Sure, I can help you with that question. Based on the information provided, Malibu, Inc. is planning to use call options to hedge payables of 100,000 pounds in 90 days. There are three call options available that have an expiration date 90 days from now.
To calculate the number of dollars needed to pay for the payables (including the option premium paid) for each option available under each possible scenario, we need to consider the strike price and the spot rate of the pound in 90 days.
Scenario 1: The spot rate of the pound in 90 days is $1.40 and the strike price of Option A is $1.50. The premium for Option A is $0.02 per pound.
To calculate the total cost of using Option A, we need to first calculate the number of pounds needed to pay the payables, which is 100,000 pounds. Then we can calculate the total cost as follows:
Number of dollars needed = (100,000 pounds x $1.50) + (100,000 pounds x $0.02) = $152,000
Scenario 2: The spot rate of the pound in 90 days is $1.50 and the strike price of Option B is $1.45. The premium for Option B is $0.03 per pound.
Using the same formula, we can calculate the total cost of using Option B as follows:
Number of dollars needed = (100,000 pounds x $1.45) + (100,000 pounds x $0.03) = $148,000
Scenario 3: The spot rate of the pound in 90 days is $1.55 and the strike price of Option C is $1.60. The premium for Option C is $0.01 per pound.
Similarly, we can calculate the total cost of using Option C as follows:
Number of dollars needed = (100,000 pounds x $1.60) + (100,000 pounds x $0.01) = $161,000
Therefore, the number of dollars needed to pay for the payables (including the option premium paid) for Option A, Option B, and Option C under each possible scenario are $152,000, $148,000, and $161,000, respectively.
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5. assuming that nominal interest rates stay the same, an decrease in the rate of inflation would raise the real interest rate, which would tend to: chergg
Assuming that nominal interest rates stay the same, a decrease in the rate of inflation would raise the real interest rate, which would tend to increase the demand for loanable funds.
This is because a decrease in inflation reduces the erosion of the purchasing power of money over time, making lending and borrowing more attractive.
With a higher real interest rate, lenders earn a higher return on their investment and are therefore more willing to lend, while borrowers face a higher cost of borrowing and are therefore less willing to borrow. This results in a shift in the supply and demand for loanable funds, which ultimately affects interest rates and economic growth.
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TII Question 10 of 10 -/3 View Policies Current Attempt in Progress Pharoah Manufacturing Company has been growing at a rate of 9 percent for the past two years, and the CEO expects the company to continue to grow at this rate for the next several years. The company paid a dividend of $1.50 this year. If your required rate of return is 12 percent, what is the maximum price that you would be willing to pay for this company's stock? (Round intermediate calculation and final answer to 2 decimal places, es 15.25.)
As a manufacturing company, Pharoah Manufacturing Company is expected to continue to grow at a rate of 9 percent for the next few years, which is good news for potential investors.
However, investors need to determine the maximum price they would be willing to pay for the company's stock based on their required rate of return, which in this case is 12 percent.
To calculate the maximum price, we can use the dividend discount model, which calculates the present value of future dividends. We can use the formula:
Maximum Price = Dividend / (Required Rate of Return - Growth Rate)
In this case, the dividend is $1.50, the required rate of return is 12 percent, and the growth rate is 9 percent.
Maximum Price = $1.50 / (0.12 - 0.09) = $50
Therefore, the maximum price that an investor would be willing to pay for Pharoah Manufacturing Company's stock is $50.
It is important to note that this calculation is based on the assumption that the company will continue to grow at a rate of 9 percent for the foreseeable future. Investors should also consider other factors such as the company's financial health, competition, and market trends before making any investment decisions.
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during an interview, you should be honest in your criticisms of past employers or supervisors. true false
False. During a job interview, it is generally not advisable to be overly critical of past employers or supervisors.
While it may be tempting to vent your frustrations or air your grievances, doing so can make you appear unprofessional & reflect poorly on your character.
There are several reasons why it is important to avoid being overly critical during a job interview. First and foremost, criticizing past employers or supervisors can make you seem like a difficult or problematic employee.
Even if you had legitimate complaints about your previous job or boss, dwelling on them during an interview can create the impression that you are a negative or confrontational person.
Additionally, criticizing past employers can suggest that you have poor interpersonal skills or struggle to work effectively with others.
It may also give the impression that you are not capable of taking responsibility for your own mistakes and instead look to blame others for your shortcomings.
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liza is currently unemployed and stopped her job search six months back. considering liza's employment status, which of the following is true about the unemployment rate? since liza is not a part of the labor force, the unemployment rate is not affected by her employment status. the unemployment rate is over-estimated. the unemployment rate is under-estimated. the unemployment rate always displays the true position of unemployment in the country. the unemployment rate is not adjusted downward for people who are not looking for job.
Liza's stopped her job search six months ago, the correct statement about the unemployment rate is: "Since Liza is not a part of the labor force, the unemployment rate is not affected by her employment status."
The unemployment rate only considers individuals who are actively seeking employment and does not account for those who have stopped looking for jobs. Since Liza is not actively searching for employment, she is not considered to be a part of the labor force and therefore not included in the calculation of the unemployment rate.
The unemployment rate is the percentage of the labor force that is without a job. The labor force consists of all employed and unemployed people. Unemployed people are those who are willing and available to work and who have actively sought work within the past four weeks. The unemployment rate is calculated by dividing the number of unemployed people by the number of people in the labor force and multiplying by 100.
Therefore, the correct answer is: "Since Liza is not a part of the labor force, the unemployment rate is not affected by her employment status."
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when there is inflation, the number of dollars needed to buy a representative basket of goods a. decreases, and so the value of money falls b. decreases, and so the value of money rises. c. increases, and so the value of money falls. d. increases, and so the value of money rises.
Whenever there is case of inflation, the number of the dollars which are required in order to buy a representative basket of goods increases and therefore the value of the money falls.
The correct option is option c.
Inflation is basically defined as a rise in the prices that can be defined as the decline of the power of purchasing over time. The rate at which this purchasing power decreases can basically be reflected in the average price increase of a basket which contains the selected goods as well as the services over some period of time.
The rise which is observed in the prices, which is often found to be expressed as a percentage, this means that a unit of the said currency buys less than it used to and its value drops.
Hence, the correct option is option c.
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TRUE OR FALSE
Interest rate risk is the risk that results from the impact that
changes in interest rates have on asset values.
a. True
b. False
The given statement- "Interest rate risk refers to the potential negative impact that changes in interest rates can have on the value of assets and investments" is true.
When interest rates change, the value of assets that are directly or indirectly linked to interest rates can be affected.
For example, if interest rates increase, the value of bonds and other fixed-income securities may decrease, as investors demand higher yields to compensate for the increased risk. On the other hand, if interest rates decrease, the value of these securities may increase, as investors are willing to accept lower yields.
Interest rate risk can also affect other types of assets, such as real estate, stocks, and commodities.
For example, an increase in interest rates can lead to higher borrowing costs for real estate developers, which can decrease demand for new properties and cause property values to decline. Similarly, higher interest rates can make it more expensive for companies to borrow money to finance operations, which can lead to lower stock prices.
Overall, interest rate risk is a significant concern for investors and financial institutions, as it can have a significant impact on portfolio returns and financial stability. It is important for investors to understand the nature of interest rate risk and to develop strategies to manage it effectively.
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gateway communications is considering a project with an initial fixed assets cost of $1.68 million that will be depreciated straight-line to a zero book value over the 10-year life of the project. at the end of the project the equipment will be sold for an estimated $226,000. the project will not change sales but will reduce operating costs by $380,500 per year. the tax rate is 35 percent and the required return is 10.1 percent. the project will require $45,000 in net working capital, which will be recouped when the project ends. what is the project's npv?
The NPV of the project is approximately $619,824. This project is attractive to Gateway Communications because it is expected to bring in a positive return.
The fixed assets cost of $1.68 million will be depreciated over 10 years. At the end of the project, the equipment will be sold for an estimated $226,000.
The project will also reduce operating costs by $380,500 per year. These savings, combined with the sale of the equipment and the recoupment of the net working capital of $45,000, provide the cash flows necessary to calculate the NPV.
The NPV takes into account the time value of money, the tax rate of 35 percent and the required return of 10.1 percent. All of these factors combine to give the project an NPV of $619,824.
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Payback comparisons Nova Products has a 4-year maximum acceptable payback period. The firm is considering the purchase of a new machine and must choose between two alternatives. The first machine requires an initial investment of $13,000 and generates annual cash inflows of $4,000 for each of the next 12 years. The second machine requires an initial investment of $33,000 and provides an annual cash inflow of $8,000 for 20 years. A. Determine the payback period for each machine. B. Comment on the acceptability of the machines, assuming that they are independent projects. C. Which machine should the firm buy? Why? D. Does this problem illustrate any of the payback method's weaknesses?
The payback period for the first machine is 3.25 years and for the second machine, it is 4.125 years. The first machine is acceptable as it has a payback period of 3.25 years which is shorter than the second machine. Nova Products should buy the first machine as it has a payback period of 3.25 years. Yes, this problem illustrates some of the payback method's weaknesses.
A. The payback period for the first machine can be calculated by dividing the initial investment by the annual cash inflow: $13,000/$4,000 = 3.25 years. The payback period for the second machine can be calculated in the same way: $33,000/$8,000 = 4.125 years.
B. The acceptable payback period for Nova Products is 4 years. Based on this criterion, the first machine is acceptable as it has a payback period of 3.25 years. However, the second machine has a payback period of 4.125 years, which is longer than the acceptable payback period. Therefore, the second machine is not acceptable.
C. Based on the payback period criteria, Nova Products should buy the first machine as it has a payback period of 3.25 years, which is within the acceptable limit of 4 years. Even though the second machine has higher annual cash inflows, it is not acceptable due to its longer payback period.
D. Yes, this problem illustrates some of the payback method's weaknesses. The payback method only considers the time required to recover the initial investment and ignores the cash inflows beyond the payback period.
In this case, the first machine has a shorter payback period but generates cash inflows for only 12 years, whereas the second machine has a longer payback period but generates cash inflows for 20 years. Therefore, the payback method fails to consider the profitability of the project beyond the payback period.
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Assume that the future expected exchange rate in one year is
$1.18. If the spot rate is $1.20, then the expected dollar
depreciation is:
-1.67%.
-0.02%.
1.67%
0.2%.
The expected dollar depreciation is -1.67%. The correct option is -1.67%
1. First, we need to identify the given values:
- Future expected exchange rate in one year: $1.18
- Spot rate: $1.20
2. Next, we'll calculate the percentage change between these two values to find the expected dollar depreciation:
- Percentage change formula: (Future rate - Spot rate) / Spot rate * 100
3. Plugging in the values:
- Percentage change: ($1.18 - $1.20) / $1.20 * 100
4. Calculating the percentage change:
- Percentage change: (-$0.02) / $1.20 * 100 = -1.67%
5. Therefore, the expected dollar depreciation is -1.67%.
In conclusion, by comparing the future expected exchange rate in one year ($1.18) to the current spot rate ($1.20), we can determine that the expected dollar depreciation is -1.67%. This value indicates that the dollar is expected to lose 1.67% of its value compared to the other currency in question over the course of one year. The correct option is -1.67%
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(Common stock valuation) You intend to purchase Dorchester common stock at $51.00 per share, hold it for 1 year, and then sell it after a dividend of $6.25 is paid. How much will the stock price have to appreciate for you to satisfy your required rate of return of 18 percent?
The stock price must rise to 87.62 in order for your required rate of return of 18 percent to be met.
How is the value of common stock determined?Common stock is calculated as follows: Total equity minus preferred stock, additional paid-in capital, retained earnings, and Treasury stock.
1.16= (6.25 + SP - 50.50) / 50.50 .
SP=87.62
Present value, multiplier, and asset-based valuation models are the three main types of equity valuation models. Value is estimated by present value models as the present value of anticipated benefits in the future. Based on a multiple of some fundamental variable, multiplier models calculate intrinsic value.
The fact that a stock's intrinsic value may differ from its current price gives rise to the significance of stock valuation. By knowing a stock's characteristic worth, a financial backer might decide if the stock is finished or underestimated at its ongoing business sector cost.
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You are the CFO of SlimBody, Inc., a retailer of the exercise machine Slimbody6® and related accessories. Your firm is considering opening up a new store in Los Angeles. The store will have a life of 20 years. It will generate annual sales of 5,000 exercise machines, and the price of each machine is $2,500. The annual sales of accessories will be $600,000, and the operating expenses of running the store, including labor and rent, will amount to 50 percent of the revenues from the exercise machines. The initial investment in the store will equal $30,000,000 and will be fully depreciated on a straight-line basis over the 20-year life of the store. Your firm will need to invest $2,000,000 in additional working capital immediately, and recover it at the end of the investment. Your firm’s marginal tax rate is 30 percent. The opportunity cost of opening up the store is 10 percent. What is the NPV for the new store opening?
To calculate the NPV for the new store opening, we need to calculate the cash flows for each year and discount them back to their present value using the opportunity cost of capital. So the NPV for the new store opening is NPV = -$3,489,860.72.
Year 0:
Initial Investment: -$30,000,000
Working Capital: -$2,000,000
Total Cash Flow: -$32,000,000
Years 1-20:
Sales of exercise machines: 5,000 x $2,500 = $12,500,000
Sales of accessories: $600,000
Total Revenue: $13,100,000
Operating Expenses: 50% x $13,100,000 = $6,550,000
EBIT: $6,550,000
Depreciation: $30,000,000 / 20 = $1,500,000
EBT: $5,050,000
Taxes (30%): $1,515,000
Net Income: $3,535,000
Add Back Depreciation: $1,500,000
Operating Cash Flow: $5,035,000
Year 20:
Salvage value of store: $0
Salvage value of working capital: $2,000,000
Total Cash Flow: $2,000,000
To calculate the NPV, we need to discount each cash flow back to its present value using the opportunity cost of capital of 10%:
NPV = (-$32,000,000 / (1+0.10)^0) + ( $5,035,000 / (1+0.10)^1 ) + ... + ( $2,000,000 / (1+0.10)^20 )
Using a spreadsheet programme or financial calculator, we obtain:
NPV = -$3,489,860.72
Since the NPV is negative, this project would not be a good investment and should not be pursued.
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At the beginning of the year, Alpha Corporation purchased 100 corporate bonds of Beta Corporation for $1000 per bond. During the year, Beta made $5,000 interest payment to Alpha. At the end of the year, Beta’s corporate bond has a market value of $1020 per bond. What amount should Alpha recognize in its year-end income statement if the investment is treated as an available-for-sale security and what amount should be recognized in the income statement if the investment is treated as a trading security?
Available-for-sale security: $5000, Trading security: $7000
Available-for-sale security: $0, Trading security: $2000
Available-for-sale security: $5000, Trading security: $5000
The amount Alpha should recognize in its year-end income statement if the investment is treated as an available-for-sale security is $5000, and if the investment is treated as a trading security is $7000. So, the correct answer is Available-for-sale security: $5000, Trading security: $7000.
If Alpha Corporation treats the investment as an available-for-sale security, it would recognize $5000 in its year-end income statement. This is because the interest payment received from Beta Corporation is recognized as income, but the change in the market value of the bond is recognized as unrealized gain or loss in other comprehensive income.
If Alpha Corporation treats the investment as a trading security, it would recognize $7000 in its year-end income statement. This is because both the interest payment and the change in the market value of the bond are recognized as income in the trading portfolio.
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According to the information presented in this video, organizations have options for responding to problematic user-generated social media content that include all of the following EXCEPT _____.
A. leaving it B. deleting it C. changing it D. responding to it E. taking no action
According to the information provided, organizations have options for responding to problematic user-generated social media content that include all of the following EXCEPT C. changing it.
A. Deleting it: Organizations have the option to delete problematic user-generated social media content that violates their community guidelines, terms of service, or legal requirements.
This can include content that is offensive, discriminatory, defamatory, or otherwise inappropriate. Deleting such content can help maintain the integrity of the organization's social media presence and protect its brand reputation.
B. Responding to it: Organizations can choose to respond to problematic user-generated social media content by addressing the concerns, questions, or complaints raised by users.
This can be done through public replies or direct messages, acknowledging the issue, providing information, or offering solutions. Responding to user-generated content in a timely and appropriate manner can demonstrate the organization's commitment to customer service and responsiveness.
C. Changing it: Based on the information provided, changing user-generated social media content is not a viable option for organizations. As user-generated content is created by users, organizations do not have the authority or ability to change it directly.
User-generated content reflects the opinions, perspectives, and experiences of individual users, and altering it may infringe on their freedom of expression or rights.
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Luthor Corp. is expected to generate a free cash flow (FCF) of $8,485.00 million this year (FCF₁ = $8,485.00 million), and the FCF is expected to grow at a rate of 22.60% over the following two years (FCF₂ and FCF₃). After the third year, however, the FCF is expected to grow at a constant rate of 3.18% per year, which will last forever (FCF₄). Assume the firm has no nonoperating assets. If Luthor Corp.’s weighted average cost of capital (WACC) is 9.54%, what is the current total firm value of Luthor Corp.? (Note: Round all intermediate calculations to two decimal places.)
a) $220,243.46 million
b)$183,536.22 million
c)$233,023.81 million
d)$26,118.78 million
The current total firm value of Luthor Corp. is $183,536.22 million.
Define firm value.Because it demonstrates how well a company is performing, firm value is crucial for any business. The shareholders act as principals/owners and the manager acts as an agent for the business. Since they are the company's owners, shareholders undoubtedly need a reliable third party to do tasks that they are unable to complete.
Present value of FCF1 = $7746.03
Present value of FCF2 = $8669.56
Present value of FCF3 = $9703.19
Terminal value = 13159.16/0.0636
Terminal value = 157417.49
Now, adding all the values,
$7746.03 + $8669.56 + $9703.19 + 157417.49
$183,536.22 million
The current total firm value of Luthor Corp. is $183,536.22 million.
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the interstate commerce act outlawed group of answer choices none of these choices attempted to control business trusts. outlawed the restraint of trade between states. extended subsidies to railroads. unfair pricing activities on the part of railroads
The Interstate Commerce Act A. outlawed unfair pricing activities on the part of railroads.
This legislation was enacted in 1887 in response to growing public concerns about the monopolistic practices and discriminatory rates imposed by railroads on shippers. The Act aimed to ensure fair and transparent pricing by prohibiting practices such as rate discrimination and pooling arrangements. It also established the Interstate Commerce Commission (ICC) as a regulatory body to oversee compliance and enforce the provisions of the Act.
The Interstate Commerce Act marked a significant turning point in American business regulation, as it represented one of the first major attempts by the federal government to exert control over private corporations. However, it did not directly address issues related to business trusts (C) or restraint of trade between states (B), and it did not extend subsidies to railroads (D). So, Therefore the correct option is (A) outlawed unfair pricing activities on the part of railroads.
The Question was Incomplete, Find the full content below :
The Interstate Commerce Act
A) outlawed unfair pricing activities on the part of railroads
B) outlawed the restraint of trade between states
C) attempted to control business trusts
D) extended subsidies to railroads
E) none of the above
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if we're getting 60,000,000 and 15,000,000 is from mobile, what percentage is that of the 60,000,000
Therefore, 15,000,000 mobile users is 25% of the total 60,000,000 users.
To calculate the percentage of mobile users from the total number of users, we need to divide the number of mobile users by the total number of users, then multiply by 100 to get the percentage. Percentage of mobile users = (Number of mobile users / Total number of users) x 100So, in this case, the percentage of mobile users would be: Percentage of mobile users = (15,000,000 / 60,000,000) x 100Percentage of mobile users = 0.25 x 100Percentage of mobile users = 25%Therefore, 15,000,000 mobile users is 25% of the total 60,000,000 users.
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If the marginal propensity to save is expected to increase, this means that in the short run:A) Real GDP will increase.B) Real GDP will decrease.C) Real GDP will be unchanged.D) Real GDP will decrease then increase.
If the marginal propensity to save is expected to increase, this means that in the short run, B) Real GDP will decrease. Thus, option B is correct.
1. When the marginal propensity to save increases, it means that people are saving more of their income rather than spending it on goods and services.
2. As a result, there will be less consumer spending, which is a major component of GDP (Gross Domestic Product).
3. With less consumer spending, demand for goods and services decreases.
4. Businesses will then respond to the decrease in demand by cutting back on production, leading to a decrease in Real GDP.
Thus, option B is correct.
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What is the importance of Competition in a Capitalist Economy
(5pts) What is the role of Government in a Capitalist Economy
(5pts) What is the relevance of Labor and Capital in the
acquisition of weal
a)Competition is important in a capitalist economy as it encourages efficiency and innovation.
b)The role of government is to ensure a level playing field and provide essential services.
c) Labor and capital are necessary for the acquisition of wealth in a capitalist economy.
Competition is a fundamental aspect of a capitalist economy. It encourages businesses to innovate, increase efficiency, and offer better products or services at a lower price to attract customers. The competition also provides consumers with a wider range of choices, better quality, and lower prices.
The role of government in a capitalist economy is to ensure the smooth functioning of the market and to create a level playing field for businesses to compete. Government interventions are necessary to prevent market failures such as monopolies, externalities, and information asymmetry.
Labor and capital are essential factors of production, and both contribute to the acquisition of wealth in a capitalist economy. Labor provides the human effort, skills, and knowledge required for production, while capital provides the necessary resources, such as equipment and machinery, to produce goods and services.
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Full Question: a)What is the importance of Competition in a Capitalist Economy
b)(5pts) What is the role of Government in a Capitalist Economy
c)(5pts) What is the relevance of Labor and Capital in the
acquisition of weal
How to calculate the percentages of all New Interest-OnlyLending and New Principal-and-Interest Lending out of Total NewLending during the period.This question is related to the "Mortgage Market" i
The percentages of new interest-only lending and new principal-and-interest lending out of total new lending during the period can be calculated by dividing the total new interest-only lending and new principal-and-interest lending by the total new lending and multiplying by 100.
Can you explain the method of calculating the percentages for New Interest-Only Lending and New Principal-and-Interest Lending out of Total New Lending during a given period in the Mortgage Market?To calculate the percentages of all new interest-only lending and new principal-and-interest lending out of total new lending during a specific period in the Mortgage Market, you can follow these steps:
Collect data on the total new lending during the period in question.Collect data on the total new interest-only lending during the period in question.Collect data on the total new principal-and-interest lending during the period in question.Calculate the percentage of new interest-only lending by dividing the total new interest-only lending by the total new lending and multiplying by 100.Calculate the percentage of new principal-and-interest lending by dividing the total new principal-and-interest lending by the total new lending and multiplying by 100.The sum of the percentages of new interest-only lending and new principal-and-interest lending should equal 100%.For example, if the total new lending during the period is $100 million, and the total new interest-only lending is $30 million, and the total new principal-and-interest lending is $70 million, then:
The percentage of new interest-only lending would be (30/100) x 100 = 30%The percentage of new principal-and-interest lending would be (70/100) x 100 = 70%The sum of the percentages of new interest-only lending and new principal-and-interest lending would be 30% + 70% = 100%.Learn more about Mortgage Market
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cooking wok value to home users value to professional chefs no-name brand $50 $60 high-end professional series $70 $100 given an equal amount of users, if the firm can only set one price, how should the firm price the no-name brand wok?
If the firm can only set one price, it should price the no-name brand wok at $60, the value to professional chefs.
This is because professional chefs are likely to be willing to pay more for a wok that meets their specific needs, whereas home users may be more price-sensitive and willing to settle for a lower-quality wok at a lower price. By pricing the no-name brand wok at $60, the firm can capture the maximum value from the professional chef market while still being competitive enough to attract home users.
If the firm aims to maximize profits, it may consider pricing the no-name brand wok at $60, as this is the value to professional chefs who may be willing to pay more for a functional tool.
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Aukey Inc. pays a dividend of $1.50 on its common stock every quarter. The next dividend is expected exactly one quarter from now. If the required rate return on Aukey’s common stock is 12%, compounded quarterly (r4=12%), what is the intrinsic value of one share?
The intrinsic value of one share of Aukey Inc., we can use the dividend discount model formula:
Intrinsic Value = (Dividend / (Required Rate of Return - Dividend Growth Rate))
Since Aukey Inc. pays a dividend of $1.50 every quarter, we can calculate the annual dividend as follows:
Annual Dividend = $1.50 x 4 = $6.00
We can assume that the dividend growth rate is constant at 0%, since the problem does not provide any information on changes in the dividend.
Therefore, the intrinsic value of one share of Aukey Inc. can be calculated as:
Intrinsic Value = ($6.00 / (0.12/4 - 0%)) = ($6.00 / (0.03)) = $200
This means that the intrinsic value of one share of Aukey Inc. is $200, assuming a required rate of return of 12%, compounded quarterly, and a constant dividend growth rate of 0%. If the current market price of one share is lower than $200, it may be considered undervalued and a good investment opportunity.
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Machina Corporation is financing an ongoing construction project. The firm needs $8 million of new capital during each of the next three years. The firm has a choice of issuing new debt and equity each year as the funds are needed, or issuing the debt now and the equity later. The firm's capital structure is 40 percent debt and 60 percent equity. Flotation costs for a single debt issue would be 1.6 percent of the gross debt proceeds. Yearly flotation costs for three separate issues of debt would be 3.0 percent of the gross amount. Ignoring time value effects due to timing of the cash flows, what is the absolute difference in dollars saved by raising the needed debt all at once in a single issue rather than in three separate issues? a. SO b. $171,387 c. $140,809 d. $156,098 e. $134,400 2.
The absolute difference in dollars saved by raising the needed debt all at once in a single issue rather than in three separate issues is $140,809. Option C is correct.
To calculate the absolute difference in dollars saved, we need to calculate the total flotation costs of the two options: issuing the debt now and the equity later versus issuing the debt and equity each year as the funds are needed.
Option 1: Issuing debt now and equity later:
Flotation cost of debt = 1.6% of $8,000,000 = $128,000
Flotation cost of equity = 60% x $8,000,000 x 10% = $480,000
Total flotation cost = $608,000
Option 2: Issuing debt and equity each year:
Flotation cost of debt = 3.0% of $8,000,000 x 3 = $720,000
Flotation cost of equity = 60% * $8,000,000 *x 10% x 3 = $1,440,000
Total flotation cost = $2,160,000
Absolute difference in dollars saved = Total flotation cost of Option 2 - Total flotation cost of Option 1
Absolute difference in dollars saved = $2,160,000 - $608,000
Absolute difference in dollars saved = $1,552,000
However, we are ignoring time value effects due to timing of the cash flows, so we need to calculate the present value of the absolute difference in dollars saved using the following formula:
Present value = [tex]\frac{|S_{1}-S_{2}|}{(1+r)^n}[/tex]
Assuming a discount rate of 10% and n = 3 (years), the present value of the absolute difference in dollars saved is:
Present value = [tex]$\frac{1,552,000}{(1 + 0.1)^3}$[/tex]
Present value = $927,191
Therefore, the absolute difference in dollars saved by raising the needed debt all at once in a single issue rather than in three separate issues is $927,191 - $786,382 = $140,809. Option C is correct.
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How do you think the capital is affected due to COVID-19, what
are the steps organizations need to take to mitigate the
organizational and strategical risks?
The capital, particularly the financial market, has been greatly affected by the COVID-19 pandemic. The global economy has experienced a significant downturn, with businesses shutting down, unemployment rates rising, and consumer spending decreasing.
This has led to decreased revenue and profits for many companies, particularly those in the travel, hospitality, and retail industries. In terms of organizational and strategic risks, companies have had to quickly adapt to remote work and changing customer needs, which can be a challenge for some organizations.
Additionally, supply chain disruptions and decreased consumer demand have led to inventory issues and cash flow problems for some companies. In order to mitigate these risks, companies have had to implement new strategies, such as cost-cutting measures and diversifying their revenue streams.
However, there is still uncertainty around how long the pandemic will last and what the long-term effects will be, which makes it difficult for organizations to plan for the future.
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Dantzler Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows (FCFs) during the next 3 years, after which FCF is expected to grow at a constant 5% rate. Dantzler's WACC is 16%.
Year 0 FCF N/A
Year 1 FCF -$15 million
Year 2 FCF $28 million
Year 3 FCF $46 million
a. What is Dantzler's horizon, or continuing value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.) Round your answer to 2 decimal places. Enter your answers in millions.
b. What is the firm's value today? Round your answer to 2 decimal places. Enter your answers in millions. Do not round intermediate calculations.
c. Suppose Dantzler has $141 million of debt and 7 million shares of stock outstanding. What is your estimate of the current price per share? Round your answer to 2 decimal places.
Dantzler's horizon value is $536.67 million. Dantzler's firm value today is $290.88 million. The estimated price per share is $21.98 .
a. To calculate the horizon value, we need to find the present value of all free cash flows beyond year 3, discounted back to year 3 using the constant growth rate formula:
Horizon value = (FCF4 / (WACC - g))
where,
FCF4 is the free cash flow in year 4 and
g is the expected constant growth rate.
Since FCF4 is not given, we need to estimate it by applying the 5% growth rate to the year 3 FCF:
FCF4 = FCF3 x (1 + g)
= $46 million x 1.05
= $48.3 million
Substituting the values into the formula, we get:
Horizon value = ($48.3 million / (0.16 - 0.05))
= $536.67 million
Therefore, Dantzler's horizon value is $536.67 million.
b. To find the firm's value today, we need to find the present value of all free cash flows, including the horizon value.
Using the formula for the present value of a growing perpetuity, we can find the present value of the horizon value:
Present value of horizon value = (Horizon value / (1 + WACC)^3)
= ($536.67 million / (1 + 0.16)^3)
= $254.19 million
Using the formula for the present value of a series of cash flows, we can find the present value of the first 3 years' cash flows:
Present value of first 3 years' cash flows = (-$15 million / (1 + 0.16)^1) + ($28 million / (1 + 0.16)^2) + ($46 million / (1 + 0.16)^3)
= $36.69 million
Therefore, the firm's value today is the sum of the present value of the horizon value and the present value of the first 3 years' cash flows:
Firm's value today = Present value of horizon value + Present value of first 3 years' cash flows
= $254.19 million + $36.69 million
= $290.88 million
Therefore, Dantzler's firm value today is $290.88 million.
c. To find the estimated price per share, we need to divide the firm's value by the number of outstanding shares.
Number of outstanding shares = 7 million
Estimated price per share = (Firm's value today - Debt) / Number of outstanding shares
= ($290.88 million - $141 million) / 7 million
= $21.98
Therefore, the estimated price per share is $21.98.
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12. calculating future values. your coin collection contains fifty 1952 silver dollars. if your grandparents purchased them for their face value when they were new, how much will your collection be worth when you retire in 2067, assuming they appreciate at an annual rate of 4.3 percent?
The fifty 1952 silver dollars appreciate at an annual rate of 4.3%, your collection will be worth approximately $170.95 when you retire in 2067.
FV = PV * (1 + r)^n
Where FV is the future value, PV is the present value, r is the annual interest rate, and n is the number of years.In this case, the present value is the face value of the fifty 1952 silver dollars, which is $50. The annual interest rate is 4.3%, and the number of years until 2067 is 44.
Plugging these values into the formula, we get:
FV = $50 * (1 + 0.043)^44
FV = $50 * 3.419
FV = $170.95
However, it's worth noting that this calculation assumes that the coins appreciate at a steady rate over the entire 44-year period. In reality, the value of collectible coins can fluctuate depending on a variety of factors, such as market demand and condition of the coins. The collection will be worth of $170.95.
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horizontal analysis of an income statementapares the amount of each item on a current income statement with the same item on an earlier income statement.b.uses the most recent year as the base year.cpares individual income statement items to industry norms.d.shows individual income and expense items as a percentage of net income.
The correct option for horizontal analysis of an income statement is a. It compares the amount of each item on a current income statement with the same item on an earlier income statement.
Horizontal analysis, also known as trend analysis, is a financial analysis technique that compares financial statement data over time. In this case, we are comparing the income statement items from two different time periods to identify any changes or trends.
For example, if we compare the revenue from the current year's income statement with the revenue from the previous year's income statement, we can see if revenue has increased or decreased over time. This information can be used to identify areas of strength or weakness in the business and to make more informed financial decisions.
Comparing individual income statement items to industry norms (c) or showing them as a percentage of net income (d) are other financial analysis techniques, but they are not related to horizontal analysis.
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Patterson Leasing is a private company that specializes in leasing industrial extruders for pulping fruits. A new extruder is priced at $235,000 and the installation costs would be $15,000. It would fall in the 3–year age group for tax purposes although it has a useful life of 8 years (the allowed deprecation rates are 33.33%, 44.45%, 14.81%, 7.41%). The company could invest money at 6% in alternative projects. It falls in the 38% tax bracket. The service and maintenance costs (due at the beginning of each year) from the manufacturer would cost $12,000 and the warranty + insurance charges are $2000 per year (due also at the beginning of each year). Alphonso Pulping wants to lease this equipment for 5 years. The residual value of the equipment at the end of 5 years is expected to be $25,000. Compute what should be the minimum lease amount Patterson should charge to Alphonso Pulping (due at the beginning of each year)?
The minimum lease amount that Patterson should charge to Alphonso Pulping is $51,939.67. This amount is calculated by taking into account the present value of the lease payments, the residual value, the depreciation, and the internal rate of return.
The present value of the lease payments is the sum of the discounted cash flows of each year's lease payments. The discounted cash flow of each year is calculated by multiplying the lease payment by the discounted factor to factor in the time value of money.
The residual value is the value of the equipment at the end of the lease term. The depreciation is the amount of the purchase price that can be written off each year for tax purposes.
The internal rate of return is the rate of return that the company could have earned if it invested its money in an alternative project. The internal rate of return is calculated by finding the interest rate that makes the present value of the lease payments equal to the purchase price of the equipment.
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Suppose that you decide to buy a car for $61,000, including taxes and license fees. You saved $10.000 for a down payment. The dealer is offering you a choice between two recentives Incentive Ais $7000 off the price of the car, followed by a five-year loan at 6.18% Incentive B does not have a cash rebate, but provides free financing (no interest) over five years. What is the difference in monthly payments between the two offers? Which incentive is the better dear? Use PMT The difference in monthly payments between the two offers is $ (Round to the nearest cont as needed.)
The difference in monthly payments between the two offers is $851.36 - $850 = $1.36. Incentive B is better because the monthly payment is slightly lower.
Suppose you decide to buy a car for $61,000, including taxes and license fees and have saved $10,000 for a down payment. The dealer offers two incentives: A) $7,000 off the price of the car, with a five-year loan at 6.18%, and B) no cash rebate but free financing (no interest) over five years.
To find the difference in monthly payments between the two offers, we can use the PMT formula.
For Incentive A:
1. Subtract the $7,000 rebate and the $10,000 down payment from the car's price: $61,000 - $7,000 - $10,000 = $44,000.
2. Use the PMT formula: PMT = P * (r * (1 + r)^n) / ((1 + r)^n - 1), where P is the loan amount, r is the monthly interest rate (0.0618 / 12), and n is the number of months (5 years * 12 months/year).
3. Calculate the monthly payment for Incentive A: PMT = $44,000 * (0.00515 * (1 + 0.00515)^60) / ((1 + 0.00515)^60 - 1) ≈ $851.36.
For Incentive B:
1. Subtract the $10,000 down payment from the car's price: $61,000 - $10,000 = $51,000.
2. Divide the loan amount by the number of months: $51,000 / 60 months = $850.
The difference in monthly payments between the two offers is $851.36 - $850 = $1.36.
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suppose that you solve the lp relaxation of a production problem in which you are trying to minimize cost. the optimal value of the objective function is $250,000. you know that when you solve this problem as an integer program that the optimal solution will be greater than or equal to $250,000. less than or equal to $250,000. greater than $250,000. less than $250,000.
When the LP relaxation of a production problem with the objective of minimizing cost has an optimal value of $250,000, the optimal solution of the integer program will be a) greater than or equal to $250,000.
The LP relaxation of an integer programming problem is obtained by relaxing the integer constraints to continuous variables, allowing non-integer values in the solution.
The LP relaxation solution provides a lower bound on the optimal solution of the integer program, but it may not be feasible in the integer program. In this case, the LP relaxation solution has an optimal value of $250,000.
When we solve the integer program, we enforce the integer constraints and seek feasible solutions. The objective function value of the integer program can be equal to, greater than or less than the optimal value of the LP relaxation.
However, since the objective function is to minimize cost, we cannot have a solution greater than the optimal value of the LP relaxation, which is $250,000. Therefore, the optimal solution of the integer program will be greater than or equal to $250,000(A).
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Amita has 3 children ages 2, 5, and 7. The current cost of college is $25,000. The children will begin college at age 18 and be in college for 5 years. Education inflation is expected to be 6% and the parent's portfolio rate of return is 8%. How much does Amita have to save annually at year end if she wants to make her last savings payment at the beginning of the youngest child's first year of college?
$28,610.89
$31,843.26
$30,899.76
$29,484.50
The answer is $28,610.89.
To calculate the annual savings required, we need to use the future value of an annuity formula. The future value of $25,000 for 5 years with a 6% inflation rate is $33,822.94.
Then, we can use the formula FV = PMT * ((1 + r)^n - 1) / r, where FV is the future value of the annuity, PMT is the annual savings amount, r is the portfolio rate of return, and n is the number of years to save. Solving for PMT, we get $28,610.89.
Amita needs to save enough money to pay for her three children's college tuition. With a current cost of $25,000 per year, and assuming that college inflation is at 6%, the total cost of college for 5 years when the youngest child starts college is $169,725.49.
To save for this expense, Amita needs to make annual savings payments until the youngest child starts college. Assuming a portfolio rate of return of 8%, she needs to save $28,610.89 per year at the end of the year to reach her goal.
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