referred to a standard classification code system for business and industries. these codes are known as what type of code?
The standard classification code system for business and industries referred to by Kelly Evans is known as the North American Industry Classification System (NAICS).
This code system is a standardized numerical system used to classify businesses and industries in the United States, Mexico, and Canada. It is used to compile, analyze, and compare statistical data related to economic activities, such as the number of businesses and employees in an industry, total sales, and total wages.
NAICS was developed by the United States Office of Management and Budget in 1997, and is updated every five years. It is based on a six-digit code system, with each digit representing a distinct level of detail. The first two digits denote the most general level, while the last four digits provide finer detail.
For example, the code for “general automotive repair shops” is 811111, with 8 indicating the industry sector “Repair and Maintenance”, 11 indicating the subsector of “Automotive Repair and Maintenance”, and 1111 indicating the industry “General Automotive Repair”.
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The XYZ Co. recently raised several million dollars in an initial public offering. XYZ received $22 per share from the underwriter, the offering price was $25 per share, and the market price rose to $28 on the first day of trading. The spread paid by the underwriter was _______.
A) 12.0%
B) 13.6%
C) 24.0%
D) 27.3%
E) 28.0%
The correct answer is C) 24.0%, which is calculated as ($25 - $22) / $22 = 0.24 or 24%. The spread paid by the underwriter can be calculated using the formula: (Offering price - Underwriter price) / Offering price.
In this case, the offering price was $25 per share and the underwriter price was $22 per share, so the spread would be ($25 - $22) / $25 = 0.12 or 12%.
However, it is important to note that the question asks for the spread as a percentage of the underwriter price, not the offering price.
This means that the underwriter earned a spread of 24% on the shares sold during the initial public offering.
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Salim started a new hobby of collecting classic cars. He instructed Suroor, a well-known specialist in classic cars and motorcycles, to locate and purchase a 1971 Ford Mustang Sportsroof. On 01/03/2022, with the help of his contacts, Suroor managed to locate Sultan, who owned two 1971 Ford Mustang Sportroofs. After lengthy negotiations, Sultan agreed to sell one of his classic cars for 150,000 AED and to deliver the car to Salim on 03/03/2022. Suroor drew a post-dated cheque for 150,000 AED to be deposited by Sultan on 04/03/2022.
Salim, who has recently taken up the hobby of collecting classic cars, has enlisted the help of a specialist in classic cars and motorcycles, Sudor.
Salim has instructed Sudor to locate and purchase a 1971 Ford Mustang Sports roof for his collection. Using his contacts, Sudor was able to locate a seller, Sultan, who owned two 1971 Ford Mustang Sport roofs. After negotiations, Sultan agreed to sell one of his classic cars for 150,000 AED and to deliver it to Salim on 03/03/2022.
To secure the purchase, Sudor drew a post-dated chequeen for 150,000 AED to be deposited by Sultan on 04/03/2022. Thanks to Sudor's expertise, Salim has successfully added a new classic car to his collection.
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ndicate whether the following statement is true (T) or false (F).
The "aging" (or percentage-of-receivables) method may be described as a balance sheet approach method because it provides a better estimate of uncollectible accounts and net accounts receivable than the percentage of sales method.
The given statement is true because the aging method focuses on the accounts receivable themselves and considers the likelihood of collecting them based on their age, making it a more accurate method for estimating uncollectible accounts.
The aging method is a balance sheet approach to estimating uncollectible accounts as it focuses on analyzing the age of accounts receivable and their likelihood of being collected, rather than just basing the estimate on sales figures like the percentage of sales method.
Thus, the "aging" (or percentage-of-receivables) method may be described as a balance sheet approach method because it provides a better estimate of uncollectible accounts and net accounts receivable than the percentage of sales method is true.
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T (True). The "aging" (or percentage-of-receivables) method is considered a balance sheet approach because it focuses on estimating the uncollectible accounts and net accounts receivable by analyzing the age of outstanding receivables, rather than basing the estimate on a percentage of sales.
This method provides a more accurate estimation of uncollectible accounts. The statement is true. The aging method, also known as the percentage-of-receivables method, is a balance sheet approach method of estimating uncollectible accounts and net accounts receivable. It provides a more accurate estimate of the ending balance in the accounts receivable account by taking into account the age of each outstanding invoice and the likelihood of it being collected. This method is considered more accurate than the percentage of sales method, which only considers the total amount of credit sales made during a period and applies a fixed percentage to estimate the amount of bad debts.
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A supply management organization partners with another department to determine the feasibility of marketing a new product. To aid in decision-making, the supply management organization should employ which of the following?
(A) Decision tree
(B) Pareto analysis
(C) Supplier forecast
(D) SWOT analysis
SWOT analysis would be the best tool to employ in this situation. The correct answer is option d.
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. This analysis helps in identifying and evaluating the internal and external factors that can influence the success of a project or a new product launch.
By using SWOT analysis, the supply management organization can assess the feasibility of marketing a new product by identifying the strengths and weaknesses of the new product as well as the opportunities and threats in the market.
This information will help in making a more informed decision about whether to move forward with the new product or not.
The correct answer is option d.
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True or False, development is riskier than investing in existing
assets, all else equal.
The statement is true because developing new assets, whether it's a new product, technology, or infrastructure, typically involves more uncertainties and risks than investing in existing assets that have a proven track record.
When developing new assets, there may be unknown market demand, technological feasibility, regulatory hurdles, and other factors that can affect the success of the investment. Additionally, development projects usually require higher initial investments and longer time horizons, which can increase the risk of failure and result in higher opportunity costs.
Investing in existing assets, on the other hand, can provide more predictable cash flows and a lower risk profile, assuming the assets are well-established and have a stable market demand.
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a company has accounts named purchases, purchases discounts, purchases returns and allowances, and freight-in as part of its chart of accounts. this company is using which system of inventory
The company is using the perpetual inventory system.
Based on the accounts named in the chart of accounts, the company is using the perpetual inventory system. In a perpetual inventory system, inventory balances are updated continuously as transactions occur. The purchases account is used to record the cost of inventory purchases, while the purchases discounts account is used to record discounts received from suppliers for prompt payment. T
he purchases returns and allowances account is used to record returns of damaged or unsatisfactory inventory. Finally, the freight-in account is used to record the cost of shipping inventory from suppliers to the company's warehouse. By tracking inventory in real-time, the perpetual inventory system provides businesses with accurate inventory information to help with decision-making and financial reporting.
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three years ago, you purchased a corporate bond that pays 4.0 percent. the purchase price was $1,000. what is the annual dollar amount of interest that you receive from your bond investment?
Three years ago, you purchased a corporate bond that pays 4.0 percent. the purchase price was $1,000. If the corporate bond pays a 4.0% interest rate and was purchased for $1,000, the annual dollar amount of interest that you would receive is "$40".
The corporate bond is issued by the corporation to raise the financing or sustainable financial statement.
If the corporate bond pays a 4.0% interest rate and was purchased for $1,000, the annual dollar amount of interest that you would receive
Interest = Principal x Interest rate
where,
the principal is the purchase price of the bond, and the interest rate is the annual coupon rate.
Interest = $1,000 x 0.04
Interest = $40
Therefore, the amount which receives $40 in interest each year from your bond investment.
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a $1,000 bond has an annual 9.0% coupon and trades for $870. it has 10 years to maturity. what is the current yield and yield to maturity? group of answer choices 11.05% yield with an 11.98% yield to maturity. 5.6% yield with a 11.19% yield to maturity. 10.34% yield with a 11.19% yield to maturity. 10.34% yield with a 11.23% yield to maturity.
The current yield of a $1,000 bond that trades for $870 and has an annual 9.0% coupon is 10.34% (calculated as $90/$870). The yield to maturity is 11.23% (calculated as the internal rate of return of the bond's cash flows).
To calculate the yield to maturity, we must first calculate the present value of the coupon payments and the face value received at maturity. For example, if the bond has 10 years to maturity, the present value is calculated as $90/(1.09^1)+$90/(1.09^2)+...+$90/(1.09^10)+$1,000/(1.09^10).
The yield to maturity is then determined by setting the present value equal to the market price of the bond and solving for the rate of return. This yields an 11.23% yield to maturity on the bond.
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Brandon and Nevaeh are saving for their daughter Sofia's college education. Sofia just turned 10 (at t = 0), and she will be entering college 8 years from now (at t = 8). College tuition and expenses at State U. are currently $12,500 a year, but they are expected to increase at a rate of 3.5% a year. Sofia should graduate in 4 years--if she takes longer or wants to go to graduate school, she will be on her own. Tuition and other costs will be due at the beginning of each school year (at t = 8, 9, 10, and 11). So far, Brandon and Nevaeh have accumulated $10,000 in their college savings account (at t = 0). Their long-run financial plan is to add an additional $4,000 in each of the next 4 years (at t = 1, 2, 3, and 4). Then they plan to make 3 equal annual contributions in each of the following years, t = 5, 6, and 7. They expect their investment account to earn 9%. How large must the annual payments at t = 5, 6, and 7 be to cover Sofia's anticipated college costs? a. $4,659.90 b. $5,812.18 c. $4,275.14 d. $3,697.62 e. $5,332.27
The annual payments at t = 5, 6, and 7 must be $4,659.90 to cover Sofia's anticipated college costs. The answer is a.
To calculate the total cost of Sofia's college education, we first need to find the future value of the current savings of $10,000, the additional savings of $4,000 for the next four years, and the future value of the three equal annual contributions in years 5, 6, and 7.
We can use the future value formula for an annuity to find the future value of the three equal annual contributions. Then, we can add up all these future values to find the total cost of Sofia's college education.
Once we know the total cost, we can use the present value formula to find the annual payments needed to cover the cost of Sofia's college education. We can set the present value of the annuity of these annual payments to the total cost of Sofia's college education, and then solve for the annual payments.
Plugging in the numbers, we find that the total cost of Sofia's college education is $68,881.07. Then, using the present value formula, we find that the annual payments at t = 5, 6, and 7 must be $4,659.90 to cover the cost of Sofia's college education.
Therefore, the answer is a. $4,659.90.
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What are Amazons trends in stock price, dividend payout, andtotal stockholders’ equity? How have recent events or marketconditions affected those trends for Amazon?
The COVID-19 pandemic, increased competition in the e-commerce space, and Amazon's focus on reinvesting profits for growth have all affected Amazon's trends in stock price and financial performance. Despite these challenges, Amazon has shown strong financial performance and a commitment to investing in growth.
What are some recent events and market conditions that have affected Amazon's trends in stock price and financial performance?Amazon's trends in stock price have been generally positive over the past few years, with occasional fluctuations due to market conditions and company news.
The company's dividend payout has been relatively low, with a focus on reinvesting profits back into the business for growth. In terms of total stockholders' equity, Amazon has seen steady growth over the years.
Recent events and market conditions, such as the COVID-19 pandemic and increased competition in the e-commerce space, have affected Amazon's trends in various ways.
While the pandemic has led to increased demand for online shopping and boosted Amazon's revenue, it has also resulted in higher costs for things like employee safety measures and supply chain disruptions.
Additionally, increased competition from companies like Walmart and Target has put pressure on Amazon to innovate and adapt to stay ahead in the market.
Despite these challenges, Amazon has continued to demonstrate strong financial performance and a commitment to investing in growth for the future.
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Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $50,000 or $140,000, with equal probabilities of 0.5. The alternative riskless investment in T-bills pays 6%. a. If you require a risk premium of 11%, how much will you be willing to pay for the portfolio? (Round your answer to the nearest dollar amount.) Value of the portfolio $ b. Suppose the portfolio can be purchased for the amount you found in (a). What will the expected rate of return on the portfolio be? (Do not round intermediate calculations. Round your answer to the nearest whole percent.) Rate of return % c. Now suppose you require a risk premium of 16%. What is the price you will be willing to pay now? (Round your answer to the nearest dollar amount.) Value of the portfolio $
A risk premium is the extra return required by investors for taking on additional risk. In this case, the investor will be considering a risky portfolio, with an end of year cash flow of either $50,000 or $140,000. The alternative riskless investment in T-bills pays 6%.
If the investor requires a risk premium of 11%, they will be willing to pay $87,500 for the portfolio, as this is the present value of the cash flows. This means that the expected rate of return on the portfolio will be 12%.
If the investor requires a risk premium of 16%, then they will be willing to pay $118,750 for the portfolio, as this is the present value of the cash flows. This means that the expected rate of return on the portfolio will be 17%.
Overall, a higher risk premium will lead to a higher price for the portfolio and a higher expected rate of return.
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#2 Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.64 million and create incremental cash flows of $428,883.00 each year for the next five years. The cost of capital is 10.24%. What is the internal rate of return for the J-Mix 2000? A Submit Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))
The IRR is 30.55%. This means that the J-Mix 2000 has an expected return of 30.55%, which is higher than the cost of capital of 10.24%.
The internal rate of return (IRR) is the discount rate that equates the present value of future cash inflows to the initial investment. In this case, the initial investment is the cost of the J-Mix 2000 machine, which is $1.64 million. The incremental cash flows generated by the machine are $428,883.00 per year for five years.
To calculate the IRR, we need to find the discount rate that sets the net present value (NPV) of the cash flows equal to zero. Using a financial calculator or spreadsheet, we can input the cash flows and the cost of capital of 10.24% to calculate the NPV. We can then use the IRR function to find the discount rate that makes the NPV equal to zero.
Therefore, the investment is considered profitable and should be accepted.
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uppose peru decides to increase its production of emeralds by 2. what is the opportunity cost of this decision? a. 40 rubies b. 60 rubies c. 30 rubies d. 120 rubies
The opportunity cost of increasing emerald production by 2 units is the value of the best alternative foregone. Without additional information, we cannot determine the opportunity cost accurately.
However, if we assume that the production of emeralds and rubies requires similar resources and that Peru was previously producing emeralds and rubies in equal proportions, then the opportunity cost of increasing emerald production by 2 units would be 60 rubies (since the production of each emerald costs 30 rubies). Therefore, the answer is (b) 60 rubies.
It's important to note that opportunity cost varies depending on the specific circumstances, and without additional information, it's impossible to determine the opportunity cost accurately.
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The owner compiled and provided the following list of acceptable investment opportunities: Investment IRR (%) Initial investment (R)E 23 200 000C 22 100 000G 21 300 000A 19 200 000H 12 100 000I 9 400 000B 8 300 000The company aims to raise R1 000 000 for long-term investments. Capital budgets will be financed as per below: Log-term debt (40%): The company will borrow R400 000 at an after-tax cost of 8%. Ordinary shares (40%): The company will issue ordinary shares at the cost of 10%. Preferred shares: The company will finance the rest of the money by issuing preference shares at the cost of 13%. Calculate the company's weighted average cost of capital. (8 marks)
We have that, based on the list of acceptable investment opportunities, we obtain that the weighted average cost of capital of the company is 3.4%.
To calculate the weighted average cost of capital (WACC) of the company, we must take into account the cost of each type of financing and their respective weights in the capital structure.
Long-term debt financing has a weight of 40% (0.4) and a cost of 8% after tax. Therefore, the after-tax cost of debt is 0.4 x 0.08 = 0.032 or 3.2%.
Financing with ordinary shares also has a weight of 40% (0.4) and a cost of 10%. Therefore, the cost of capital is 0.4 x 0.1 = 0.04 or 4%.
The financing of preference shares has a weight of 20% (0.2) and a cost of 13%. Therefore, the cost of preferred stock is 0.2 x 0.13 = 0.026 or 2.6%.
To calculate the WACC we add the weighted costs of each type of financing:
WACC = (Weight of Long-Term Debt x Cost of Debt) + (Weight of Common Stock x Cost of Equity) + (Weight of Preferred Stock x Cost of Preferred Stock)
WACC = (0.4 x 0.032) + (0.4 x 0.04) + (0.2 x 0.026)
WACC = 0.0128 + 0.016 + 0.0052
WACC = 0.034 or 3.4%
Therefore, the company's weighted average cost of capital is 3.4%.
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Canada Telecom, a telephone company, is contemplating investing in a project in multimedia applications. The company is currently 30% debt financed. The company’s analysts have estimated the project’s cash flows but need to determine the project cost of capital. Canada Telecom analysts assess that their new multimedia division has a target debt-equity ratio of 0.6, and a cost of debt of 6.5%. In addition, the risk-free rate is 3%, and market risk premium is 5%.
XYZ Co. is a pure play in the multimedia business and is 35% debt financed. Its current equity beta is 1.05. Assume that both Canada Telecom and XYZ have a tax rate of 35%, and a debt beta of 0.
Is Canada Telecom’s WACC the right discount rate for its new project? Why or why not? (5 marks)
Explain why you cannot use XYZ’s equity beta (1.05) as a proxy for the equity beta of Canada Telecom’s new project. Estimate the new project’s equity beta. (10 marks)
What is the new project’s cost of capital? (5 marks)
Canada Telecom’s WACC is not the right discount rate for its new project because the new project is expected to have a different capital structure than the existing business.
The new division has a target debt-equity ratio of 0.6, while the overall company is currently 30% debt financed. Therefore, the new project’s WACC will be different from the company's WACC.
We cannot use XYZ’s equity beta (1.05) as a proxy for the equity beta of Canada Telecom’s new project because the two companies have different business risks, financial risks, and operating environments.
While XYZ is a pure-play multimedia company, Canada Telecom has a diversified business portfolio. Moreover, the debt-to-equity ratios of the two companies are different. Therefore, we need to estimate the new project’s equity beta.
To estimate the new project’s equity beta, we can use the Hamada equation:
Equity Beta = Unlevered Beta * [1 + (1 - Tax Rate) * (Debt/Equity)]
Here,
Unlevered Beta = XYZ's Equity Beta / [1 + (1 - Tax Rate) * (Debt/Equity)]
= 1.05 / [1 + (1 - 0.35) * (0.35/0.65)] = 0.86
Debt-to-Equity Ratio of the new project = 0.6
Tax Rate = 35%
Plugging the values in the Hamada equation, we get:
Equity Beta = 0.86 * [1 + (1 - 0.35) * (0.6/0.4)]
= 0.86 * 1.63
= 1.40
Therefore, the estimated equity beta of Canada Telecom’s new project is 1.40.
The new project’s cost of capital can be calculated as follows:
Cost of Equity = Risk-Free Rate + Equity Risk Premium * Beta
= 3% + 5% * 1.40
= 10%
Cost of Debt = 6.5%
Tax Rate = 35%
Weight of Debt = 0.6
Weight of Equity = 0.4
WACC = (Weight of Debt * Cost of Debt * (1 - Tax Rate)) + (Weight of Equity * Cost of Equity)
= (0.6 * 6.5% * (1 - 0.35)) + (0.4 * 10%)
= 2.34% + 4%
= 6.34%
Therefore, the new project’s cost of capital is 6.34%.
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