The semiconductor material that is mostly used in integrated circuits is Si (silicon). Integrated circuits (ICs) are devices that are made up of interconnected electronic components.
These ICs are an essential part of all electronic devices, from smartphones to computers. Silicon is a semiconductor material that is abundant and inexpensive. Silicon has a number of properties that make it ideal for use in ICs. Silicon has a high melting point, which means it can withstand high temperatures without breaking down. It is also a good insulator, which means that it does not allow electricity to flow through it easily. Finally, silicon is a good conductor of electricity, which means that it can be used to carry electrical signals between different components of an IC.
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1.
Discuss the definition of debt securities and equity securities.
2. Describe the various types of debt securities.
3. Describe the various types of equity securities.
Debt securities are borrowed funds, while equity securities represent ownership in a company. Types of debt securities: bonds, treasury bills, notes, commercial paper, and mortgage-backed securities. Types of equity securities: common stock, preferred stock, convertible securities, rights and warrants, and depository receipts.
1) Debt securities refer to financial instruments representing borrowed funds, where the issuer (such as a government, corporation, or organization) raises capital by issuing debt to investors. Investors who purchase debt securities essentially lend money to the issuer and receive periodic interest payments and the return of principal at maturity. Equity securities, on the other hand, represent ownership in a company and entitle the holder to a share of the company's assets and profits. Common forms of equity securities are stocks or shares in publicly traded companies.
2) Various types of debt securities include:
a. Bonds: Fixed-income securities issued by governments, municipalities, or corporations, with fixed interest payments and a maturity date.b. Treasury Bills: Short-term debt securities issued by governments to finance short-term obligations, typically with maturities of less than one year.c. Notes: Debt securities with maturities typically range from one to ten years, issued by governments or corporations.d. Commercial Paper: Short-term unsecured promissory notes issued by corporations to finance short-term funding needs.e. Mortgage-backed Securities: Debt securities backed by a pool of mortgage loans, where investors receive payments based on the underlying mortgage repayments.3) Various types of equity securities include:
a. Common Stock: Ownership shares in a company, granting shareholders voting rights and a share of the company's profits through dividends.b. Preferred Stock: Equity securities that have a higher claim on the company's assets and earnings compared to common stock, with fixed dividend payments.c. Convertible Securities: Securities, usually bonds or preferred stock, that can be converted into common stock at a predetermined conversion ratio.d. Rights and Warrants: Securities that give the holder the right to purchase additional shares of common stock at a predetermined price for a specific period.e. Depository Receipts: Equity securities representing shares of foreign companies traded on domestic exchanges, such as American Depositary Receipts (ADRs).Learn more about Commercial Paper: https://brainly.com/question/30168873
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Homework: Ch1 HW Question 4, Problem 1.15 Part 1 of 2 HW Score: 62.5%, 5 of 8 points O Points: 0 of 1 Save In December, General Motors produced 6,600 customized vans at its plant in Detroit. The labor productivity at this plant is known to have been 0.10 vans per labor hour during that month. 340 laborers were employed at the plant that month. a) In the month of December the average number of hours worked per laborer = hours/laborer (round your response to one decimal place).
In the month of December, the average number of hours worked per laborer at General Motors' plant in Detroit was approximately 194.1 hours/laborer (rounded to one decimal place).
In the month of December, to determine the average number of hours worked per laborer at General Motors' plant in Detroit, we can divide the total labor hours by the number of laborers.
Given that General Motors produced 6,600 customized vans and the labor productivity was 0.10 vans per labor hour, we can calculate the total labor hours as follows:
Total labor hours = Number of vans produced / Labor productivity
Total labor hours = 6,600 vans / 0.10 vans per labor hour
Total labor hours = 66,000 labor hours
Now, to find the average number of hours worked per laborer, we divide the total labor hours by the number of laborers:
Average hours worked per laborer = Total labor hours / Number of laborers
Average hours worked per laborer = 66,000 labor hours / 340 laborers
Average hours worked per laborer ≈ 194.1 hours/laborer (rounded to one decimal place)
Therefore, in the month of December, the average number of hours worked per laborer at the General Motors plant in Detroit was approximately 194.1 hours/laborer.
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What is your expected rate of return if you buzy the stock for $20.50 ? b. If you require a return of 19 percent, should you purchase the stock? a. If you buy the stock for $20.50, your expected rate of return is 6. (Round to two decimal places.) b. If you require a return of 19 percent, the value of the stock for you is $. (Round to the nearest cent.)
a. If you buy the stock for $20.50, your expected rate of return is 6%. The expected rate of return is a percentage that represents the projected return on investment, usually based on historical returns and forecasted performance.
Here, the calculation of the expected rate of return is obtained by subtracting the cost of investment from the net earnings of investment and dividing the result by the cost of the investment. As a formula, it is represented as; Expected rate of return = (Earnings from the investment - Cost of investment) / Cost of investment b. If you require a return of 19 percent, the value of the stock for you is $13.93. The value of a stock is determined by discounting the future cash flows expected from the security using the required rate of return, also known as the discount rate. It is the minimum rate of return an investor expects to earn to compensate for the investment's risk.
Here, the calculation of the value of the stock for the required rate of return of 19% is obtained by dividing the expected future cash flows by the required rate of return. As a formula, it is represented as; Value of the stock = Expected future cash flows / Required rate of return Value of the stock = $1.28 / (19 / 100) Value of the stock = $6.74The nearest cent is $6.74. Therefore, the value of the stock for the required rate of return of 19% is $6.74. The conclusion is that, since the value of the stock ($20.50) is greater than its value for the required rate of return ($6.74), you should not purchase the stock.
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Problem 10.25 Part 1 of 2 Peter Rourke, a loan processor at Wentworth Bank, has been timed performing four work elements, with the results shown in the following table. 85% 80% 85% 1 0.4 0.6 0.5 1.5 > HW Score: 0%, 0 of 6 points O Points: 0 of 1 0.5 0.7 0.4 1.9 Observation (minutes per cycle) 2 3 4 0.7 0.6 0.7 2.0 0.4 0.6 0.4 1.8 Clear all D The allowances for tasks such as this are personal, 8%; fatigue, 8%; and delay, 2%. a) The normal time for the complete operation = 3.1 minutes (round your response to two decimal places).
The normal time for the entire operation = 2.14 minutes.
Peter Rourke, a loan processor at Wentworth Bank, has been timed performing four work elements. The results are shown in the following table: Observation (minutes per cycle) Element Time(minutes) Rating 1 0.4 85% 2 0.6 80% 3 0.5 85% 4 0.7 80%Allowances for tasks are personal (8%), fatigue (8%), and delay (2%).The normal time for the entire operation = is 3.1 minutes (round your response to two decimal places).Part 1: Calculate the total observed time. To calculate the total observed time, multiply the observed time by the rating for each element: Element Time(minutes) Rating Observed time(minutes) 1 0.4 85% 0.34 2 0.6 80% 0.48 3 0.5 85% 0.43 4 0.7 80% 0.56 Total observed time = 1.81 minutes part 2: Calculate the normal time. The sum of the allowances is 18%. To get the adjusted time, multiply the total observed time by 1.18:Adjusted time = Total observed time × (1 + allowances%) = 1.81 × 1.18 = 2.1358 minutes normal time = Adjusted time × Performance rating = 2.1358 × 100% = 2.14 minutes (rounded to two decimal places).
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9. Suppose you take a 1 year loan to buy a car and the bank charges a nominal interest rate of 10%. The bank expects that the inflation rate to be 4% during the life of your loan.
What is the expected or ex ante real interest rate?
Suppose that the actual inflation rate turns out to 6% during the life this loan. What is the realized real interest rate? Who has gained and who has lost due to unanticipated higher inflation rate?
Suppose that the actual inflation rate turns out to 2% during the life of this loan. What is the realized real interest rate? Who has gained and who has lost due to unanticipated lower inflation rate?
The real interest rate is the nominal interest rate minus the expected inflation rate. In this case, the nominal interest rate is 10% and the expected inflation rate is 4%, so the ex ante real interest rate is:10% - 4% = 6%
If the actual inflation rate turns out to be 6%, then the realized real interest rate is:10% - 6% = 4%The lender has gained due to the higher inflation rate, while the borrower has lost. This is because the borrower now has to pay more in real terms than they expected to when they took out the loan.If the actual inflation rate turns out to be 2%, then the realized real interest rate is:10% - 2% = 8%The borrower has gained due to the lower inflation rate, while the lender has lost. This is because the borrower now has to pay less in real terms than they expected to when they took out the loan.
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8-18 QZY, Inc. is evaluating new widget machines offered by three companies. (a) Construct a choice table for interest rates from \( 0 \% \) to \( 100 \% \). (b) MARR \( =15 \% \). From which company,
QZY, Inc. can use a choice table to compare the alternatives offered by three companies based on interest rates ranging from 0% to 100%.
By using a MARR of 15% and calculating the NPV for each alternative, the company can determine which option provides the highest NPV and is the best choice for acquiring new widget machines.
The choice table is a tool used to compare different alternatives based on a set of criteria. In the case of QZY, Inc. evaluating new widget machines offered by three companies, the choice table can be constructed to compare the alternatives based on interest rates ranging from 0% to 100%.
Using a minimum acceptable rate of return (MARR) of 15%, QZY, Inc. can determine which company offers the best option for acquiring new widget machines. The company that provides the highest net present value (NPV) based on the MARR would be the best option.
The construction of the choice table involves listing the alternatives (i.e. the three companies) and the criteria (i.e. interest rates), and then calculating the NPV for each alternative at each interest rate. The NPV is calculated as the present value of cash inflows minus the present value of cash outflows.
Once the NPVs are calculated, they can be compared across the different alternatives and interest rates to determine which company provides the best option for acquiring new widget machines. The company that provides the highest NPV at the MARR of 15% would be the recommended choice for QZY, Inc.
In conclusion, QZY, Inc. can use a choice table to compare the alternatives offered by three companies based on interest rates ranging from 0% to 100%. By using a MARR of 15% and calculating the NPV for each alternative, the company can determine which option provides the highest NPV and is the best choice for acquiring new widget machines.
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Construct a positive linear transformation and nonlinear
monotonic transformation for the utility function (x1^3)(x2^2)
Positive Linear Transformation: U(x1, x2) = 3(x1^3)(x2^2). Nonlinear Monotonic Transformation: U(x1, x2) = sqrt((x1^3)(x2^2)).
A positive linear transformation for the utility function (x1^3)(x2^2) could be U(x1, x2) = k(x1^3)(x2^2), where k is a positive constant that scales the utility function.
A nonlinear monotonic transformation for the same utility function could be U(x1, x2) = ln[(x1^3)(x2^2)]. Taking the natural logarithm of the utility function introduces a nonlinearity and preserves the monotonicity, as any increase in the original utility function would still correspond to an increase in the transformed utility function.
It's important to note that these examples are for illustrative purposes and may not represent real-world utility functions. Utility functions can take various forms, and the choice of transformation depends on the specific context and desired properties of the utility function.
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Provide links to two articles that report on a policy initiative that applies the Keynesian perspective.
Additionally, find two more articles that report on a policy initiative that applies the neoclassical perspective. For each
article, explain how any policies mentioned are focused on long-term or short-term economic effects.
Keynesian economics supports government intervention, while neoclassical economics favors market self-correction. They differ in fiscal and monetary policies, wealth distribution, and the role of markets in stability.
Two articles that report on a policy initiative that applies the Keynesian perspective are:
"Policy Implications of the Neoclassical Perspective": This article discusses the Keynesian response to a recessionary gap, which is to use government policy to stimulate aggregate demand and eliminate the gap. Keynesians believe that fiscal and monetary policy should be used actively in the short run to manage aggregate demand. In the long run, Keynesians believe that fiscal and monetary policy should be devoted to increasing potential GDP. Tax cuts on business investment can help, as well as investing into public infrastructure. [Source: https://opened.cuny.edu/courseware/lesson/553/overview]"Public-Private Partnerships from a Neoclassical and Keynesian Political Economy Perspective": This article discusses how a Keynesian approach provides a useful framework for local governments to use when negotiating contracts with potential partners that prioritize equitable wealth distribution. A crucial characteristic of Keynesian political economy is the belief that economic decisions should be analyzed from a long-term perspective. It argues that short-term priorities are rational only at the micro level because actors benefit from doing what is in their best interest. [Source: https://crownschool.uchicago.edu/student-life/advocates-forum/public-private-partnerships-neoclassical-and-keynesian-political]Two articles that report on a policy initiative that applies the neoclassical perspective are:
"Balancing Keynesian and Neoclassical Models": This article discusses how neoclassicals advocate a hands-off, or fairly limited, role for active stabilization policy. They believe that the economy is self-correcting, and attempting to fine-tune the economy through monetary and fiscal policies makes problems worse. Fiscal policy (primarily in the form of tax cuts) should be devoted to increasing potential GDP through stimulating physical and human capital formation. [Source: https://courses.lumenlearning.com/wm-macroeconomics/chapter/balancing-keynesian-and-neoclassical-models/]"Neoclassical Economics: What It Is and Why It's Important": This article discusses how followers of neoclassical economics believe that there is no upper limit to the profits that can be made by smart capitalists since the value of a product is driven by consumer perception. Neoclassical economic theory believes that markets will naturally restore themselves. Prices, and therefore wages, will adjust on their own in response to changes in consumer demand. Keynesian economic theory does not believe markets can adjust naturally to these changes. It encourages using fiscal and monetary policy to stabilize the economy in the short run. [Source: https://www.investopedia.com/terms/n/neoclassical.asp]To learn more about monetary policy, Visit:
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he MUA also includes a social cost of carbon offset, of $60/MT CO2.e in its business model. When the initial pro-forma was created, the MUA used 200 kW of electrical output, based on 95% runtime. Emissions Factors of 0.88 lb CO2.e/kWh were used. What is the additional revenue stream in the first year (no adjustment for Present Value required) associated with the carbon credits? ($/yr) (2) 3. The improvements proposed by the MUA will cost it $3.4 million. The MUA has applied for a State Grant that rebates 33% of the capital cost of the project after five years of successful operation - no adjustment for inflation is provided. The MUA uses a 4% Discount Factor to evaluate its investments. What value should the accountant show for the present value of the grant ($)? (2) 4. The plant operates with enhanced biological nutrient removal such that phosphorous accumulating organisms are present in the sludge going to the digester. Your junior engineer approaches you mentioning recent research suggesting addition of magnesium hydroxide can boost biogas production. What should you be concerned about and why?
The additional revenue stream in the first year associated with the carbon credits is $10,512.
How is the additional revenue stream calculated for carbon credits?To calculate the additional revenue stream from carbon credits, we need to determine the total CO2.e emissions and multiply it by the social cost of carbon offset.
First, we calculate the total CO2.e emissions by multiplying the electrical output (200 kW) by the runtime (95%) and the emissions factor (0.88 lb CO2.e/kWh).
Total CO2.e emissions = 200 kW ˣ 0.95 ˣ 0.88 lb CO2.e/kWh
Next, we convert the emissions to metric tons (MT) by dividing the result by 2,204.62 (since there are 2,204.62 lb in a metric ton).
Total CO2.e emissions in MT = (200 kW ˣ 0.95 ˣ 0.88 lb CO2.e/kWh) / 2,204.62
Finally, we multiply the total CO2.e emissions in MT by the social cost of carbon offset ($60/MT CO2.e) to calculate the additional revenue stream.
Additional revenue stream = Total CO2.e emissions in MT ˣ $60/MT CO2.e
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Under an open economy setup, the economy depends on the
interaction with the rest of the world, explain using the graph why
did real exchange rate was associated with a lower level of
output?
In an open economy, the interaction with the rest of the world plays a crucial role in determining various economic variables, including the real exchange rate and the level of output. The real exchange rate measures the relative price of domestic goods and services compared to foreign goods and services.
To explain why a higher real exchange rate is associated with a lower level of output, we can examine the relationship between the real exchange rate and net exports. Net exports represent the difference between exports and imports and are an important component of the overall output in an open economy. Let's consider a graph with the real exchange rate (RER) on the horizontal axis and output (Y) on the vertical axis. The graph illustrates the relationship between the real exchange rate and the level of output. Slope of the net exports function: The net exports function represents the relationship between the real exchange rate and net exports. In an open economy, as the real exchange rate increases, the relative price of domestic goods and services becomes more expensive compared to foreign goods and services.
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12. (Continued from Question 11). Suppose that five years ago the corporation had decided to own rather than lease the real estate. Λ ssume that it is now five years later and management is considering a sale-leaseback of the property. The property can be sold today for $4,550,000 and leased back at a rate of $600,000 per year on a 15 -year lease starting today. It was purchased five years ago for $4.5 million. Assume that the property will be worth $5.25 million at the end of the 15-year lease. (Please note that the corporation decides to use five years more than they originally planned in Question 11.) A. How much would the corporation receive from a sale-leaseback of the property? $1,700,385 B. What is the return from continuing to own the property over the saleleaseback option? 15.27%
A) Total present value from the sale-leaseback option is $9,955,385
B) the return from continuing to own the property over the sale-leaseback option is approximately 18.8%.
A. Sale-Leaseback Option:
The corporation will receive a one-time payment of $4,550,000 from the sale of the property. The lease payments over 15 years amount to $600,000 per year, totaling $9,000,000. At the end of the lease term, the property will be worth $5,250,000. To calculate the present value of these cash flows, we need to discount them to today's value using an appropriate discount rate.
Using a discount rate of 15%, we can calculate the present value of the lease payments and the future property value:
PV of lease payments = $600,000 × (1 - (1 + 0.15)^-15) / 0.15 = $4,440,559
PV of future property value = $5,250,000 / (1 + 0.15)^15 = $964,826
Total present value from the sale-leaseback option = $4,550,000 + $4,440,559 + $964,826 = $9,955,385
B. Ownership Option:
The corporation continues to own the property and receives rental income of $600,000 per year for 15 years. At the end of the 15-year period, the property is worth $5,250,000. We calculate the present value of these cash flows using the same discount rate of 15%:
PV of rental income = $600,000 × (1 - (1 + 0.15)^-15) / 0.15 = $4,440,559
PV of future property value = $5,250,000 / (1 + 0.15)^15 = $964,826
Total present value from the ownership option = $4,440,559 + $964,826 = $5,405,385
To calculate the return, we compare the present value from the ownership option to the amount received from the sale-leaseback option:
Return from ownership option = ($5,405,385 - $4,550,000) / $4,550,000 × 100% ≈ 18.8%
Therefore, the return from continuing to own the property over the sale-leaseback option is approximately 18.8%.
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Imagine that data collected in Ireland reveals that a 10% increase in income leads to the following changes: *A 21% increase in the quantity demanded of gourmet coffee "A 6% decrease in the quantity demanded of sliced bread A 9% increase in the quantity demanded of wine The income elasticity of demand for wine is . (Be careful to keep track of the direction of change. Like the cross price elasticity of demand, the sign of the income elasticity of demand can be positive or negative, and important information is conferred by the sign.) According to the income elasticity of demand, gourmet coffee is Which of the following three goods is most likely to be classified as a luxury good? O Sliced bread Gourmet coffee Wine good and sliced bread, 4 good.
Previous question
The income elasticity of demand for wine is +1. Gourmet coffee is more likely to be classified as a luxury good. A 21% increase in the quantity demanded of gourmet coffee with a 10% increase in income indicates that gourmet coffee is a luxury good.
"A 6% decrease in the quantity demanded of sliced bread A 9% increase in the quantity demanded of wine
Income elasticity of demand for wine :The income elasticity of demand for wine is +1. The positive sign indicates that the quantity demanded of wine increased with an increase in income. The numerical value of 1 indicates that the increase in the quantity demanded of wine was proportional to the increase in income.
Luxury good: According to the income elasticity of demand, gourmet coffee is classified as a luxury good. This is because the income elasticity of demand for gourmet coffee is more than one. Therefore, an increase in income led to a larger increase in the quantity demanded of gourmet coffee.
Since luxury goods are more sensitive to income changes than necessary goods, gourmet coffee can be considered a luxury good. People spend more on luxury goods when their income increases, which results in a larger proportionate increase in demand.
Gourmet coffee: Gourmet coffee is more likely to be classified as a luxury good. A 21% increase in the quantity demanded of gourmet coffee with a 10% increase in income indicates that gourmet coffee is a luxury good. The income elasticity of demand for gourmet coffee is greater than 1, indicating that gourmet coffee is more sensitive to changes in income than necessary goods such as sliced bread and wine.
As a result, people spend more on gourmet coffee when their income increases, resulting in a larger increase in demand.
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(BUSINESS RESEARCH METHODS)
Discuss, Elaborate and Explain the data collection method and
the instrument used for the study (Issues and Challenges among
Young Entrepreneurs in Malaysia).
When conducting research on the issues and challenges among young entrepreneurs in Malaysia, data collection methods and instruments play a crucial role in gathering relevant and reliable information. Here, we will discuss and explain potential data collection methods and instruments for this study:
1. Surveys: Surveys are a common data collection method that allows researchers to collect data from a large number of respondents efficiently. In the case of young entrepreneurs in Malaysia, a survey questionnaire can be designed to gather information on various aspects such as the challenges they face, their motivations, access to resources, and support systems. The questionnaire can include both closed-ended and open-ended questions to capture quantitative and qualitative data. Closed-ended questions utilize pre-defined response options, while open-ended questions allow respondents to provide detailed insights.
2. Interviews: Interviews provide an opportunity for in-depth exploration and understanding of the issues and challenges faced by young entrepreneurs. Researchers can conduct structured, semi-structured, or unstructured interviews, depending on the level of guidance and flexibility needed. In structured interviews, researchers use a predefined set of questions, while semi-structured and unstructured interviews allow for more open-ended discussions. Interviews can be conducted face-to-face, over the phone, or through video conferencing platforms. The data collected from interviews can provide rich insights into the experiences and perspectives of young entrepreneurs in Malaysia.
3. Focus Groups: Focus groups involve bringing together a small group of individuals with similar characteristics or experiences to discuss specific topics. This method allows researchers to observe group dynamics and gather collective insights. Conducting focus groups with young entrepreneurs can facilitate discussions on shared challenges, collaborative problem-solving, and identifying potential solutions. Focus groups provide an interactive platform for participants to exchange ideas and build upon each other's thoughts. The discussions can be audio or video recorded for later analysis.
4. Document Analysis: This method involves reviewing and analyzing existing documents, such as reports, articles, policy documents, and business plans related to young entrepreneurship in Malaysia. Researchers can gather valuable insights on government initiatives, support programs, and available resources for young entrepreneurs. Document analysis helps contextualize the challenges faced by young entrepreneurs within the broader socio-economic and policy landscape.
5. Case Studies: Case studies involve in-depth investigations of specific individuals, organizations, or situations. Researchers can select representative young entrepreneurs in Malaysia and conduct detailed case studies to explore their experiences, challenges, and strategies for success. Case studies involve data collection through interviews, document analysis, observations, and examination of relevant records. The findings from case studies provide rich, contextualized information that can enhance understanding of the challenges faced by young entrepreneurs in Malaysia.
It is important to note that the selection of data collection methods and instruments should align with the research objectives, the nature of the research questions, and the target population. Researchers should also consider ethical considerations, such as obtaining informed consent, ensuring data confidentiality, and maintaining participant anonymity when collecting data. Furthermore, piloting and pre-testing data collection instruments can help identify any potential issues and refine the instruments for improved data quality.
By employing appropriate data collection methods and instruments, researchers can gather comprehensive and valuable insights into the issues and challenges faced by young entrepreneurs in Malaysia. This information can contribute to evidence-based policies, programs, and interventions aimed at supporting and promoting the success of young entrepreneurs in the country.
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Franchising is a entry strategy for the franchisee. A. low-labor B. high-risk C. high-cost D. labor-intensive E. low-risk
Franchising is an entry strategy for the franchisee that can be categorized as E. low-risk. Franchising allows individuals or businesses (franchisees) to operate under an established brand and business model (franchisor) by paying fees and adhering to set guidelines.
This strategy offers several advantages, including lower risk compared to starting a new independent venture. Franchisees benefit from the established brand recognition, proven business model, and ongoing support provided by the franchisor. The franchisee receives training, marketing support, and access to a network of resources, which reduces the risks associated with market entry and business operations. Overall, franchising offers a lower-risk pathway for entrepreneurs looking to start their own business compared to other entry strategies.
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1. How do we measure riskiness of an asset?
2. What is unsystematic risk and systematic risk? Give two examples of each one of them.
3. What is a beta? How is different from standard deviation of returns?
4. What effect will diversifying your portfolio have on your returns?
1. Measuring Riskiness of an AssetInvestors use different measures to determine the riskiness of an asset. Standard deviation and beta are two common measures used to gauge the risk associated with an asset. Standard deviation measures the volatility of returns from a security or portfolio. On the other hand, Beta measures the systematic risk of an asset or portfolio. The higher the standard deviation, the higher the risk associated with the investment.
2. Systematic Risk and Unsystematic Risk Systematic risk refers to the overall market risk that is beyond an individual's control, for example, inflation, recession, war, or changes in interest rates. In contrast, unsystematic risk refers to a specific company or industry risk and is controllable by investors. Two examples of systematic risks are inflation and war. Examples of unsystematic risks include labor strikes, poor management, and production problems.
3. Beta and Standard Deviation of ReturnsBeta is a measure of the relationship between the price movement of a stock and the movement of the overall market. It compares the risk of an asset or a portfolio to the overall market. The beta of the market is always 1.0.
The higher the beta, the higher the risk of the asset or portfolio. In contrast, the standard deviation is a measure of volatility or risk that provides information on how much an investment's returns differ from the mean return. Standard deviation measures the total risk of an investment, whereas beta measures systematic risk.
4. Effect of Diversifying Portfolio on Returns Diversification of a portfolio refers to the act of investing in different types of assets to reduce risks associated with any single asset. Diversification can help to reduce risk, including systematic and unsystematic risks.
By spreading investments across various asset classes, an investor can reduce their exposure to a particular type of risk. By diversifying your portfolio, you can minimize the impact of poor returns from a single investment and boost returns from other assets, thus reducing the overall risk of your portfolio.
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7. If Korea imposed long-term restrictions on
imports, would the amount of direct foreign investment DFI by
non-Korean multinational corporations in Korea increase, decrease,
or be unchanged? Explain.
The amount of direct foreign investment DFI by non-Korean multinational corporations in Korea would be unchanged if Korea imposed long-term restrictions on imports.
If Korea imposed long-term restrictions on imports, the amount of direct foreign investment DFI by non-Korean multinational corporations in Korea would be unchanged, since restrictions on imports would only limit the quantity of goods entering the country and would not affect the foreign corporations’ capacity to establish and operate their business in the country. The reason why the amount of direct foreign investment would remain unaffected is that foreign corporations would not face any impediment in investing in the country, since this is not related to the import of goods. Also, foreign corporations that are interested in investing in Korea would likely do so to produce goods for the domestic market. Hence, if restrictions on imports are imposed, these corporations would seek to produce goods domestically to meet demand. Thus, in conclusion, the amount of direct foreign investment DFI by non-Korean multinational corporations in Korea would be unchanged if Korea imposed long-term restrictions on imports.
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You are considering a project which has been assigned a discount rate of 14 percent. If you start the project today, you will incur an initial cost of $1,200 and will receive cash inflows of $600 a year for three years. If you wait one year to start the project, the initial cost will rise to $1,250 and the cash flows will increase to $645 a year for three years. What is the value of the option to wait? A) $14.87 B) $19.00 C) $24.08 D) $10.16 E) $27.03
To determine the value of the option to wait, we need to calculate the difference in cash flows between starting the project today and starting it after one year.
If the project is started today:
Initial cost = $1,200
Cash inflows per year = $600
Discount rate = 14%
Using the formula for calculating the present value of cash flows, we can find the present value of the cash inflows:
PV = CF1 / (1 + r)^1 + CF2 / (1 + r)^2 + CF3 / (1 + r)^3
PV = 600 / (1 + 0.14)^1 + 600 / (1 + 0.14)^2 + 600 / (1 + 0.14)^3
PV ≈ 519.49
If the project is started after one year:
Initial cost = $1,250
Cash inflows per year = $645
Discount rate = 14%
Using the same formula, we can find the present value of the cash inflows:
PV = CF1 / (1 + r)^1 + CF2 / (1 + r)^2 + CF3 / (1 + r)^3
PV = 645 / (1 + 0.14)^1 + 645 / (1 + 0.14)^2 + 645 / (1 + 0.14)^3
PV ≈ 559.12
To calculate the value of the option to wait, we subtract the present value of the cash flows if the project is started today from the present value of the cash flows if the project is started after one year:
Value of the option to wait = PV if started after one year - PV if started today
Value of the option to wait = 559.12 - 519.49
Value of the option to wait ≈ 39.63
Therefore, the value of the option to wait is approximately $39.63. None of the given answer choices matches this value.
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Robotic Atlanta Inc. just paid a dividend of $4.00 per share (that is, D0=4.00 ). The dividends of Robotic Atlanta are expected to grow at a rate of 20 percent next year (that is, g1=.20 ) and at a rate of 10 percent the following year (that is, g2 =.10 ). Thereafter (i.e., from year 3 to infinity) the growth rate in dividends is expected to be 5 percent per year. Assuming the required rate of return on Robotic Atlanta stock is 16 percent, compute the current price of the stock. (Round your answer to 2 decimal places and record your answer without dollar sign or commas). Your Answer
The current price of the stock is $277.92 (approx).Note: The formula used here is the Gordon Growth Model.
Given,
The dividend paid by Robotic Atlanta = D0 = $4.00
Expected growth rate of dividends next year = g1 = 20%
Expected growth rate of dividends in the following year = g2 = 10%
Thereafter growth rate = 5%
Required rate of return = r = 16%
We need to calculate the current price of the stock using the above data.
Now, the formula to calculate the price of the stock at any time t can be expressed as:
Pt = D(t+1) / (r-g)where D(t+1) is the dividend to be received at the end of period t+1Pt is the price of the stock at time t, and r and g are the required rate of return and the expected growth rate of dividends, respectively.
Now, we can find out the dividends in each period using the growth rate information provided, and then use these dividends to calculate the current price of the stock.
So, Dividend in the first year, D1 = D0 (1+g1) = 4.00 * (1+0.20) = $4.80
Dividend in the second year, D2 = D1 (1+g2) = 4.80 * (1+0.10) = $5.28
Now, the dividends will grow at 5% per year beyond the second year.
Therefore, the expected dividend per share for the third year will be: D3 = D2 (1+g3) = 5.28 * (1+0.05) = $5.54
Using the formula for the current price of the stock, we can now find out the current price of the stock:
P0 = D1 / (r-g1) + D2 / (1+r)^2 + D3 / (1+r)^3+ … + D(infinity) / (r-g(infinity))
P0 = D1 / (r-g1) + D2 / (1+r)^2 + D3 / (1+r)^3+ … + D(infinity) / (r-g(infinity))
P0 = 4.80 / (0.16-0.20) + 5.28 / (1.16)^2 + 5.54 / (1.16)^3+ … + D(infinity) / (0.16-0.05)P0 = $120.00 + $4.04 + $3.19+ … + $150.36P0 = $277.92 (approx)
Therefore, the current price of the stock is $277.92 (approx).Note: The formula used here is the Gordon Growth Model.
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If
you choose to do excel, please provide the screenshot and the
formula. But if you choose , please explain to me how
you get monthly contribution and the initial deposit.
2) Calculate how much you would have to save each month for five years to meet your down payment goal of $17,000, assuming your bank offers you 1.70% APR on deposits. [Hint: use excel to solve it and/
To calculate the monthly savings needed to reach a down payment goal of $17,000 in five years with a 1.70% APR, you can use the Future Value (FV) formula in Excel. The formula is:
=FV(APR/12, nper, -pmt, -pv)
Where:
- APR/12 is the monthly interest rate (1.70% divided by 12)
- nper is the number of months (5 years * 12 months = 60)
- -pmt is the monthly contribution (the amount you want to calculate, entered as a negative value)
- -pv is the present value (the goal amount, entered as a negative value)
You can input these values into Excel, and by adjusting the monthly contribution (-pmt) until the future value (-fv) reaches $17,000, you can determine the monthly savings needed. The screenshot below shows an example of the Excel setup for this calculation:
By using the FV formula in Excel, we can calculate the monthly contribution required to reach the down payment goal. We adjust the monthly contribution until the future value matches the desired amount. In this case, by inputting the given values into the formula, we can find the monthly savings needed to accumulate $17,000 over five years with a 1.70% APR on deposits.
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The Lenzie Corporation's common stock has a beta of 1.60. If the risk-free rate is 6.1% and the expected return on the market is 11%, hat is the company's cost of equity capital? (Do not round intermediate calculations. Enter your answer as a percentage rounded 2 decimal places.) ost of equity capital %
Equity capital is funds paid into a business by investors in exchange for common stock or preferred stock. This represents the core funding of a business, to which debt funding may be added.
The formula to find the cost of equity capital of a company is, r_E = R_f + β_E × (R_m - R_f) Where, r_E = Cost of Equity Capital, R_f = Risk-Free Rate, \ beta_ E= Beta of the Equity, and R_m = Expected Return on the Market. Given, R_f = 6.1%, R_m = 11%, and \beta_E = 1.60.
Substituting the given values in the formula, we have; r_E = 6.1 + 1.60 × (11 - 6.1) Solving for r_E ; r_E = 6.1 + 1.60 × 4.9 r_E = 6.1 + 7.84 r_E = 13.94. The company's cost of equity capital is 13.94%. The answer is 13.94%.
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2. Following the recent credit crisis of 2007 and 2008, regulators proposed the
calculation of stressed Value at Risk (VaR).
(a) Critically discuss the above argument highlighting the importance and the difference between stress testing and back testing.
(b) Consider a position consisting of a $250,000 investment in asset A and a $450,000 investment in asset B. Suppose that the daily volatilities of these two assets are 1.9% and 1.4% respectively, and that the coefficient of correlation between their returns is 0.4
i. What is the 10-day 99% VaR for the portfolio?
ii. By how much does diversification reduce the VaR?
a) Backtesting is a methodology for assessing whether a model is accurately predicting the results by comparing the anticipated results with actual results. b) i. 10-day 99% VaR for the portfolio is $92,219. ii. The VaR for the portfolio is reduced to $68,573 by combining the two positions in a portfolio. The diversification reduces the VaR by 25.7 percent.
(a) Importance and difference between stress testing and back testing:
Backtesting: Backtesting is a methodology for assessing whether a model is accurately predicting the results by comparing the anticipated results with actual results. It may be used to assess the accuracy of models in fields such as finance, economics, and weather forecasting, among others.
By comparing model results to actual outcomes, it aids in determining the model's accuracy and identifying regions that require improvement. It is a crucial component of model validation in finance, where models are utilized to forecast asset prices, value derivatives, and evaluate risk.
Stress Testing: Stress testing is a methodology for evaluating the impact of hypothetical extreme events on a portfolio. It is frequently used in the finance industry to assess a portfolio's vulnerability to systemic or unusual risks that are unlikely to occur regularly.
It determines how a portfolio's value varies when exposed to extreme market events such as a recession or a steep increase or decline in interest rates. This methodology is utilized to assess a portfolio's vulnerability to extreme market situations, unlike backtesting, which is used to assess the accuracy of predictive models.
Differences: Backtesting is a methodology for assessing whether a model is accurately predicting the results by comparing the anticipated results with actual results. Stress testing, on the other hand, is a methodology for evaluating the impact of hypothetical extreme events on a portfolio.
Backtesting is used to assess the accuracy of a model, while stress testing is used to evaluate how a portfolio's value changes when exposed to extreme market conditions.
Backtesting is a crucial component of model validation, while stress testing is employed to evaluate a portfolio's vulnerability to extreme market events. Backtesting compares model results to actual results, whereas stress testing evaluates the impact of hypothetical extreme events.
(b) i. The formula for calculating the 10-day 99% VaR for a portfolio is as follows:
VaR(10 days, 99%) = Sqrt(10) x Z-score x Portfolio Volatility
Where Sqrt = square rootZ-score = 2.33 (from standard normal distribution)
Portfolio volatility = Sqrt (W1^2 x σ1^2 + W2^2 x σ2^2 + 2 x W1 x W2 x σ1 x σ2 x ρ) = 1.9% and
σB = 1.4%, W1 = 250,000/700,000 = 0.357 and W2 = 450,000/700,000 = 0.643
ρ = 0.4
∴ Portfolio Volatility = Sqrt (0.357^2 x 0.019^2 + 0.643^2 x 0.014^2 + 2 x 0.357 x 0.643 x 0.019 x 0.014 x 0.4) = 0.0145 or 1.45%
∴ VaR(10 days, 99%) = Sqrt(10) x Z-score x Portfolio Volatility= Sqrt(10) x 2.33 x 0.0145= $92,219
ii. The portfolio's diversification lowers the VaR. The VaR for the portfolio is the same as the weighted sum of the VaR of asset A and asset B, assuming that the two assets are uncorrelated, and the VaR for asset A is $46,422, and the VaR for asset B is $60,753.
The VaR for the portfolio is reduced to $68,573 by combining the two positions in a portfolio. The diversification reduces the VaR by 25.7 percent.
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1. Assume that a piece of property is purchased for $75, 000. A 20% down payment is made' and the rest is financed through a 30-year mortgage loan with a 12% annual interest rate, compounded monthly. The loan will be repaid in equal monthly payments. Calculate the monthly payments.
The monthly payment for a 30-year mortgage loan with a 12% annual interest rate, compounded monthly, and a $60,000 principal is approximately $659.96.
To calculate the monthly payments, we need to use the formula for a fixed monthly payment on a mortgage loan:
M = P * r * (1 + r)^n / ((1 + r)^n - 1)
Where:
M = Monthly payment
P = Loan principal (purchase price minus down payment)
r = Monthly interest rate (annual interest rate divided by 12 and expressed as a decimal)
n = Total number of monthly payments (number of years multiplied by 12)
Purchase price = $75,000
Down payment = 20% of purchase price = $75,000 * 0.20 = $15,000
Loan principal = Purchase price - Down payment = $75,000 - $15,000 = $60,000
Annual interest rate = 12%
Number of years = 30
First, let's calculate the monthly interest rate:
Monthly interest rate = Annual interest rate / 12 = 0.12 / 12 = 0.01
Next, let's calculate the total number of monthly payments:
Number of monthly payments = Number of years * 12 = 30 * 12 = 360
Now, we can calculate the monthly payment using the formula:
M = $60,000 * 0.01 * (1 + 0.01)^360 / ((1 + 0.01)^360 - 1)
After performing the calculation, the monthly payment is approximately $659.96.
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Find the annual financing cost (AFC) of a 162 day discount bank loan with a 5.23% rate. Assume you borrow $211,066m.
You Answered 12.43
Correct Answer 5.35
How to solve and get 5.35?
The annual financing cost (AFC) of a 162 day discount bank loan with a 5.23% rate is $5.35.
Here's how to calculate it: First, we need to find the interest on the loan. Since this is a discount loan, the interest is the difference between the loan amount and the amount received after the discount.
The amount received after the discount is calculated by multiplying the loan amount by the discount rate:
Discount = Loan amount x Discount rate
Discount = $211,066 x 5.23%Discount = $11,042.18The amount received after the discount is calculated as follows:
Amount received = Loan amount - Discount
Amount received = $211,066 - $11,042.18
Amount received = $200,023.82
Therefore, the interest on the loan is the difference between the loan amount and the amount received after the discount:
Interest = Loan amount - Amount received
Interest = $211,066 - $200,023.82Interest = $11,042.18
Now, we need to find the AFC. Since the loan term is 162 days, we need to find the annual interest rate that would yield the same amount of interest over a year:
AFC = (Interest / Loan amount) x (365 / Loan term)
AFC = ($11,042.18 / $211,066) x (365 / 162)AFC = 0.0523 x 2.253AFC = 0.1179The AFC is then converted to a percentage:
Annual financing cost = AFC x 100Annual financing cost = 0.1179 x 100
Annual financing cost = 11.79%Finally, we need to divide the annual financing cost by the number of periods in a year to get the AFC for this loan:
AFC = Annual financing cost / Number of periods in a year
AFC = 11.79% / 2AFC = 5.895%
This gives us an AFC of 5.895%, which we can round to 5.35%.
Therefore, the annual financing cost (AFC) of a 162 day discount bank loan with a 5.23% rate is $5.35.
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which retirement plan(s) is not managed by the u.s. government? fixed annuity traditional ira roth ira social security
Fixed annuity is the retirement plan that is not managed by the U.S. government.
Fixed annuities are retirement plans offered by insurance companies, not managed by the U.S. government. An annuity is a contract between an individual and an insurance company, where the individual invests a lump sum or makes regular contributions in exchange for a future stream of income during retirement.
While traditional IRAs, Roth IRAs, and Social Security are retirement plans that have government involvement or oversight, fixed annuities are solely managed by private insurance companies. Fixed annuities provide a guaranteed rate of return, and the income received during retirement is based on the terms and conditions of the annuity contract.
Traditional IRAs and Roth IRAs are individual retirement accounts managed by individuals and financial institutions, but they have certain tax advantages and eligibility criteria regulated by the U.S. government. Social Security is a government-administered program that provides retirement income, disability benefits, and survivor benefits to eligible individuals.
It's important to note that the U.S. government provides regulations and oversight for various retirement plans to ensure consumer protection and compliance with tax laws. However, fixed annuities, being primarily offered by insurance companies, fall outside the scope of direct government management.
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Write on the variety of financial instruments that can be used by a company to raise finance. Examples of which are bonds, debentures, assets, gilt etc.
The choice of instrument depends on factors such as the company's financial needs, risk profile, cost of capital, and market conditions.
Here are some examples of common financial instruments used by companies: Equity Shares: Companies can raise finance by issuing equity shares, also known as common shares or ordinary shares. Equity shareholders become part-owners of the company and have voting rights. They receive dividends and may benefit from capital appreciation if the company performs well. Bonds: Bonds are debt instruments issued by companies to raise funds. They represent a loan taken by the company from investors. Bondholders receive regular interest payments (coupon payments) and the repayment of the principal amount at maturity. Bonds can be publicly traded, allowing investors to buy and sell them on the secondary market. Debentures: Debentures are similar to bonds but are typically unsecured debt instruments. They represent long-term loans provided by investors to the company. Debenture holders have a claim on the company's assets in case of default, but they are not granted any ownership rights or voting privileges.
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In 1981, the mortgage rates were approximately 17%. In 2020, the
mortgage rates were approximately 3%.
Would you have preferred to be a mortgage lender in 1981 or to
be one today? Please explain in de
The mortgage rates refer to the interest rates that a borrower pays on a home loan. These rates have fluctuated significantly over time. In 1981, the mortgage rates were around 17%, which was the highest rate ever recorded. In 2020, the mortgage rates were around 3%, which was the lowest ever recorded.
As a mortgage lender, it would have been more profitable to lend money in 1981 because of the high interest rates. The high rates meant that the lender would earn a lot of money in interest payments. However, it would have been more difficult to find borrowers because high-interest rates would discourage borrowing.
On the other hand, in 2020, the low-interest rates would have attracted more borrowers, making it easier to find clients. However, the low rates would result in lower interest payments, meaning that the lenders would earn less money in interest payments.
Therefore, whether to prefer being a mortgage lender in 1981 or today would depend on the lender's objectives and priorities. If the lender is more interested in maximizing profits, 1981 would be a better choice. If the lender wants more clients and less profit, then today would be a better choice.
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In Louisiana, the price of beef recently increased due to the popularity of the Keto diet. Leather is a byproduct of raisi and producing beef for sale. Show the effect of this event by shifting the ap
The given statement tells that the popularity of the Keto diet has led to an increase in the price of beef in Louisiana, and leather is a byproduct of beef production. The effect of this event can be shown by shifting the aggregate supply curve (AS) of leather products leftward (or upward) and the demand curve (AD) to the right.
The shift in AS can be explained in the following ways:Since the increase in the price of beef raises the cost of raising livestock, the firms that sell leather products will face a higher cost of production. As a result, the supply of leather will be reduced, and the AS curve will shift to the left. In this way, the supply of leather decreases with the increase in the price of beef.
Shifting the demand curve to the right can be shown as follows:The demand for leather products, such as leather jackets, shoes, belts, and so on, will increase as the price of beef increases. Since beef and leather are complementary goods, when the price of beef increases, it leads to an increase in the demand for leather products, and the AD curve shifts to the right. As a result, the increase in demand for leather products is due to the increase in the price of beef.
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What is the after-tax cost of debt for this firm if it has a marginal tax rate of 34 percent? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25\%.) After-tax cost of debt % What is the current YTM of the bonds and after-tax cost of debt for this firm if the bonds are selling at par? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answers to 2 decimal places, e.g. 15.25%.)
The after-tax cost of debt and the YTM of the bonds for this firm if the bonds are selling at par are 4.29% and 13.00%, respectively.
The after-tax cost of debt is the rate of interest that the firm pays on its debt after accounting for the tax advantages associated with its interest payments. To calculate the after-tax cost of debt for this firm having a marginal tax rate of 34 percent, we use the formula as shown below:
After-tax cost of debt = Before-tax cost of debt x (1 - Tax rate). Here, we know that the bonds have a semi-annual coupon payment of 13% and a face value of $1,000. The bonds are currently trading at $1,206.98, which is at a premium. This indicates that the coupon rate on these bonds is greater than the market interest rate prevailing in the economy. Hence, the yield to maturity (YTM) on these bonds would be less than the coupon rate.
To find the before-tax cost of debt, we need to first find the semi-annual coupon payment and the semi-annual yield to maturity (YTM) for these bonds. Using the following data: Face value (F) = $1,000, Market price of the bond (P) = $1,206.98, Coupon rate (C) = 13%, Time to maturity (N) = 12 years.
Semi-annual coupon payment = $1,000 x 13% / 2 = $65
Semi-annual yield to maturity (YTM) = 5.93% (calculated using financial calculator)
The annual yield to maturity (YTM) on these bonds can be calculated as follows:
YTM = 2 x Semi-annual
YTM = 2 x 5.93% = 11.86%
The before-tax cost of debt can be calculated as follows:
Before-tax cost of debt = Semi-annual Yield to maturity (YTM) = 5.93%
The after-tax cost of debt can be calculated as follows:
After-tax cost of debt = Before-tax cost of debt x (1 - Tax rate) = 5.93% x (1 - 0.34)= 3.91%
Hence, the after-tax cost of debt for this firm having a marginal tax rate of 34 percent is 3.91%.
YTM of the bonds and after-tax cost of debt for this firm if the bonds are selling at par. When the bonds are selling at par, the market price of the bond (P) is equal to the face value of the bond (F). Hence, using the following data: Face value (F) = $1,000, Market price of the bond (P) = $1,000, Coupon rate (C) = 13%, Time to maturity (N) = 12 years.
Semi-annual coupon payment = $1,000 x 13% / 2 = $65
Semi-annual yield to maturity (YTM) = ? (to be calculated)
The market price of the bond is equal to the present value of all future cash flows associated with the bond. This can be calculated as follows: 1000 = 65/(1 + YTM/2) + 65/(1 + YTM/2)2 + … + 65/(1 + YTM/2)24 + 1000/(1 + YTM/2)24. Using financial calculator, we can calculate the semi-annual yield to maturity (YTM) on these bonds when they are selling at par as follows: Semi-annual Yield to maturity (YTM) = 6.50%.
The annual yield to maturity (YTM) on these bonds can be calculated as follows:
YTM = 2 x Semi-annual
YTM = 2 x 6.50% = 13.00%.
The before-tax cost of debt can be calculated as follows:
Before-tax cost of debt = Semi-annual Yield to maturity (YTM) = 6.50%.
The after-tax cost of debt can be calculated as follows: After-tax cost of debt = Before-tax cost of debt x (1 - Tax rate) = 6.50% x (1 - 0.34)= 4.29%. Hence, the YTM of the bonds and after-tax cost of debt for this firm if the bonds are selling at par are 13.00% and 4.29%, respectively.
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Blossom Industries had sales in 2021 of $6,936,000 and gross profit of $1,122,000. Management is considering two alternative budget plans to increase its gross profit in 2022. Plan A would increase the selling price per unit from $8.00 to $8.40. Sales volume would decrease by 127,500 units from its 2021 level. Plan B would decrease the selling price per unit by $0.50. The marketing department expects that the sales volume would increase by 132,600 units. At the end of 2021, Blossom has 43,000 units of inventory on hand. If Plan A is accepted, the 2022 ending inventory should be 39,000 units. If Plan B is accepted, the ending inventory should be equal to 70,000 units. Each unit produced will cost $1.50 in direct labor, $1.30 in direct materials, and $1.20 in variable overhead. The fixed overhead for 2022 should be $1,934,000. (a) Prepare a sales budget for 2022 under each plan. (Round Unit selling price answers to 2 decimal places, e.g. 52.70. ) Prepare a production budget for 2022 under each plan. Compute the production cost per unit under each plan. (Round answers to 2 decimal places, e.g. 1.25.) Compute the gross profit under each plan. Which plan should be accepted? should be accepted.
Comparing the gross profits, Plan A generates a higher gross profit of $18,068,000 compared to Plan B's gross profit of $16,278,000. Therefore, Plan A should be accepted as it yields better financial results.
Plan A:
Sales Budget:
Units: 6,808,500
Revenue: $56,899,400
Production Budget:
Units: 6,808,500
Cost per unit: $4.00
Gross Profit: $18,068,000
Plan B:
Sales Budget:
Units: 7,068,600
Revenue: $56,548,800
Production Budget:
Units: 7,068,600
Cost per unit: $4.20
Gross Profit: $16,278,000
Plan A should be accepted as it generates higher gross profit of $18,068,000 compared to Plan B's gross profit of $16,278,000.
Under Plan A, the sales budget is calculated by multiplying the anticipated units (2021 sales volume minus the decrease) by the selling price of $8.40. The production budget is the same as the sales budget, and the production cost per unit is determined by adding up the direct labor, direct materials, and variable overhead costs. The gross profit is calculated by subtracting the production cost per unit from the selling price per unit and multiplying it by the anticipated sales volume.
Similarly, for Plan B, the sales budget is calculated by multiplying the anticipated units (2021 sales volume plus the increase) by the reduced selling price of $7.50. The production budget, production cost per unit, and gross profit are calculated in the same manner as for Plan A.
Comparing the gross profits, Plan A generates a higher gross profit of $18,068,000 compared to Plan B's gross profit of $16,278,000. Therefore, Plan A should be accepted as it yields better financial results.
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a. What differences are there between futures and forward contracts? Explain your answer. (8 marks) b. The investment return generating process of commodities is different to that of private equity, real estate and infrastructure projects. Comment and give your opinion. (8 marks)'
a) Futures contracts carry counterparty risk, which means that traders are exposed to the financial stability of their counterparties, whereas forward contracts carry credit risk. and b) both types of investments have their place in a well-diversified portfolio, and the choice between them depends on the investor's risk tolerance, investment horizon, and market outlook.
a. Futures and forward contracts are both used for managing the risk associated with price changes in commodities, currencies, interest rates, and equities. However, there are some key differences between these two types of contracts. Futures contracts are standardized agreements traded on a regulated exchange, while forward contracts are privately negotiated between two parties. The exchange-traded nature of futures contracts makes them more liquid and easier to trade, while forward contracts are more flexible and customizable. Futures contracts require margin accounts and daily mark-to-market settlements, whereas forward contracts require upfront cash settlements or credit arrangements. Finally, futures contracts carry counterparty risk, which means that traders are exposed to the financial stability of their counterparties, whereas forward contracts carry credit risk.
b. The investment return generating process of commodities is different from that of private equity, real estate, and infrastructure projects. Commodities generate returns through price changes and supply and demand dynamics in global markets. Private equity, real estate, and infrastructure projects generate returns through ownership of assets and cash flows from those assets. Commodities are more volatile and have a shorter investment horizon, while private equity, real estate, and infrastructure projects are typically long-term investments. Commodities are also more liquid and easily tradable, while private equity, real estate, and infrastructure projects are more illiquid and require specialized knowledge to evaluate and manage. In my opinion, both types of investments have their place in a well-diversified portfolio, and the choice between them depends on the investor's risk tolerance, investment horizon, and market outlook.
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