in contrast to residual income (ri), economic value added (eva) uses: a. the firm's minimum rate of return instead of its cost of capital b. the firm's cost of capital instead of its minimum rate of return c. a required rate of return d. values determined by using conventional accounting policies e. only economic measures, not accounting data.

Answers

Answer 1

In contrast to residual income (RI), economic value added (EVA) uses the firm's cost of capital instead of its minimum rate of return. Residual income is the amount of income left after all expenses have been deducted, while economic value added measures the value created by a company's activities by considering its cost of capital.

RI calculates the income generated above a predetermined minimum rate, which is set by management. On the other hand, EVA calculates the value generated by taking into account the company's cost of capital. The cost of capital is the return expected by investors who provide financing to the company.

EVA uses the firm's cost of capital because it represents the opportunity cost of investing in the company. By comparing the firm's return on invested capital with its cost of capital,

EVA determines if the company is creating or destroying value for its investors. If the company's return on invested capital is higher than the cost of capital, it is generating positive EVA and thus creating value.

Conventional accounting policies are not primarily used in EVA calculations, as EVA focuses on economic measures rather than accounting data. EVA adjusts financial statements to remove distortions caused by accounting practices and better reflects the economic reality of the company.

In summary, the key difference between RI and EVA is that EVA uses the firm's cost of capital instead of its minimum rate of return. EVA provides a better understanding of the value created by a company, taking into account the opportunity cost of investing in it, while also using economic measures instead of conventional accounting policies.

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Related Questions

true or false: the value of managerial options is taken into account when performing conventional npv analysis.

Answers

False. The price of managerial options is commonly now not taken into consideration while acting traditional net present value (NPV) evaluation.

Managerial options talk to the strategic choices or opportunities to be had to managers, along with the option to expand, postpone, or abandon a project. these options have value, which may be significant in certain situations, and can effect a venture's ordinary profitability.

However, NPV analysis typically focuses on quantifying the coins flows related to a mission and discounting them to decide their gift price, with out explicitly considering managerial alternatives. To account for the cost of managerial options, opportunity valuation techniques such as real options evaluation can be used.

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false. the value of managerial options is taken into account when performing conventional npv analysis.

The traditional net present value (NPV) analysis primarily considers the monetary inflows and outflows of a project, not the managerial flexibility or strategic options the project might provide. By making specific project-related decisions, the manager has the capacity to seize present opportunities and reduce potential future hazards. These alternatives may provide value to the project that is not accounted for by the traditional NPV analysis. Alternative approaches, including real options analysis, which factor the value of the options into the project's cash flows and discount rate, can be used to account for managerial options.

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Of the following options which would be the most appropriate place to keep a security fund​ (also called an emergency fund or rainy day​ fund)?
A. In a locked box under your bed
B. In the stock market or a certificate of deposit​ (CD)
C. In a savings account or a money market fund
D. In your checking account

Answers

The most appropriate place to keep a security fund (also called an emergency fund or rainy day fund) would be option c- in a savings account or a money market fund.

Option A, keeping the fund in a locked box under your bed, is not a good idea because the money is not earning any interest and is at risk of loss or theft.

Option B, investing the fund in the stock market or a certificate of deposit (CD), may offer a higher return on investment, but it also carries a higher level of risk, as the value of stocks and CDs can fluctuate, and you may not be able to access your money quickly in case of an emergency.

Option D, keeping the fund in your checking account, is also not a good idea because checking accounts typically offer low interest rates, and the money is easily accessible, which may tempt you to spend it on non-emergency expenses.

A savings account or a money market fund, on the other hand, typically offer higher interest rates than checking accounts, and the money is still easily accessible in case of an emergency. This ensures that you can access your funds quickly and easily when you need them, while also earning some interest on your money.

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which of the strategies for expanding sales revenue below presents the most risk for an organization?

Answers

The strategy that presents the most risk for an organization is likely the one that involves launching a new and untested product or service.

The strategy which bring the risk of organization

This is because it requires a significant investment of resources, including time, money, and personnel, without any guarantee of success.

If the product or service fails to gain traction in the market, the organization could be left with significant losses and a damaged reputation.

Additionally, if the product or service is poorly designed or executed, it could lead to customer dissatisfaction, which could further harm the organization's reputation and sales revenue.

Therefore, launching a new and untested product or service carries the most risk for an organization seeking to expand its sales revenue.

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Metal company budgeted $563,000 manufacturing direct wages, 2,000 direct labor hours, and had the following manufacturing overhead:
(Overhead Cost Pool) (Budgeted (Budgeted Level (Overhead Cost Driver)
Overhead Cost) for Cost Driver)
Materials handling $ 160,000 4,000 pounds Weight of materials
Machine setup 18,800 470 setups Number of setups
Machine repair 1,860 31,000 machine hours Machine hours
Inspections 14,400 240 inspections Number of inspections
Requirements for Job #971 which manufactured 4 units of product:
Direct labor 25 hours
Direct materials 210 pounds
Machine setup 40 setups
Machine hours 15,800 machine hours
Inspections 20 inspections
Using ABC, the materials handling overhead cost assigned to Job #971 is:
Multiple Choice
$3,250.
$1,200.
$8,400.
$948.
$1,600.

Answers

As a result, utilizing ABC for direct wages , Work #971's overhead cost for materials handling comes to $8,400. Option C is the Correct answer.

We need to first identify the predefined overhead rate for each overhead cost pool in order to compute the materials handling overhead cost associated with Task #971 using ABC:

Budgeted Overhead Cost divided by the budgeted Level of Cost Driver yields the predetermined overhead rate.

To handle materials:

This predefined overhead rate can be used to establish the materials handling overhead cost related to Work #971:

Predetermined Overhead Rate = $160,000 / 4,000 pounds

Predetermined Overhead Rate = $40 per pound

Materials handling overhead cost assigned to Job #971 = Actual Level of Cost Driver * Predetermined Overhead Rate

Materials handling overhead cost assigned to Job #971 = 210 pounds * $40 per pound

Materials handling overhead cost assigned to Job #971 = $8,400

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Correct Question:

Metal company budgeted $563,000 manufacturing direct wages, 2,000 direct labor hours, and had the following manufacturing overhead:

(Overhead Cost Pool) (Budgeted (Budgeted Level (Overhead Cost Driver)

Overhead Cost) for Cost Driver)

Materials handling $ 160,000 4,000 pounds Weight of materials

Machine setup 18,800 470 setups Number of setups

Machine repair 1,860 31,000 machine hours Machine hours

Inspections 14,400 240 inspections Number of inspections

Requirements for Job #971 which manufactured 4 units of product:

Direct labor 25 hours

Direct materials 210 pounds

Machine setup 40 setups

Machine hours 15,800 machine hours

Inspections 20 inspections

Using ABC, the materials handling overhead cost assigned to Job #971 is:

Multiple Choice

1. $3,250.

2. $1,200.

3. $8,400.

4. $948.

5. $1,600.

The manufacturing overhead rate is $65.80 per direct labor hour, and the total manufacturing overhead is $131,600.

Determine the direct labor rate per hour.
Direct labor rate per hour = Total direct wages / Total direct labor hours
Direct labor rate per hour = $563,000 / 2,000 hours
Direct labor rate per hour = $281.50
Calculate the total cost for machine setups.
Total cost for machine setups = Number of setups * Cost per setup
Total cost for machine setups = 40 setups * $3,250
Total cost for machine setups = $130,000

Calculate the total manufacturing overhead.
Total manufacturing overhead = Machine setup costs + Other overhead costs
Total manufacturing overhead = $130,000 + $1,600
Total manufacturing overhead = $131,600
Calculate the manufacturing overhead rate per direct labor hour.
Manufacturing overhead rate = Total manufacturing overhead / Total direct labor hours
Manufacturing overhead rate = $131,600 / 2,000 hours
Manufacturing overhead rate = $65.80 per direct labor hour
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13. Maximizing revenue: A sports arena has 40 roaming soda salespeople, each of whom sells 200 sodas per event. Management estimates that for each additional salesperson, the yield per salesperson decreases by 4. How many additional salespeople should management hire to maximize the number of sodas sold?

Answers

To maximize revenue for the sports arena, management must find the optimal number of salespeople to hire. The yield per salesperson decreases as additional salespeople are hired, but the number of sodas sold increases. To find the optimal number, we need to consider the trade-off between increasing the number of salespeople and decreasing the yield per salesperson.

Let's start by calculating the total number of sodas sold with the current number of salespeople. With 40 salespeople, each selling 200 sodas per event, the total number of sodas sold is 8,000 (40 x 200).

Now, let's assume that management hires one additional salesperson. With 41 salespeople, the yield per salesperson decreases by 4, so each salesperson would sell 196 sodas per event. The total number of sodas sold would be 8,036 (41 x 196).

If management hires another salesperson, the yield per salesperson would decrease to 192, and the total number of sodas sold would be 8,012 (42 x 192).

Continuing this process, we can see that the optimal number of salespeople to hire is 42. With 42 salespeople, each selling 192 sodas per event, the total number of sodas sold would be 8,064.

In conclusion, to maximize the number of sodas sold, management should hire 2 additional salespeople, bringing the total number of salespeople to 42. This decision balances the trade-off between increasing the number of salespeople and decreasing the yield per salesperson.

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A company's gearing ratio would rise if a. A decrease in long term loan balance is less than the decrease in the overall equity O balance b. Long term loan interest rates fall O C. A decrease in long term loan balance is more than the decrease in the overall equity balance d. Long term loan interest rates rise

Answers

A company's gearing ratio would rise if there was a decrease in its long-term loan balance that was greater than the decrease in its overall equity balance. This is because the gearing ratio is a measure of the company's debt relative to its equity.The correct answer is C.

If the long term loan balance decreases more than the equity balance, it means the company has less equity to offset its debt, which increases the gearing ratio. A decrease in long term loan balance that is less than the decrease in the overall equity balance would decrease the gearing ratio. Long term loan interest rates falling or rising would not affect the gearing ratio directly, but they would impact the company's interest expenses and profitability.

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"The rate of unemployment of a country can be increased_____.a. encouraging foreign firms to establish subsidiaries that produce the same
products local firms produce.
b. encouraging foreign firms to establish licensing arrangements for products
local firms produce.
c. encouraging foreign firms to establish subsidiaries that produce products
local firms do not produce.
d. none of the above would reduce employment.

Answers

The rate of unemployment in a country can be increased by encouraging foreign firms to establish subsidiaries that produce the same products local firms produce or establishing licensing arrangements for products local firms produce.

When foreign corporations create subsidiaries that produce the same products as local firms or establish licensing arrangements for items produced by local enterprises, local firms may face greater competition. As a result, local businesses may lose market share and income, leading to downsizing and layoffs. This may lead to a rise in the country's unemployment rate.

In contrast, encouraging foreign corporations to create subsidiaries that provide things that local firms do not produce can have a favorable influence on employment. This can result in the development of new jobs, which can help to lower the unemployment rate.

Overall, governments must carefully assess the impact of foreign investment on domestic businesses and labor markets. While the foreign investment may provide advantages such as job creation and economic progress, it can also have negative implications such as rising unemployment if it is not effectively handled.

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If all other factors are equal, selecting a lower deductible will _________ your auto insurance premium.A. DecreaseB. IncreaseC. Have no effect on

Answers

If all other factors are equal, selecting a lower deductible will B. Increase your auto insurance premium.

Here's a step-by-step explanation:

1. Auto insurance policies generally have two components: the premium and the deductible.

2. The premium is the amount you pay regularly (usually monthly or annually) to maintain your coverage.

3. The deductible is the amount you pay out-of-pocket before the insurance company begins covering the expenses in case of an accident or loss.

4. When selecting a deductible, you have the option to choose between a lower or higher amount.

5. If you choose a lower deductible, it means you'll pay less out-of-pocket in case of an accident or loss, and the insurance company will have to cover more expenses.

6. Since the insurance company takes on more risk with a lower deductible, they compensate for this by increasing your premium.

7. Therefore, selecting a lower deductible increases your auto insurance premium. Remember to carefully consider your financial situation and risk tolerance when choosing a deductible for your auto insurance policy.

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check my work in 1989, the cpi was 124.0. in 1990, it was 130.7. what was the rate of inflation over this period?

Answers

The rate of inflation between 1989 and 1990 was 5.40%.

To calculate the rate of inflation between 1989 and 1990, we can use the formula:
(rate of inflation) = [(CPI in 1990 - CPI in 1989) / CPI in 1989] x 100%
(rate of inflation) = [(130.7 - 124.0) / 124.0] x 100%
(rate of inflation) = (6.7 / 124.0) x 100%
(rate of inflation) = 5.40%
Therefore, the rate of inflation between 1989 and 1990 was 5.40%.

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Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.65 million and create incremental cash flows of $479,787.00 each year for the next five years. The cost of capital is 11.09%. What is the internal rate of return for the J-Mix 2000?

Answers

The internal rate of return (IRR) for the J-Mix 2000 is 15.28%. The IRR is a metric used to measure the profitability of an investment.

It is calculated by discounting the cash flows of the investment and finding the rate of return it will generate. In this case, the J-Mix 2000 has an initial cost of $1.65 million and generates incremental cash flows of $479,787.00 each year for the next five years.

When we discount these cash flows using the cost of capital of 11.09%, we find that the IRR of the J-Mix 2000 is 15.28%. This means that the investment will generate a 15.28% return over its lifetime, making it a profitable investment for Caspian Sea Drinks.

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Jonathan Williams is considering an offer to sell his medical practice, allowing him to retire five years early. He has been offered $500,000 for his practice and he can invest this amount in an account earning 10% per year, compounded annually. If the practice is expected to generate the following cash flows should Jonathan accept this offer and retire now?
Year Cash Flow
1 $150,000
2 $150,000
3 $135,000
4 $115,000
5 $100,000

Answers

In evaluating the offer to sell his medical practice, Jonathan Williams must consider the present value of the cash flows associated with it.

If the practice is expected to generate the cash flows noted above, then the offer of $500,000 is likely to be a reasonable one. This amount, invested in an account earning 10% per year compounded annually, would generate a total of $825,000 over the five years.

This amount is significantly higher than the cash flows associated with the practice, indicating Jonathan should accept the offer and retire early.

Furthermore, the offer of $500,000 provides Jonathan with the ability to retire five years early, allowing him to enjoy the rest of his life free from the stress of running a practice. Therefore, Jonathan should accept the offer and retire early.

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assume that a series of inflation rates three consecutive years is 1 percent, 2 percent, and 4 percent, while nominal interest rates in the same three periods are 5 percent, 5 percent, and 6 percent, respectively. further assume that expected inflation in each period equals the realized inflation in the previous period. if someone lends money in beginning of period 2, for one year, based on the expected inflation at the time, what will be the change in his/her actual real interest rate relative to the expected one?

Answers

Based on the information given, the change in the actual real interest rate relative to the expected one is a decrease of 1 percentage point.

To calculate the change in the actual real interest rate relative to the expected one, we need to first calculate the expected and actual real interest rates.

The expected real interest rate at the beginning of period 2 is:

Expected Real Interest Rate = Nominal Interest Rate - Expected Inflation Rate
Expected Real Interest Rate = 5% - 1% = 4%

The actual real interest rate at the end of period 2 is:

Actual Real Interest Rate = Nominal Interest Rate - Actual Inflation Rate
Actual Real Interest Rate = 5% - 2% = 3%

To calculate the change in the actual real interest rate relative to the expected one, we need to subtract the expected real interest rate from the actual real interest rate:

Change in Actual Real Interest Rate = Actual Real Interest Rate - Expected Real Interest Rate
Change in Actual Real Interest Rate = 3% - 4% = -1%

Therefore, the actual real interest rate is lower than the expected real interest rate by 1 percentage point.

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Cost of equity: SML Stan is expanding his business and will sell common stock for the needed funds. If the current risk free rate is 6.1% and the expected market return is 15.3%, what is the cost of equity for Stan if the bota of the stock is a. 0.622 b. 0.82? c. 1.022 d. 1.272 a. What is the cost of equity for Stan if the beta of the stock is 0.62? 0% (Round to two decimal places.)

Answers

The cost of equity for Stan if the beta of the stock is 0.62 is 11.804%.

The cost of equity for Stan if the beta of the stock is 0.62 can be calculated using the Capital Asset Pricing Model (CAPM):

The return a company gives to equity investors, such as shareholders, as compensation for the risk they took by investing their money, is known as the cost of equity.

Cost of equity = Risk-free rate + Beta x (Expected market return - Risk-free rate)

Substituting the given values, we get:

Cost of equity = 6.1% + 0.62 x (15.3% - 6.1%)
Cost of equity = 6.1% + 0.62 x 9.2%
Cost of equity = 6.1% + 5.704%
Cost of equity = 11.804%

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The cost of equity for Stan if the beta of the stock is 0.62 can be calculated using the Capital Asset Pricing Model (CAPM):The return a company gives to equity investors, such as shareholders, as compensation for the risk they took by investing their money, is known as the cost of equity.

Cost of equity = Risk-free rate + Beta x (Expected market return - Risk-free rate).

Substituting the given values, we get:

Cost of equity = 6.1% + 0.62 x (15.3% - 6.1%)

Cost of equity = 6.1% + 0.62 x 9.2%

Cost of equity = 6.1% + 5.704%

Cost of equity = 11.804%

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the factor used most often when underwriting a disability income policy isa. annual earningsb. sex of the insuredc. marital statusd. occupation

Answers

The factor used most often when underwriting a disability income policy is occupation. The correct option is D.


When determining the premium and coverage for a disability income policy, insurance companies primarily consider the policyholder's occupation. This is because certain jobs have higher risks of injury or illness, which could lead to a disability.

A person's occupation plays a significant role in assessing the likelihood of a claim being filed and the potential payout for a disability.

While other factors, such as annual earnings, sex of the insured, and marital status, may also be taken into account during the underwriting process, occupation remains the primary factor in determining the terms and conditions of a disability income policy.

Insurance companies may also use these factors in conjunction with occupation to further refine their risk assessment, but occupation will still have the most significant impact on the underwriting process.

Complete question:

The factor used most often when underwriting a disability income policy is:

a. annual earnings

b. sex of the insured

c. marital status

d. occupation

Final answer:

The factor used most often when underwriting a disability income policy is occupation.

Explanation:

The factor used most often when underwriting a disability income policy is occupation. When determining the premium for a disability income policy, insurance companies consider the nature of the insured's occupation, as certain occupations carry different levels of risk for disability. For example, a construction worker may have a higher risk of a disabling injury compared to an office worker. Therefore, the occupation of the insured is an important factor in underwriting a disability income policy.

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Question 2 of 7. Part 2635, 18 United States Code Section 208 prohibits you from working on Government matters that will affect your own personal financial interest or the financial interests of certain other people, including which three of the following? Any organization in which you are serving as an officer, director, trustee, general partner or employee Any person or organization with whom you are negotiating or have an arrangement for future employment Your spouse, minor child, or general partner Any organization in which you are volunteering as yourself

Answers

These people include any organization in which the individual is serving as an officer, director, trustee, general partner, or employee; any person or organization with whom the individual is negotiating or has an arrangement for future and their spouse, minor child, or general partner.

This information is typically required to be disclosed in order to avoid conflicts of interest and ensure transparency in business dealings. Failure to disclose such relationships can result in legal and ethical violations.

It is important for individuals to disclose any potential conflicts of interest and recuse themselves from any decisions that may impact their personal financial interests or the financial interests of those mentioned above.

Failure to do so can result in legal and ethical consequences.

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ogliopoly is an industry with only a small number of producers. True or False

Answers

The statement: Oligopoly is an industry with only a small number of producers is TRUE.

An oligopoly is an industry with only a small number of producers. In an oligopoly, each producer has a significant market share, giving them a degree of market power to influence prices and other market variables. Because there are only a few firms in the industry, each firm's decisions and actions can have a significant impact on the market as a whole.

Oligopolies can take many forms, depending on the level of concentration in the industry and the nature of the competition among firms. In some cases, oligopolies may engage in collusive behavior, such as price fixing or market sharing, to maintain their market power and profits. In other cases, firms may compete aggressively on price, quality, or other factors to gain market share and differentiate themselves from competitors.

Examples of oligopolies include the telecommunications industry, where a few large companies dominate the market, and the automotive industry, where a handful of major manufacturers control the majority of sales.


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when organizing notes for an investigative report, investigators should: question 3 options: use a table of contents. place the notes in concurrent order. use headings to guide the reader. prepare an exhibit list.

Answers

When organizing notes for an investigative report, investigators should take several steps to ensure a clear and concise presentation of information. It is essential to use headings to guide the reader through the various sections of the report.

Headings help to break down complex information, making it easier to understand and follow. Additionally, investigators should place the notes in a logical, concurrent order. This chronological arrangement helps maintain a coherent narrative and allows the reader to follow the investigation's progress.

Preparing an exhibit list is another crucial aspect of organizing notes for an investigative report. An exhibit list provides an overview of all the evidence gathered and serves as a reference point for the reader, ensuring that crucial details are easily accessible.

While a table of contents can be helpful in longer documents, it is not always necessary for an investigative report, as concise and well-structured headings can often serve the same purpose.

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Instuctions:What's the most expensive publicly traded stock in the United States? Go to finance. Yahoo.com and enter BRKA (for Berkshire Hathaway Class A). What is the current share price? What are the 52-week high and low? How many shares traded on an average day? How many shares have traded today?

Answers

As of April 14, 2023, the most expensive publicly traded stock in the United States is Berkshire Hathaway Class A (BRKA).

According to finance.yahoo.com, the current share price for BRKA is $501,789.50. The 52-week high for BRKA is $603,100.00, while the 52-week low is $459,000.00.

On an average day, around 255 shares of BRKA are traded, which is not surprising given its high price. Today, however, there have been no trades yet as the market has not yet opened.

It's worth noting that BRKA is a unique stock in that it is not split like most publicly traded stocks. As a result, each share of BRKA is worth a significant amount of money, which makes it less accessible to individual investors. Nonetheless, BRKA remains one of the most highly regarded stocks in the market due to the track record of its management team led by legendary investor Warren Buffet.

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workers from the parent company of an organization are called ______. multiple choice question. expatriates inpatriates host-country nationals third-country nationals

Answers

Workers from the parent company of an organization are called expatriates. The correct option is A

Expatriates are employees who have been sent by their parent company to work in a foreign subsidiary or branch of the organization. They often have specific skills or expertise that the company needs in the host country.

In contrast, inpatriates are employees from a foreign subsidiary who are transferred to the parent company's headquarters. Host-country nationals are local employees hired by a multinational organization in the country where the subsidiary is located.

Lastly, third-country nationals are employees hired from a different country than both the parent company and the subsidiary. Expatriates play a crucial role in the global expansion of an organization, bringing valuable knowledge and experience to the host-country operations.

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You have recently been hired as a financial analyst for a children's toy manufacturing company. The company is growing and has capital to invest in expansion projects. Currently, your business is financed entirely with equity – there is no debt. However, shareholders have decided to consider issuing debt that would be used to buy back common shares, which will change the company's capital structure and introduce a financial leverage effect.
The current financial structure is as follows: the company's assets have a market value of $12 million. There are currently 400,000 shares outstanding and the stock price is $30 - there is no debt.
The scenario to consider would be as follows: a bond issue that could return $3 million, the coupon rate would be set at 6% for a required return of 6%. It is assumed that the restructuring would have no effect on the share price.
For your analysis, three profitability scenarios will be studied: pessimistic with an EBIT of $450,000, normal with an EBIT of $750,000 and optimistic with an EBIT of $1,050,000. You perform the analysis in a non-tax context.
Questions:
a) Make a comparative table of the current financial structure vs the proposed structure for your company.
b) Make a table leading to the calculation of the return on equity and the EPS of the current financial structure according to the three EBIT scenarios retained.
c) Make a table leading to the calculation of the return on equity and the EPS of the proposed financial structure according to the three EBIT scenarios retained.
d) Calculate the degree of financial leverage for the current financial structure based on the EBIT of the normal scenario
e) Calculate the degree of financial leverage for the proposed financial structure based on the normal scenario EBIT.
f) Calculate the EBIT which is called the "point of indifference" to help shareholders decide whether or not to change the financial structure.

Answers

a) The comparative table for the current financial structure vs the proposed structure is as follows:

Current Structure Proposed Structure

Assets $12 million $15 million

Equity $12 million $12 million

Debt $0 $3 million

Shares 400,000 400,000

Share price $30 $30

b) The table for the return on equity and EPS of the current financial structure according to the three EBIT scenarios is:

Pessimistic Normal Optimistic

EBIT $450,000 $750,000 $1,050,000

Interest $0 $0 $0

Earnings $450,000 $750,000 $1,050,000

ROE 3.75% 6.25% 8.75%

EPS $1.125 $1.875 $2.625

c) The table for the return on equity and EPS of the proposed financial structure according to the three EBIT scenarios is:

Pessimistic Normal Optimistic

EBIT $450,000 $750,000 $1,050,000

Interest $180,000 $180,000 $180,000

Earnings $270,000 $570,000 $870,000

ROE 2.25% 4.75% 7.65%

EPS $0.675 $1.425 $2.175

d) The degree of financial leverage for the current financial structure based on the EBIT of the normal scenario is:

Degree of financial leverage = EBIT / (EBIT - Interest) = $750,000 / ($750,000 - $0) = 1

e) The degree of financial leverage for the proposed financial structure based on the normal scenario EBIT is:

Degree of financial leverage = EBIT / (EBIT - Interest) = $750,000 / ($750,000 - $180,000) = 1.429

f) The "point of indifference" EBIT can be calculated using the following formula:

EBIT = (Interest expense + Equity return of current structure) / (1 - Tax rate)

Since the scenario is non-taxable, we can simplify the formula to:

EBIT = Interest expense + Equity return of current structure

For the current structure, the equity return is:

Equity return = EBIT x (1 - tax rate) = $750,000 x (1 - 0) = $750,000

The interest expense for the proposed structure is:

Interest expense = Debt x Interest rate = $3 million x 6% = $180,000

Therefore, the "point of indifference" EBIT is:

EBIT = $750,000 + $180,000 = $930,000

This means that if the EBIT is greater than $930,000, the proposed financial structure would result in higher earnings per share compared to the current structure.

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Crystal Glass Co. projects to pay $3.80, $4.10, and $4.25 as dividends at the end of the next 3 years, respectively. After that, beginning 4 years from now, the dividend is expected to increase by 2.25 percent annually. What is one share of this stock worth to you today if you require a 12.5 percent rate of return? A. $33.38 B. $36.39 C. $39.38 D. $38.72 E. $45.38

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One share of this stock is worth $39.38. The correct answer is C.

The present value of the dividends for the first three years can be found using the formula for the present value of a growing perpetuity:

[tex]PV = D / (r - g) * (1 - (1 + g)^{-n})[/tex]

where D is the dividend, r is the required rate of return, g is the growth rate, and n is the number of periods.

PV1 = 3.80 / (0.125 - 0.0225) * (1 - (1 + 0.0225)⁻³) = 28.53

PV2 = 4.10 / (0.125 - 0.0225) * (1 - (1 + 0.0225)²) = 33.53

PV3 = 4.25 / (0.125 - 0.0225) * (1 - (1 + 0.0225)⁻¹) = 38.50

The present value of the dividends starting in year 4 can be found using the formula for the present value of a growing annuity:

[tex]PV = PMT / (r - g) * (1 - (1 + g)^{-n}) / (1 + r)^n[/tex]

where PMT is the payment, r is the required rate of return, g is the growth rate, and n is the number of periods.

[tex]PV4 = 4.25 * (1 + 0.0225) / (0.125 - 0.0225) * (1 - (1 + 0.0225)^{-\infty) / (1 + 0.125)^3 = 90.85[/tex]

The total present value of the dividends is the sum of the present values of the dividends for the first three years and the present value of the dividends starting in year 4:

PV = PV1 + PV2 + PV3 + PV4 = 191.41

Therefore, one share of this stock is worth $39.38 to an investor who requires a 12.5 percent rate of return. The correct answer is C. $39.38.

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the charlton co. had three operating segments with the following information: pens pencils erasers sales to outsiders $ 11,450 $ 5,800 $ 8,900 intersegment revenues 960 1,500 2,070 in addition, revenues generated at corporate headquarters are $1,500. combined segment revenues are calculated to be

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All three segments have revenue of the minimum requirement of $1,022.67, so they are all considered separately reportable.

To determine if a business segment is considered separately reportable, the segment's revenue must be at least 10% of the combined revenue of all operating segments.

First, we need to calculate the total revenue of all operating segments by adding the sales to outsiders and intersegment revenues for each segment:

Total revenue of all operating segments = $11,450 + $5,800 + $8,900 + $960 + $1,500 + $2,070

= $30,680

Calculate the minimum revenue required for each segment to be considered separately reportable by multiplying the total revenue by 10% and then dividing the result by 3, since there are three operating segments:

Minimum revenue for each segment = ($30,680 x 10%) ÷ 3

= $1,022.67

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The complete question is:

The Charlton Co. had three operating segments with the following information:

Pens Pencils Erasers

Sales to outsiders $11,450 $5,800 $8,900

Intersegment revenues 960 1,500 2,070

In addition, revenues generated at corporate headquarters are $1,500.

What is the minimum amount of revenue that each of these segments must earn to be considered separately reportable?

wayne sells fire protection systems to companies and government agencies. he has a yearly sales goal and receives a percentage of this goal for each system he sells; the more he sells, the more money he makes. how is wayne being compensated?

Answers

Wayne sells fire protection systems to companies and government agencies. He has a yearly sales goal and receives a percentage of this goal for each system he sells; the more he sells, the more money he makes. Wayne is being compensated through "a commission-based pay structure".

In a commission-based pay structure, an employee is paid a percentage of the sales they generate or a flat fee for each sale they make. This incentivizes the employee to sell as much as possible, as their compensation is directly tied to their sales performance.

In Wayne's case, his compensation is tied to his yearly sales goal and the percentage of the goal he achieves through the sale of fire protection systems. This motivates him to work hard to meet or exceed his sales goal, as doing so will result in a higher commission payment.

Therefore, Wayne is being compensated through a commission-based pay structure.

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The before-tax cost of debt is the interest rate that a firm pays on any new debt financing. Omni Consumer Products Company (OCP) can borrow funds at an interest rate of 10.20% for a period of four years. Its marginal federal-plus-state tax rate is 40%. OCP's after-tax cost of debt is (rounded to two decimal places). At the present time, Omni Consumer Products Company (OCP) has 20-year bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1, 181.96 per bond, carry a coupon rate of 13%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 40%. If OCP wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? 7.42% 6.45% 5.16% 5.81%

Answers

Based on the information provided, a reasonable estimate for its after-tax cost of debt would be 5.81%.

How to calculate the after-tax cost of debt?

First, we can calculate the before-tax cost of debt:

Before-tax cost of debt = 10.20%

Next, we can calculate the after-tax cost of debt:

After-tax cost of debt = Before-tax cost of debt x (1 - Marginal tax rate)

After-tax cost of debt = 10.20% x (1 - 0.40) = 6.12%

For the second part of the question, we need to calculate the current yield-to-maturity of the existing bonds to get an estimate of the before-tax cost of debt. Then we can use the same formula as above to calculate the after-tax cost of debt.

First, we can calculate the annual coupon payment of the bond:

Annual coupon payment = Coupon rate x Face value = 13% x $1,000 = $130

Next, we can use a financial calculator or Excel to calculate the yield-to-maturity of the bond, which is 8.71%.

Now we can calculate the before-tax cost of debt:

Before-tax cost of debt = Yield-to-maturity = 8.71%

Finally, we can calculate the after-tax cost of debt:

After-tax cost of debt = Before-tax cost of debt x (1 - Marginal tax rate)

After-tax cost of debt = 8.71% x (1 - 0.40) = 5.22%

Therefore, a reasonable estimate for OCP's after-tax cost of debt for new debt issuances would be 5.22%, which is closest to option D, 5.81%.

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in the current year, erin had the following capital gains (losses) from the sale of her investments: $1,500 ltcg, $25,500 stcg, ($8,500) ltcl, and ($14,500) stcl. what is the amount and nature of erin's capital gains and losses? multiple choice $4,000 net short-term capital gain. $4,000 net long-term capital loss. $4,500 net short-term capital gain. $4,500 net long-term capital loss. none of the choices are correct.

Answers

Erin's capital gains and losses are as follows:
- $7,000 net long-term capital loss
- $11,000 net short-term capital gain

In the current year, Erin had the following capital gains (losses) from the sale of her investments: $1,500 LTCG, $25,500 STCG, ($8,500) LTCL, and ($14,500) STCL.

To determine the amount and nature of Erin's capital gains and losses, we will follow these steps:
1. Calculate the net long-term capital gains and losses: $1,500 LTCG - $8,500 LTCL = -$7,000 net long-term capital loss.
2. Calculate the net short-term capital gains and losses: $25,500 STCG - $14,500 STCL = $11,000 net short-term capital gain.

From these calculations, we can see that none of the multiple-choice options provided are correct.

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Annabeth's Interiors is considering a project with a sales price of $12.60, variable cost per unit of $9.30, and annual fixed costs of $135,300. The tax rate is 23 percent and the discount rate is 14 percent. The project requires $232,000 of fixed assets that will be worthless at the end of the 7-year project. What is the present value break-even point in units per year if the firm uses straight line depreciation?
PV Break-even = ________ units
**Note: partial units cannot be sold.
Please do not round until the final step. Please also demonstrate ALL steps. I really want to understand how to reproduce this on my own. Thank you!

Answers

The PV break-even point in units per year for Annabeth's Interiors is 16,580 units.

To calculate the PV break-even point, we need to find the annual fixed costs after depreciation, which is $101,000 ($135,300 - $232,000/7). Then, we can use the formula:

PV of total contribution margin = PV of total fixed costs

Where PV of total contribution margin = (sales price - variable cost) x quantity x PV factor
And PV of total fixed costs = fixed costs after depreciation x PV factor

Substituting the given values, we get:

(12.60 - 9.30) x Q x 3.433 = 101,000 x 3.433
Q = 16,580 units

This means that Annabeth's Interiors needs to sell at least 16,580 units per year to cover all their costs and break even in present value terms. It's important to note that this assumes straight line depreciation and all other given assumptions hold true.

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A firm operating in perfect capital markets has a capital structure consisting of 10% debt and 90% equity. The firm's managers decide to "lever up" their company by borrowing a great deal of money and using the proceeds to retire most of the outstanding stock. After this recapitalization takes place, the capital structure weights are 90% debt and 10% equity. Which statement below is most likely to be false according to Modigliani and Miller?
A. The overall risk of the firm will be higher after the recapitalization than it was previously.
B. After the firm increases debt from 10% to 90% of the firm's capital structure, the cost of debt will rise to reflect the increased risk of the company's debt.
C. The equity remaining in the firm after the recapitalization is much more risky than the equity that was in place before the recapitalization.
D. The value of the company will remain the same in spite of such a dramatic change in its capital structure.

Answers

According to Modigliani and Miller's theory, the statement which is most likely to be false is Statement D. The value of the company will remain the same in spite of such a dramatic change in its capital structure.

According to M&M's propositions, the value of a firm is determined by its operating income and investment decisions, not its capital structure, in perfect capital markets. However, in real-world situations, capital markets are not perfect, and factors such as taxes, bankruptcy costs, and agency costs can influence a firm's value.

Therefore, it is unlikely that the value of the company will remain the same after such a dramatic change in its capital structure, as it introduces higher financial risk and may affect the company's cost of capital.

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Finance: (Please choose business as a new app similar to Venmo the digital wallet.
Start-Up Expenses
Download and complete the Start-Up Expenses template. In working on this Business Plan, you should already have gathered most, if not all, of the information you need. In the body of this section, be sure to explain all of the assumptions behind the figures. How did you come up with these expenses? If you’ve secured or expect to secure loans, explain the source/s, amount/s and terms. If you’ve secured or expect to secure investors, explain how much each investor will contribute and what percentage of ownership each receives in return.
Be sure to include extra capital for unexpected expenses. Opening a new business almost always ends up costing more than expected, and you need to be prepared. List this figure in the Start-Up Expenses template under "Reserve for Contingencies." How much should you set aside for contingencies? You can talk to other business owners in your industry to get a ballpark figure. If you can’t come up with a figure this way, a good rule of thumb is to set aside 20% to 25% of your total startup costs for contingencies.
Opening Day Balance Sheet
Download and complete the Opening Day Balance Sheet. Use it to detail the expected state of your business finances on opening day. As with the Start-Up Expenses sheet, be sure to explain the assumptions behind the figures.
Personal Financial Statement
If you are using the business plan to seek financing, include personal financial statements for each owner and each major stockholder. The personal financial statements should detail each person’s assets and liabilities outside of the business and their personal net worth. Investors and/or lenders typically expect business owners to use personal assets to finance a startup, and they’ll want to see how much capital you have available from your personal finances.

Answers

The start-up expenses template will provide an overview of all expenses needed to get a new business up and running. This includes expenses such as rent, equipment, and supplies.

The assumptions behind the figures will be based on market research and industry knowledge. Loans and investors will also be taken into account when filling out this template. The opening day balance sheet provides a detailed view of the expected state of the business finances on opening day.

This includes the current cash balance, accounts receivable, accounts payable, and any other liabilities or assets. The assumptions behind the figures will be determined by the amount of money available for start-up expenses and the expected income from the business.

Additionally, a reserve for contingencies should be set aside to cover any unexpected costs. Lastly, personal financial statements should be included if seeking financing.

These statements should detail each person’s assets and liabilities outside of the business, as well as their personal net worth. This will provide investors and/or lenders with an idea of the amount of capital that is available and that can be used to finance a startup.

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as a result of being an armed services veteran, dan should be eligible for a(n):

Answers

As a result of being an armed services veteran, Dan may be eligible for a range of benefits provided by the United States Department of Veterans Affairs (VA).

Some of the benefits that he could be eligible for include healthcare, disability compensation, education and training, home loans, life insurance, and vocational rehabilitation and employment services.

To access these benefits, Dan would need to apply for them through the VA. The eligibility requirements for each benefit can vary, so it is important for Dan to research which benefits he is eligible for and apply accordingly. Additionally, Dan may be able to receive state-specific benefits for veterans depending on the state he resides in.

It's worth noting that eligibility for VA benefits can depend on various factors such as Dan's length of service, discharge status, and any service-connected disabilities he may have. Therefore, Dan may want to consult with a VA representative to determine his eligibility and navigate the application process.

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on the mission statement page of the acga website, they state that community gardening improves people's _____ by providing a catalyst to multiple community and personal benefits.

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On the mission statement page of the ACGA website, they state that community gardening improves people's well-being by providing a catalyst to multiple community and personal benefits.

The Asian Corporate Governance Association (ACGA) is a membership organization that is independent and not for profit. Its mission is to collaborate with investors, businesses, and regulators to implement efficient corporate governance practices throughout Asia.

These benefits can include access to fresh produce, increased physical activity, social connections, environmental education, and improved mental health. Overall, community gardening has been shown to strengthen communities, promote sustainability, and enhance the overall health and happiness of participants.

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