Answer:
a. $700,000
86%
c. No
Explanation:
a. Jacobs will earn $700,000 per year. This equals the normal salary for a designer, $100,000, plus the economic rent he collects for his special talent, $600,000.
6/7 or 0.857 or 86% of his salary is thus economic rent. This is found by 600,000/700,000
b. The answer is No. If Jacobs’s employer withholds some of the additional revenue it takes in as a result of hiring him, some other advertising company will offer him a higher salary and still manage to earn an economic profit. Bidding for Jacobs will continue until firms are indifferent between paying him $600,000 and hiring any other designer for $100,000.
A soup kitchen falls under what type of organization?
National School Lunch Program
Nutrition Program for the Elderly
Expanded Food and Nutrition Education Program
Food Bank
food bank because they used a soup kitchen during the Great depression and it's for the homeless people too it has to be program
elisa Corporation has two divisions: Division L and Division Q. Data from the most recent month appear below: Total Company Division L Division Q Sales $ 517,000 $ 156,000 $ 361,000 Variable expenses 255,960 82,680 173,280 Contribution margin 261,040 73,320 187,720 Traceable fixed expenses 171,000 49,000 122,000 Segment margin 90,040 $ 24,320 $ 65,720 Common fixed expenses 87,890 Net operating income $ 2,150 The break-even in sales dollars for Division Q is closest to: (Round your intermediate calculations to 2 decimal places.)
Answer:
$234,615.38
Explanation:
The computation of the break-even in sales dollars for Division Q is shown below:
Contribution Margin Ratio for the Division Q is
=Contribution Margin ÷ Sales × 100
= $187,720 ÷ $361,000
= 52%
ANd, Traceable fixed expenses = $122,000
Now
break-even in sales dollars for Division Q is
= Traceable Fixed Cost of Division Q Contribution Margin Ratio for the Division Q
= $122,000 ÷ 52%
= $234,615.38
Identify Activity Bases For a major university, select the activity base most appropriate for each cost listed below. An activity base may be used more than once or not used at all. Cost: Activity Base: 1. Financial aid office salaries 2. Office supplies 3. Instructor salaries 4. Housing personnel wages 5. Employee wages for maintaining student records 6. Admissions office salaries
Question Completion:
Cost: Activity Base:
1. Financial aid office salaries Select Number of enrollment applications Number of students Student credit hours Number of enrolled students and alumni Number of financial aid applications Number of students living on campus
2. Office supplies Select Number of enrollment applications Number of students Student credit hours Number of enrolled students and alumni Number of financial aid applications Number of students living on campus
3. Instructor salaries Select Number of enrollment applications Number of students Student credit hours Number of enrolled students and alumni Number of financial aid applications Number of students living on campus
4. Housing personnel wages Select Number of enrollment applications Number of students Student credit hours Number of enrolled students and alumni Number of financial aid applications Number of students living on campus
5. Student records office salaries Select Number of enrollment applications Number of students Student credit hours Number of enrolled students and alumni Number of financial aid applications Number of students living on campus
6. Admissions office salaries Select Number of enrollment applications Number of students Student credit hours Number of enrolled students and alumni Number of financial aid applications Number of students living on campus
Answer:
Activity Cost Appropriate Activity Base
1. Financial aid office salaries Number of financial aid applications
2. Office supplies Number of students
3. Instructor salaries Number of students Student credit hours
4. Housing personnel wages Number of students living on campus
5. Student records office salaries Number of students
6. Admissions office salaries Number of enrollment applications
Explanation:
An activity base is the activity that is measured for the purpose of allocating overhead costs to different functions in an organization or department. Examples of activity bases are given above and are always expressed as a number of some variables.
Countryside Bank uses activity-based costing to determine the cost of servicing customers. There are three activity pools: teller transaction processing ($2.60 per teller transaction), check processing ($0.20 per canceled check), and ATM transaction processing ($0.15 per ATM transaction). Rosa Bush had 5 teller transactions, 10 canceled checks, and 7 ATM transactions during the month. What is the total monthly activity-based cost for Rosa Bush during the month
Answer: $16.05
Explanation:
Teller transaction processing = $2.60 per teller transaction
Check processing = $0.20 per canceled check
ATM transaction processing = $0.15 per ATM transaction
The total monthly activity-based cost for Rosa Bush during the month will be calculated thus:
= (5 × $2.60) + (10 × $0.20) + (7 × $0.15)
= $13.00 + $2.00 + $1.05
= $16.05
You have researched your dream around-the-world vacation and determined that the total cost of the vacation will be $44,000. You feel you can earn an APR of 10.3 percent compounded monthly and plan to save $560 per month until you reach your goal. How many years will it be until you reach your goal and enjoy your well-deserved vacation
Answer:
It will take about 20 years
Explanation:
Sinking Fund involves saving an series of equal amount periodically invested at certain rate of interest to accumulate a target amount in the future. The target amount might be to finance a particular project - a vacation in this case.
Where an equal deposit is invested the sum accumulated (deposit plus interest earned) at the end of the final period is known as the Future Value (FV) of the sinking fund. The future value in this scenario = $44,000
The FV is determined as follows:
FV = Equal monthly deposit × Monthly Annuity factor
where FV- future value, A- equal cash deposit, r-rate of return, n- number of years.
A= 560, r = 10.3, n= ?
Monthly Annuity factor = 44,000/560 = 78.571
Monthly interest rate = 10.3/12=0.8583
Annuity monthly annuity factor =( (1+r)^n - 1 )/r
(1.008583^12n -1)/0.08583= 78.571
cross multiply
78.571×0.08583= 1.008583^12n -1
6.7437= 1.008583^12n -1
6.7437 + 1 = 1.008583^12n
7.7437= 1.008583^12n
find log of both sides
12n = log 7.7437/log 1.008583
12n = 239.50
n= 239.50/12 = 19.9 years.
Approximately 20 years
It will take about 20 years
On January 1, a company issues bonds dated January 1 with a par value of $730,000. The bonds mature in 3 years. The contract rate is 10%, and interest is paid semiannually on June 30 and December 31. The bonds are sold for $718,000. The journal entry to record the first interest payment using straight-line amortization is:
a. Debit interest expense $38,500; credit discount on bonds payable $2,000; credit cash $36,500
b. debit interest payable $36,500; credit cash $36,500
c. debit interest expense $36,500; credit premium on bonds payable $2,000; credit cash $34,500
d. debit interest expense $36,500; credit cash $36,500
e. debit interest expense $34,500; debit discount on bonds payable $2,000; credit cash $36,50
Answer:
a. Debit interest expense $38,500; credit discount on bonds payable $2,000; credit cash $36,500
Explanation:
As the bonds are sold less than the face vaue then it is said the bonds are issued on discount, we need to calculate the discount on the bond
Discount on the bond = Face value of bond - Issuance value of bond = $730,000 - $718,000 = $12,000
The discount will be amortized over the life of the bond
The first interest and its amortization is as follow
Cash Payment = Face value x Coupon rate x Semiannual fraction = $730,000 x 10% x 6/12 = $36,500
Amortization of discount on bond = Discount on Bond / Total Numbers of periods = $12,000 / ( 3 years x 2 payment period per year ) = $2,000 per eperiod
The cash will be credited by $36,500
The bond liability will be credited by $2,000
Hence the interest exepense will be debited by $38,500 ( $36,500 + $2,000 )
Easy-to-copy differentiating features: A. do not offer the promise of sustainable competitive advantage. B. are less expensive to integrate into a product or service offering. C. tend to create as much value for consumers as difficult-to-copy differentiating features. D. should be patented before other companies follow suit. E. lead to vigorous price competition.
Answer:
A. do not offer the promise of sustainable competitive advantage.
Explanation:
Easy-to-copy differentiating features refers to those features of an organization that typically differentiates them from their rivals in the same industry but are however, easy to be copied by another firm. Thus, it cannot produce a sustainable competitive advantage over the competitors of a business firm or company.
This ultimately implies that, easy-to-copy differentiating features do not offer the promise of sustainable competitive advantage because the end users (buyers) wouldn't find any difference between the company's product and the rival company that copied it.
Under the alimony rules:________
a. To determine whether a cash payment is alimony, one must consult the state laws that define alimony
b. A person who receives a property division has experienced an increase in wealth and thus should be subject to tax.
c. Alimony paid per a 2015 divorce agreement is included in the gross income of the recipient of the payments.
d. A person who earns $90,000 and pays $20,000 in alimony per a divorce agreement entered into in 2019, is allowed to deduct the $20,000.
e. None of these
Answer:
c. Alimony paid per a 2015 divorce agreement is included in the gross income of the recipient of the payments.
Explanation:
Alimony can be defined as a financial support or allowance that is mandated by the court (legal obligation) to be made by a divorced or legally separated person to his or her former spouse so as to maintain and support life.
Simply stated, alimony is a legal spousal support or allowance made by a divorced or legally separated person to his or her former spouse for maintenance.
Under the alimony rules, alimony paid per a 2015 divorce agreement is included in the gross income of the recipient of the payments according to the internal revenue service (IRS) of the United States of America.
Dyer Furniture is expected to pay a dividend of D1 = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 1.95, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is Dyer's current stock price? Select the correct answer. a. $13.66 b. $12.32 c. $11.65 d. $12.99 e. $14.33
Answer:
$11.65
Explanation:
The first step is to calculate the return
= 4/100 + 1.95(5.50/100)
= 0.04 + 1.95(0.055)
= 0.04 + 0.10725
= 0.14725
The stock price can be calculated as follows
= 1.25/0.14725-0.04
= 1.25/0.10725
= $11.65
Hence the stock price is $11.65
Exercise 7-2 Accounting for credit card sales LO C1 Levine Company uses the perpetual inventory system. Apr. 8 Sold merchandise for $4,500 (that had cost $3,326) and accepted the customer's Suntrust Bank Card. Suntrust charges a 4% fee. 12 Sold merchandise for $4,600 (that had cost $2,981) and accepted the customer's Continental Card. Continental charges a 2.5% fee. Prepare journal entries to record the above credit card transactions of Levine Company. (Round your answers to the nearest whole dollar amount.)
Answer:
See the journal entries below.
Explanation:
We first calculate the following:
Suntrust Credit Card expenses = $4,500 * 4% = $180
Continental Credit Card expenses = $4,600 * 2.5% = $115
The journal entries will therefore look as follows:
Levine Company
Journal Entries
Date General Journal Debit ($) Credit ($)
Apr. 8 Cash (Suntrust Credit Card) 4,320
Credit Card Expense 180
Sales Revenue 4,500
(To record sale of goods using Suntrust Credit Card at 4% fee.)
Cost of Goods Sold 3,326
Merchandise Inventory 3,326
(To record the cost of goods sold.)
Apr. 12 Cash (Continental Credit Card) 4,485
Credit Card Expense 115
Sales Revenue 4,600
(To record sale of goods using Continental credit card at 2.5% fee.)
Cost of Goods Sold 2,981
Merchandise Inventory 2,981
(To record the cost of goods sold.)
Market Street Grocery check-out employees digitally enter the bar codes on all items as part of the check-out process. Market Street gathers purchase information by continuously learning which items at which price points customers prefer. This process allows Market Street to plan ahead when ordering from suppliers and restocking the shelves. This is an example of _______. a. quota research b. observational research c. evidence-based research d. scanner-based research
Answer: D. scanner-based research
Explanation:
Based on the information given in the question, since the process allows Market Street to plan ahead when ordering from suppliers and restocking the shelves, we can deduce that it's a scanner based research.
Scanner based research occurs when information are gathered about the customers through the monitoring of the thing that they purchase and their advertisement and promotion.
You wish to make a deposit and have these bills: 22 ones, 8 fives, 11 tens, and 3 twenties. You also have 8 nickels, 12 dimes, and 18 quarters. What will you enter on the CURRENCY LINE of the deposit slip?
Explanation:
So to start this out what I would do it turn all the money words into number by multiplying:
22x1=22
8x5=40
11x10=110
3x20=60
For the cents it can be a little bit harder but still that same thing:
8x0.05=0.4
12x0.1=1.2
18x0.25=4.5
Then finally you want to add them all together:
22+40+110+60+0.4+1.2+4.5=238.10
They will put 238.10 on the deposit slip
I hope this helps if you need anymore help just comment❤️
A call option on MassComputer Corp. is trading with a strike price of $100 and an expiration date on November 18th at 4 pm in the afternoon. The premium paid on the call is $5.05. What is the net profit or loss from buying the call just prior to 4 pm on November 18 if at this time the stock price per share of MassComputer is: a.$102.32 Answer:The net profit is $ -2.73 b.$97.62 Answer:The net profit is $ -7.43
Answer and Explanation:
The computation is shown below:
In the case when the stock price is $102.32
So, the net profit is
= $102.32 - $100 - $5.05
= -$2.73
In the case when the stock price is $97.62 is
= $97.62 - $100 - $5.05
= -$7.43
Hence, the same would be considered and relevant too
Your sister just deposited $13,500 into an investment account. She believes that she will earn an annual return of 10.4 percent for the next 10 years. You believe that you will only be able to earn an annual return of 9.6 percent over the same period. How much more must you deposit today in order to have the same amount as your sister in 10 years
Answer:
14518.41
Explanation:
We would determine the future value of the sisters investment and use it to determine the amount to be deposited by the other sister
The formula for calculating future value:
FV = P (1 + r) n
FV = Future value
P = Present value
R = interest rate
N = number of years
13500 (1.104)^10 = $36,309.85
$36,309.85 = a(1.096)^10
a = $36,309.85 / 2.500953
a = $14518.41
Tru-Shine is a cleaning company in the United States that offers various cleaning products and services. After gaining popularity in the United States, th company decided to expand its business in other North American nations. The company entered into an agreement with some local cleaning companies in Canada where the local companies would sell its products and services under the same trade name. Tru-Shine also agreed to provide the training and necessary equipments and supplies to the local companies. In this example, the strategy used by Tru-Shine for entering foreign markets is an example of
a. direct investment
b. value engineering
c. franchising
d. sole sourcing
Answer:
C. Franchising
Explanation:
Franchising can be defined as a way of distributing goods and services that involves a franchisee starting a business by using someone else's 8deas and their expertise legally. To be a franchisee you have to buy this right by paying an initial fee
In this question tru shine is the franchisor because this other company wants to sell their products and services using tru shines name.
a term used when the products are sold directly to their end consumers or user without third-party retailers wholesalers or other middle men
g Julio is the sole shareholder of a corporation he formed seven years ago by contributing $500,000 for all of the corporation's stock. This year, he sold all of the stock to a competetor for $100,000,000. Julio's marginal tax rate is 37%. Julio must recongize a gain of $ 99500000 . His tax liability will increase as a result of the gain by $ 0 .
Answer:
Julio
Therefore, Julio's tax liability will increase by $19,900,000
Explanation:
a) Data and Calculations:
Investment in corporation stock = $500,000
Period of investment = 7 years
Sales proceeds from investment = $100,000,000
Marginal tax rate = 37% (short-term and ordinary)
Julio's gain = $99,500,000
This is a long-term capital gain and will be taxed at 20% and not 37%
Therefore, Julio's tax liability will increase by $19,900,000 ($99,500,000 * 20%) as a result of the gain.
b) According to the IRS, long-term capital gain this year is taxed at reduced rates, usually 15% or 20%, depending on the taxpayer's income bracket. Since Julio's gain is a long-term capital gain, it will be taxed at 20% and not at his ordinary marginal tax rate of 37% for short-term capital gains.
8. Problems and Applications Q8 There are four consumers willing to pay the following amounts for haircuts, and there are four haircutting businesses with the following costs: Consumers' Willingness to Pay Larry:$35 Felix:$50 Janet:$45 Megan:$20 Firms' Costs Firm A:$30 Firm B:$15 Firm C:$35 Firm D:$20 Each firm has the capacity to produce only one haircut. For efficiency, should be given. Which businesses should cut hair
Answer: For efficiency, (3) haircut should be given.
Explanation:
For efficiency, (3) haircut should be given. These are Firm A, Firm B, Firm C. Firm D isn't efficient as the consumers willingness to pay is thesame as the firms cost.
The business that should cut hair are therefore:
Firm A
Firm B and
Firm C.
Commerce Corporation has a high probability of operating at 40,000 activity hours during the upcoming period, and lower probabilities of operating at 30,000 hours and 50,000 hours. The company's flexible budget revealed the following: 30,000 Hours 40,000 Hours 50,000 Hours Variable costs $ 135,000 $ 180,000 $ 225,000 Fixed costs 720,000 720,000 720,000 If Commerce operated at 35,000 hours, its total budgeted cost would be: Multiple Choice $810,000. $997,500. $787,500. $945,000. $877,500.
Answer:
Total cost= $877,500
Explanation:
First, we need to calculate the unitary variable cost:
Unitary variable cost= 135,000 / 30,000= $4.5
Unitary variable cost= 180,000 / 40,000= $4.5
Unitary variable cost= 225,000 / 50,000= $4.5
Now, the total cost for 35,000 hours:
Total cost= Unitary variable cost*total number of hours + fixed costs
Total cost= 4.5*35,000 + 720,000
Total cost= $877,500
Alfa Co. produces a product that has a variable cost of $3.00 per unit. The company's fixed costs are $30,000. The product is sold for $5.00 per unit and the company desires to earn a target profit of $20,000. What is the amount of sales that will be necessary to earn the desired profit
Answer:
Break-even point in units= 25,000
Break-even point (dollars)= $125,000
Explanation:
To calculate the number of units to be sold and the sales dollars required, we will use the break-even point analysis. The following formulas are required:
Break-even point in units= (fixed costs + desired profit) / contribution margin per unit
Break-even point in units= (30,000 + 20,000) / (5 - 3)
Break-even point in units= 25,000
Break-even point (dollars)= (fixed costs + desired profit) / contribution margin ratio
Break-even point (dollars)= 50,000 / (2/5)
Break-even point (dollars)= $125,000
The amount of sales that will be necessary to earn the desired profit is $125,000.
Desired profitContribution margin ratio:
Contribution margin ratio=5-3/5
Contribution margin ratio=2/5
Contribution margin ratio=0.4
Desired profit= (Fixed costs + Target profit) / Contribution margin ratio
Desired profit=(30,000 + 20,000) / 0.4
Desired profit=50,000/0.5
Desired profit=$125,000
Inconclusion the amount of sales that will be necessary to earn the desired profit is $125,000.
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Suppose stocks offer an expected rate of returns of 10% with a standard deviation of 20%, and gold offers an expected return of 5% with a standard deviation of 25%. (i) If the correlation between gold and stocks is sufficiently low, gold ______ be held as a component in the optimal portfolio. (ii) If the correlation coefficient between gold and stocks is 1.0, then gold ______ be held as a component in the optimal portfolio.
Answer: A) (i) will; (ii) will not
Explanation:
The optimal portfolio should be one where the assets are diversified such that returns can be made regardless of the direction the economy is going. For this to happen, asset classes need to have a low correlation with one another.
If the correlation between gold and stocks is low therefore, gold should and will be held as a component in the portfolio. If the correlation between gold and stocks is 1.0 - this means that they are perfectly correlated and move together - gold should not be in the optimal portfolio as it would be too risky.
1) Create a production possibilities frontier based on the following data. Attach a picture below the schedule.
2) Label efficient, unattainable and inefficient.
3) Find the opportunity cost of:
a) A to B
b) BtoB
c) Eto C
А
B
С
D
E
Strawberries
0
2
3
4
5
Bananas
10
8
5
3
0
Answer:
A. to B that's the answer
Klingon Cruisers, Inc., purchased new cloaking machinery five years ago for $15 million. The machinery can be sold to the Romulans today for $14.3 million. Klingon's current balance sheet shows net fixed assets of $12 million, current liabilities of $840,000, and net working capital of $223,000. If all the current accounts were liquidated today, the company would receive $1.05 million cash. What is the book value of Klingon's assets today
Answer: $13,063,000
Explanation:
The book value of Klingon's assets today will be:
Net working capital = $223,000
Add: Current liabilities = $840,000
Current assets = $1,063,000
Add: Net fixed asset = $12,000,000
Book value of assets = $13,063,000
Therefore, the book value of the assets will be $13,063,000.
Sole proprietorship is a business owned and managed by a single person?
Answer:
Yes.
Explanation:
1. Spratt Company purchased Treasury bond futures contracts when the quoted price was 93-50. When this position was closed out, the quoted price was 94-75. Determine the profit or loss per contract, ignoring transaction costs.
Answer:
–$12,500
Explanation:
Calculation to determine Determine the profit or loss per contract
Using this formula
Profit or loss per contract=Purchase price-Selling price
Let plug in the formula
Profit or loss per contract= $935,000 – $947,500
Profit or loss per contract= –$12,500
Therefore the profit or loss per contract will be –$12,500
Coral Corporation uses a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine-hours (MHs). The company has provided the following data for the most recent month: Budgeted level of activity 8,600 machine-hours Actual level of activity 8,800 machine-hours Standard variable manufacturing overhead rate $7.30 per machine-hour Actual total variable manufacturing overhead $61,770 What was the variable overhead rate variance for the month
Answer:
Variable manufacturing overhead rate variance= $2,640 favorable
Explanation:
To calculate the variable overhead rate variance, we need to use the following formula:
Variable manufacturing overhead rate variance= (standard rate - actual rate)* actual quantity
Standard rate= $7.3
Actual rate= 61,770 / 8,800= $7
Actual quantity= 8,800
Variable manufacturing overhead rate variance= (7.3 - 7)*8,800
Variable manufacturing overhead rate variance= $2,640 favorable
The variable overhead rate variance for the month is $2,464.
What is Variable overhead variance?Variable overhead is the difference between actual variable costs, based on the cost of the indirect material involved in the production, and the budgeted costs called the standard variable overhead cost.
The formula for calculation of Variable overhead rate:
[tex]\rm\,Variable\;Manufacturing \;Overhead \; Rate \,Variance= (Standard \; Rate - Actual \; Rate)\times Actual \; Quantity[/tex]
[tex]\rm\,Actual\; Rate = \dfrac{\$61,770}{8,800}\\\\\rm\,Actual\; Rate = \$7.02 \,Overhead \,Rate \, Per\, Machine\, Hour[/tex]
Standard variable manufacturing overhead rate $7.30 per machine-hour.
[tex]\rm\,Variable\;Manufacturing \;Overhead \; Rate \,Variance= (\$7.30 - \$7.02)\times 8,800\\\\ \rm\,Variable\;Manufacturing \;Overhead \; Rate \,Variance= \$2,464[/tex]
Hence, The variable overhead rate variance for the month is equal to $2,464.
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Anchor Company purchased a manufacturing machine with a list price of $93,000 and received a 2% cash discount on the purchase. The machine was delivered under terms Free On Board shipping point, and freight costs amounted to $3,800. Anchor paid $5,400 to have the machine installed and tested. Insurance costs to protect the asset from fire and theft amounted to $7,000 for the first year of operations. Based on this information, the amount of cost recorded in the asset account would be:
Answer:
$100,340
Explanation:
The amount of cost recorded in the asset account would be:
List price $93,000
Less: Discount ($93,000*2%) $1,860
Add: Freight $3,800
Add: Installation&Testing $5,400
Cost of the machine $100,340
Note: Insurance cost is not included in the cost of the machine
1. TV Market (Make sure to include a graph and an analysis (causation) as well as the assumptions you are making to support your answer for each question.) (40 points)
A. As the Super Bowl approaches and people want a bigger TV to watch the game, what happens to the price and quantity of TVs? (10 Points)
B. As consumers expect the new better HD TV to come out, what happens to price and quantity of the current TV model? (10 Points)
C. As the Price of Samsung increases, what happens to the price and quantity of Sony TVs? (10 Points)
D. As parts coming from North Korea cost more money, what happens to the price and quantity of TVs? (10 Points)
Answer:
Sorry ............ have no idea
Linda loves buying shoes and going out to dance. Her utility function for pairs of shoes, S, and the number of times she goes dancing per month, T, is: U(S, T) = 2ST with marginal utilities: MUS = 2T and MUT = 2S. It costs Linda $ to buy a new pair of shoes or to spend an evening out dancing. Assume that she has $ to spend on shoes and dancing.
1.) Use the line drawing tool to draw Linda's budget line. Label this line 'Budget'.
2.) Use the point drawing tool to locate Linda's optimal consumption bundle. Label this point 'R'. Carefully follow the instructions above, and only draw the required objects.
Answer:
See Explanation
Explanation:
Given
[tex]U(S,T) = 2ST[/tex]
[tex]M_U_S =2T[/tex]
[tex]M_U_T=2S[/tex]
The following details are omitted from the question
[tex]P_S= \$50[/tex] --- Price of the Shoes
[tex]P_T = \$50[/tex] --- Spent on dancing
[tex]B = \$500[/tex] --- Budget on shoe and dancing
Solving (a): Her budget line
First, we determine her budget equation (B).
This is calculated by:
[tex]B = P_S * S + P_T *T[/tex]
This gives:
[tex]500 = 50 * S + 50 * T[/tex]
[tex]500 = 50 S + 50 T[/tex]
Divide through by 50
[tex]10 =S + T[/tex]
[tex]S + T = 10[/tex] --- The budget equation
See attachment for the budget line equation
Solving (a): Optimal Consumption Bundle Point
First, we determine the marginal rate of substitution (MRS) using:
[tex]MRS = \frac{MU_s}{MU_t} = 1[/tex]
[tex]MRS = \frac{2S}{2T} =1[/tex]
This implies that:
[tex]\frac{2S}{2T} = 1[/tex]
Cross Multiply
[tex]2S = 2T * 1[/tex]
[tex]2S = 2T[/tex]
Divide by 2
[tex]S = T[/tex]
Substitute T for S in the budget equation
[tex]T + T= 10[/tex]
[tex]2T = 10[/tex]
[tex]T=5[/tex]
Recall that:
[tex]S = T[/tex]
[tex]S = 5[/tex]
So, the point if optimal consumption bundle is (5,5)
See attachment for point R
Burke Tires just paid a dividend of D0 = $2.25. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stock's current market value? Select the correct answer. a. $79.52 b. $78.00 c. $76.48 d. $77.24 e. $78.76
Answer:
c. $76.48
Explanation:
The value of the stock is the present value of future cash flows
First, calculate each year's dividend
First year dividend = D1 = D0 x ( 1 + first year growth rate ) = $2.25 x ( 1 + 30% ) = $2.925
Second year dividend = D2 = D1 x ( 1 + Second year growth rate ) = $2.925 x ( 1 + 10% ) = $3.2175
Second year dividend = D3 = D2 x ( 1 + Second year growth rate ) = $3.2175 x ( 1 + 5% ) = $3.378375
Now calculate the present value of each year's dividend
Present value of D1 = D1 / ( 1 + required return )^1 = $2.925 / ( 1 + 9.00% )^1 = $2.6834
Present value of D2 = D2 / ( 1 + required return )^2 = $3.2175 / ( 1 + 9.00% )^2 = $2.7081
Present value of D3 = [ D3 / ( Required return - Growth rate ) ] / ( 1 + required return )^2 = [ $3.378375 / ( 9.00% - 5.00% ) ] / ( 1 + 9.00% )^2 = $71.0878
Now take the sum of the present value of all the dividends to calculate the value of stock
Value of Stock = Sum of Present value of all dividend = Present value of D1 + Present value of D2 + Present value of D3 = $2.6834 + $2.7081 + $71.0878
Value of Stock = $76.4793
Value of Stock = $76.48