When $1000 is deposited and the reserve requirement is 25%, money supply would increase by a maximum of $1000 (third option).
What will be the increase in money supply?The fractional banking system that is now practiced requires that banks keep a portion of their deposits as reserves and loan the remaining out to customers.
The amount of money that is kept as reserves is determined by the required reserve ratio. The required reserve ratio is the percentage of deposit that the Central Bank of a country requires that banks keep as reserves.
When the remaining deposits is loaned out, the money supply in the economy increases. The increase in the money supply is a function of the amount deposited and the required reserve ratio.
Increase in money supply = amount deposited / reserve ratio
Increase in money supply = 1000 / 25%
Increase in money supply = $1000 / 0.24
Increase in money supply = $4000
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in no more than 500 words, please share how the president's vision for the country and the priorities of the biden-harris administration have influenced your decision to apply to the white house internship program.
Inauguration of the White House Internship Program, which will pay interns for the first time in recent memory, was announced by Vice President Harris and President Biden.
The President's Executive Office will benefit from this funding by offering paid internships. The White House Office and the Vice President's Office are both places where interns in the program will work.
Each year, the White House Internship Program brings together national leaders who want to give their time, energy, and experiences to serving the country through public service.
On the grounds of the White House, the Fall 2022 session will be held. To maintain a secure and healthy working environment, program leadership will keep an eye on the public health environment surrounding COVID-19 and adjust the program's strategy as needed. All interns will be required to verify their immunization record and adhere to any COVID-19 rules set forth by the White House.
President Biden and Vice President Harris have promised to build an administration that reflects America's diversity because they think that capable individuals from all backgrounds should have an equal chance to serve our nation. All those who are interested and meet the requirements are highly encouraged to apply. Each White House Internship Program class shows that dedication.
Several Noteworthy White House Interns
Huma AbedinTroy BlackwellJulian CastroMimi AlfordBrent BartonJaime Herrera BeutlerNeil CavutoBen CoesMisha CollinsRodney Mims Cook, Jr.Rod DembowskiMonique DorsainvilPaying White House interns is a significant accomplishment that will help remove obstacles to equal opportunity for low-income students and first-generation professionals at the beginning of their careers. It will also ensure that those who receive internship opportunities at the White House—and who will make up a significant portion of the federal government's leadership pipeline—reflect America's diversity.
This internship opportunity is not only a great way to start a new career, but it is also the ideal catalyst for doing something good for our nation. We are motivated to grow and reach new heights when we consider some famous interns. We get the impression that we have a strong support network behind us and our career.
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bills for rent, heat, interest, and executive salaries, regardless of company output are examples of
Answer: Necessary expenses.
Using the following accounts and a predetermined overhead rate of 130% of direct labor cost, compute the amount of applied overhead. Work in Process Inventory Beginning WIP 35,200 Direct materials 55,300 Direct labor ? Factory overhead 2 To finished goods Ending WIP 25, 200 Finished Goods Inventory Beginning FG 5,200 Cost of Goods Mfg'd 203, 300 203,300 Multiple Choice $71,890 $138.000 $60,000 25,200 Ending WIP Finished Goods Inventory Beginning FG 5,200 Cost of Goods Mfg'd 203, 300 Multiple Choice $71,890. $138,000 $60,000 $78,000 $90,500
Total of direct labor and factory overhead using work in progress is 1,38,000
Cost of goods manufactured 20300
Less beginning WIP (35200)
Less Direct material (55300)
Add ending WIP 25200
Total of direct labor and factory overhead 1,38,000
Note: We get cost of goods manufactured by adding beginning WIP ,direct labor, direct material and subtract ending WIP from it.
Work in progress- The terms "work in process," "work in progress," "goods in process," and "in-process inventory" all relate to the worth of a company's partially finished goods that are awaiting completion and potential sales. WIP is a vital input for computing inventory on a company's balance sheet and is utilized in supply chain management.
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You have checked model income statements and estimate your payroll expense will be 30% of revenue. You expect sales to be $6,000 per week. What should you budget annually for payroll?.
You have checked model income statements and estimate your payroll expense will be 30% of revenue. You expect sales to be $6,000 per week. should you budget annually for payroll $93,600
What exactly is an income statement?An income statement displays a company's revenues, costs, and profitability over time. It may also be referred to as an earnings statement or a profit-and-loss (P&L) statement. It displays your: revenue from the sale of goods or services. costs associated with producing income and running your business.
What does it mean to process payroll?Payroll processing involves paying workers for their labor. It entails figuring out total wage earnings, deducting deductions, filing payroll taxes, and disbursing money.
What is a payroll example?Gross salary, commissions, bonuses, and wages. Taking employee and employer taxes into account. Salary deductions, insurance costs, and contributions to savings schemes. expenditures for employer fringe benefits.
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if a stock's market price exceeds its intrinsic value as seen by the marginal investor, then the investor will sell the stock until its price has fallen to the level of the investor's estimate of the intrinsic value.
A stock is considered to be overvalued if its intrinsic value is much lower than its current market price.
What happens if a stock's intrinsic worth exceeds its market value?
1) When intrinsic value exceeds market price, it indicates that a company is undervalued and presents a buying opportunity to investors. 2) The stock is overvalued and is not a viable investment at the moment when Market Price exceeds Intrinsic Value.
What is the share market's intrinsic value?A stock's intrinsic value represents its genuine worth. This is estimated based on the expected financial gain you would experience from it in the future. In other words, it is the highest price at which you may purchase the item without suffering a loss.
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read the argument below and determine the underlying principle that was used to come to the conclusion presented: individuals who burn themselves by inappropriately using fireworks should not be allowed to receive free healthcare. that is an example of a self-inflicted injury. if an individual’s actions have caused the injury to themselves, they should have to make a financial contribution towards their treatment. which other argument uses the same underlying principle as the argument above?
If an individual’s actions have caused injury to themselves, they should have to make a financial contribution towards their treatment. Hence, option B is appropriate.
What is the Financial Contribution?
Contribution of money The word "financial contribution" refers to I the direct transfer of money, such as grants, loans, as well as equity infusions; (ii) the prospective direct transfer of money or liabilities, including such loan guarantees; and (iii) the aforementioned or failure to collect money owed that would otherwise be due.
A monetary payment of any value made from a board member's officeholder account or personal finances is referred to as a "financial contribution."
Hence, option B is correct.
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Shelby writes an essay for her economics class. She has carefully read several sources on the topic. She includes a references page with her essay but does not include citations in the text of her essay. What is this an example of?
Shelby does not cite sources within the body of her essay; instead, she includes a references page. A case of plagiarism is this.
What types of references are there?
There are numerous unique citation styles, but the majority of them follow one of the parenthetical, numerical, or note citations' three fundamental rules.
Which reference is used most frequently?
One of the most popular and widely used citation and referencing styles in the academic community is the Modern Language Association (MLA) style.
What policies apply to plagiarism?
A student may be suspended or expelled as a result of plagiarism accusations. The student might not be allowed to enroll in college after high school or from another college if the ethics violation is shown in their academic record.
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Which of the following statements about evolution is TRUE?
a. Evolution describes how an individual's offspring develop from juveniles to adults.
b.Evolution cannot be observed directly, so it must be interpreted through indirect evidence.
c.Evolution occurs when an individual changes within its lifetime, to better fit its environment.
d.Selective survival and reproduction is a requirement of evolution by natural selection.
Evolution occurs when an individual changes within its lifetime, to better fit its environment is true about evolution.
What is Evolution?Evolution is the shift in a biological population's heritable traits over successive generations. These traits are the expressions of genes, which, during reproduction, are handed from parent to offspring. Genetic mutation and recombination cause variation to frequently occur within a population. When evolutionary mechanisms like natural selection and genetic drift work on this variety, they cause specific traits to become more or less prevalent within a population. This is when evolution happens. The evolutionary pressures that determine whether a trait is common or rare within a population are always shifting, which causes a change in heritable traits to emerge through time. Every level of biological organization, including species levels, has experienced an increase in biodiversity as a result of this process of evolution.
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during bruce company’s first year of operations, the company purchased $3,400 of supplies. at year-end, a physical count of the supplies on hand revealed that $1,375 of unused supplies were available for future use. how will the related adjusting entry affect the company’s financial statements?
Adjusting entry affect the company’s financial statements is ( $3400 - $ 1375 = $2025) .so answer of given question is $2025.
How Do Financial Statements Work?Financial statements are written records that outline a company's operations as well as its financial success. Government organizations, accounting firms, and other entities frequently audit financial statements to assure their accuracy and for reasons related to taxes, financing, or investment. The balance sheet, income statement, cash flow statement, and statement of changes in equity are the four basic financial statements used by for-profit organizations. Nonprofit organizations employ a comparable but distinct set of financial statements.
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d. suppose the expected spot rate in 180 days is $0.67/sfr with a most likely range of $0.64-$0.70/sfr. should american hedge? what factors should enter into its decision?
The American Airlines will be better suited to deferring the conversion of its ticket sales at the upcoming spot rate given the likely range of anticipated 180-day spot rate. The decision would depend on whether operating an innovative airline has a comparative advantage over trying to outguess the financial markets.
How is a spot rate calculated?The discount rate that brings the present value (PV) of a zero-coupon bond to its price is used to determine the spot rate. These are predicated on forecasted interest rate possibilities. Therefore, spot rates might employ a range of interest rates up until maturity.
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what was the main difference between the two phases in terms of the users’ roles? what was the role of the plant manager? bombardier
A transformational step for Alstom: of the entirety of the acquisition of Bombardier Transportation | Alstom. At Alstom, we innovate no longer handiest to deliver operationally nowadays but to transform mobility at big, via pioneering smarter and greener mobility answers for all.
Bombardier Inc. is a Canadian manufacturer of aircraft, rail transportation gadgets and structures, and motorized customer products. The enterprise followed its gift call in 1978 and entered the aerospace field in 1986. The headquarters are in Montreal.
The Bombardier CSeries became an excellent aircraft, however, it did not promote so nicely. sales expanded drastically as soon as Airbus took control of the program. Airbus makes this acquisition and has the aircraft been so a success after rebranding to Airbus.
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what would you use to show new employees the process of signing up for health benefits? a bar chart an organizational chart a flowchart
An organizational chart can be used to show new employees the process of signing up for health benefits.
What is Organizational Chart?An organizational chart is a visual representation of a company's internal structure that shows the relationships, functions, and responsibilities of each individual within the organization. It is one method of imagining a bureaucracy.
The most popular use of an organizational chart is to display the structure of a company, a government, or another type of organization. Org charts can be constructed in a variety of ways and are useful for a variety of purposes. They could serve as a resource for planning, a management tool, or a personnel directory.
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you are giving a presentation on accounting at a local business. you’re expecting your audience to be uninterested in your topic because most of the attendees are required to be there and are not interested in accounting. what supporting materials will help you keep the audience’s attention?
Based on presentation strategies and communication skills, given the situation described in the question, the supporting materials that will help you keep the audience’s attention are "Humor, Cartoons, and Colorful Visuals."
What are Presentation Strategies?Presentation Strategy is a term that is used to describe the techniques or methods used by the presenter of lectures or keynotes, to ensure the message being delivered is grabbed and digested by the targeted audience.
The purpose of the presentation strategy is to deliver an effective message that will ginger and call the targeted audience to action in their mind.
Some of the presentation strategies are:Making a good preparation Stay practical in the message deliveryMake the message personalAdd colorful imageryEnsure there relatable objects like cartoons of humansAdd humor to message delivery in a potent wayShare your passion as you deliver messages, etc.Hence, in this case, it is concluded that the correct answer is "Humor, Cartoons, and Colorful Visuals."
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when groups of workers receive a portion of the financial return from reducing costs and improving productivity, this is called:
Labor productivity is defined as real output per labour hour, and the change in this ratio over time is used to measure labour productivity growth.
Productivity increases have historically resulted in higher real income, lower inflation, and higher corporate profitability. A company that increases output while working the same number of hours is likely to be more profitable, which means it can raise wages without passing the cost on to customers. Our output metric is gross value added (GVA), and our labour input metric is workers. Productivity is a measure of how well a company converts inputs like labour and capital into outputs like products and services.
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crest is one firm of many in the market for toothpaste, which is in long-run equilibrium. indicate which of the following graphs accurately reflects crest demand curve, marginal-revenue (mr) curve, average-total-cost (atc) curve, and marginal-cost (mc) curve.
crest is one firm of many in the market for toothpaste, which is in long-run equilibrium than Our job is to create a diagram that displays the demand curve, marginal revenue curve, average total cost curve, and marginal cost curve for Sparkle.
The output of Sparkle that maximizes profits is the dot M where MR=MC and price=AC.
What do you mean by equilibrium?a situation where there is equilibrium between opposing forces or actions, which can be static (such as when forces are applied to a body and the resultant is zero) or dynamic (such as during a reversible chemical reaction when the velocities in both directions are equal) an emotional or intellectual condition of equilibrium.
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harry is selling his rare coin collection through marshall auction house. harry will not sell the collection for less than $300,000 and has the right to withdraw the collection if the highest bid is less than the $300,000 minimum. who is the offeror in this auction? a. harry b. the auctioneer c. the people who make bids d. the final buyer
C. The people who make bids.
Why do you say "auction"?
In an open or closed style, an auction is a sales event where prospective buyers submit competing bids on goods or services. Because buyers and sellers think they will get a good deal when purchasing or selling assets, auctions are popular. There are four types of auctions: (1) the open, oral, or English ascending-bid auction; (2) the Dutch descending-bid auction; (3) the first-price, sealed-bid auction; and (4) the Vickrey second-price, sealed-bid auction.
What does purchasing at an auction mean?An auction building is often where traditional auctions take place. All potential purchasers will be there, and they will all present bids to one another. On the auction day, if you place the highest bid, you exchange contracts and hand over your deposit.
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Creating compelling visuals for presentations requires people to learn what new tools?.
Creating compelling visuals for presentations requires people to learn new tools such as templates, fonts, shapes, charts, graphs
Visuals of a presentation are all the graphics that are included in a presentation in order for a presentation to be made to look more understandable and reader-friendly.
Any data present inside the presentation is supported through pictures, charts, and graphics as visuals that are compelling. The font, writing styles and templates are chosen according to the theme of the presentation that will make the reader more compelled towards the slides of the presentation visuals.
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match the items to the appropriate balanced scorecard category. group of answer choices prevention [ choose ] appraisal [ choose ] internal failure [ choose ] external failure [ choose ]
1. Prevention cost - These costs are incurred in order to avoid quality problems through planning to maintain the quality before the actual production.
2. Appraisal cost - This relates to cost incurred to measure and monitor the quality associated with products, materials and products.
3. Internal failure cost - Cost incurred to rework the defects which are discovered before the products are delivered to the customers.
4. External failure cost - Cost incurred to rework the defects which are discovered after the products are delivered to the customers.
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what is one of the difficulties that emerges when the government uses price regulation? this can sometimes compromise .
A surplus of supply results from the higher price regulation discouraging consumers from purchasing agricultural products.
What does price regulation entail?The practice of setting prices by a regulatory body, legal statute, or governmental organization is known as price regulation. Pricing can be set at a minimum and/or maximum according to this policy.
What kind of pricing regulation does the government use?A price control strategy is the setting of a lower or higher selling price cap for particular goods and services. In other words, the maximum and minimum prices for goods and services are determined by the government.
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a car salesperson marks up the price of a car by 25%. that new price is then marked up again 10%. the car originally cost $10,000. what will the final price of the car be?
The final price of the car will be $13,750.
What is percentage increase?A percentage increase is the difference between the final value and the starting value, expressed as a percentage. The initial value and the increased (new) value are required in order to calculate the percentage.
The quantity's change in relation to its starting point is indicated by the percentage increase. If the % change is positive, it is an increase in percentage, and if it is negative, it is a decrease in percentage.
The original price of the car is $10,000.
After 25% increase the price is x.
x=0.25*10,000+10,000
x=2500+10,000
x=12,500
After 10% increase in the x, we get
y=0.1*12500+12500
y=1250+12500
y=13750
Therefore, $13,750 is the final price of the car if the original price is $10,000.
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When consumers are satisfied with a product, like the brand, and are committed to further purchases, a company has achieved a certain degree of _ for its product
A business has realized a specific level of profit for its product when customers are pleased with it, enjoy its brand, and thus are committed to making additional purchases.
What called consumer?Consumers are those who buy products for their own needs and use or consume them. Although a customer may resell the good, product, or service, he or she may use it to support himself or himself and engage in self-employment. Describe a consumer. The person who uses the goods or services on a daily basis is the consumer.
Who is a consumer with examples?Consumers are those who buy goods or services for their own consumption rather than for manufacturing or resale. A customer is someone who makes purchasing decisions.
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derek bought a pick-up truck to transport his equipment to fishing tournaments. he also bought a pick-up for his lawn maintenance business. his purchases were:
In a situation wherein Derek bought a pickup truck to transport his equipment to fishing tournaments, and a trailer for his lawn maintenance business, then his purchases were B2C and B2B, respectively.
B2C and B2B are the two types of business transactions performed by a business firm in order to operate the marketing and selling of its goods. Buying a pick-up truck for transport of equipment is a B2C, i.e., Business-To-Consumer transaction, and the purchase of lawn maintenance business is a Business-to-Business, or simply a B2B transaction.
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a customer contacts her registered representative to buy an otc stock. rather than buying the shares directly from a market maker, the broker-dealer contacts another broker-dealer and that firm buys the shares from a market maker. since this creates two levels of transaction fees, it is referred to as:
Another broker-dealer is contacted, and that company purchases the shares from a market maker. This is known as interpositioning since it results in two levels of transaction costs.
Interposition is the unlawful act of placing an extraneous third party, often another broker-dealer, between the client and the best price currently on the market with the express intent of earning additional fees at the expense of the consumer.
The act of putting a different broker-dealer between a customer and the best market is known as interposition. Interposition is not allowed unless it can be shown that the client got a better deal as a result.
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janell is always asking for the source of comments or research to back up assumptions made at team meetings. ultimately, the team creates better solutions because of this. what role is janell playing as a team member?
Bootstrapping is the practice of starting a business with little or no capital and reinvesteding profits as the company expands. While this method of financing a company may result in slower growth, it also minimizes debt and risk. Some businesses can be bootstrapped more easily than others.
When considering funding, what should a startup focus on?Size, growth, and market share of your target market It is essential to have credibility in your financial model to be able to clearly articulate your market size, market growth, and forecasted market share. However, it is also essential for knowing which investors are ideal for financing your business.
What distinguishes the crowdfunding reward model?A supporter can invest in an organization or cause under the rewards model of crowdfunding in exchange for something like "recognition, a show ticket, [or] a t-shirt" ((Manderson, 2012; Sumners, 2012, p. 40)The donation model and the reward model are frequently used together.
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ruritania's economy has been enjoying positive but slowing growth. the ministry of economics is considering various policy measures. place each option in the appropriate column according to whether it will most likely lead ruritania on a business cycle path towards continued growth or into a recession. increasing taxes would lead to increasing government spending would lead to increasing the federal budget surplus would lead to decreasing taxes would lead to increasing the federal budget deficit would lead to decreasing government spending would lead to
Growth in the economy:
decreasing taxes
increasing government expenditure
increasing the federal budget deficit
All these will increase the growth of the economy because the demand in the market will increase and that will increase economic activity and business growth too.
Slowing down the economy:
Decreasing the government expenditure
increasing the taxes
increasing the federal budget surplus,
All this will decrease the demand and economic activity in the market.
A market is defined as the aggregate of all buyers and sellers in the region or regions under consideration. A region can be a globe, country, region, state, or city. The value, cost, and price of traded items are governed by the forces of supply and demand in the market.
Activities in the market economy are unplanned. It is determined by the demand and supply of goods and services rather than being organized by a central authority. The US, UK, and Japan are examples of market economies.
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while contracting with celebrities to endorse the company’s brand adds to the competitive power of its product offering vis-a-vis the offerings of rivals, one of the big risks in trying to outbid rivals to win celebrity endorsements is:
While contracting with celebrities to endorse the company’s brand adds to the competitive power of its product offering vis-a-vis the offerings of rivals, one of the big risks in trying to outbid rivals to win celebrity endorsements is: that it is hard to come up with a reliable estimate of the size of the sales volume/revenue/ profit payoff associated with signing a celebrity and thus avoid bidding more than the celebrity’s endorsement is worth”.
What is meant by celebrity endorsements?A celebrity's fame and reputation are used to promote a brand or product through celebrity endorsement, sometimes referred to as celebrity branding or celebrity advertising. Nonprofit groups that exploit a celebrity's fame to promote a cause or collect money for it are examples of other use cases.
H.E.R. promoting L'Oreal Paris' hair and makeup products through commercials and other marketing materials is an example of a celebrity endorsement.
While hiring celebrities to promote a company's brand increases its product's competitiveness against that of competitors, one of the major hazards of trying to outbid competitors for celebrity endorsements is that it is difficult to develop a solid assessment
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a store has the following demand figures for the last four years: year demand 1 100 2 150 3 98 4 112 with a three-year moving average, what is the demand forecast for year 4?
The demand forecast for year 4, given the three-year moving average for the store, would be 120
How to find the demand forecast?When finding the demand forecast for a company's activities in a year, by using the moving average method, you find the average of the activities in the number of years required by the moving average.
With a three-year moving average, you find the average of the demand figures from the previous 3 years which would be :
= ( 112 + 98 + 150 ) / 3 years
= 360 / 3
= 120
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what is one of the reasons noted in our textbook that print versions of employee publications will continue to be used?
Many readers adore the feel of print versions of books as a physical object. You can feel the paper, turn the pages, and hold it.
What benefits do printed books offer?1. More information is taken in. 2. Additionally, they aid kids in improving their reading skills. 3. They are simpler on the eyes. 4. You are less inclined to become sidetracked. 5. You may get better sleep thanks to these. 6. Home libraries are associated with better academic performance. 7. They increase the enjoyment of reading.
Why are physical books superior to e-books?Numerous studies have shown that physical books are preferable to eBooks for improving reading comprehension. Younger readers might read more quickly on an eReader, but real books are typically preferred because of their pace and the possible distractions of links, scrolling, and adverts.
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Amos always felt that it was unfair that society created artificial divisions that discouraged him from having friends from different social structures.Which of the following terms describes the process that Amos is having difficulty with?
A) Reference group affiliation
B) Bias
C) Social anxiety
D) Social stratification
Amos always felt that society created unfair artificial divisions that discouraged him from having friends from different social structures. Amos is having difficulty with social stratification.
Social stratification refers to the organization in societies based on criteria such as education, income, wealth, power, caste, and family background. In some social stratification, it is easy to move upward but societies with low vertical mobility have rigid social stratification that binds one to a particular identity for a lifetime.
Social stratification often provides greater opportunities to access scarce resources to those at the top of the hierarchy. On the contrary, those at the bottom of the hierarchy struggle even for basic needs. Amos is having difficulty with social stratification as it is not socially acceptable to be friends with someone lower in the social hierarchy.
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Consider the case of Turnbull Co. Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2%. If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 14.7%. However, if it is necessary to raise new common equity, it will carry a cost of 16.8%. If its current tax rate is 40%, how much higher will Turnbull's weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings? 0.64% 0.98% 0.86% 0.75% Turnbull Co. is considering a project that requires an initial investment of $1, 708,000. The firm will raise the $1, 708,000 in capital by issuing $750,000 of debt at a before-tax cost of 11.1%, $78,000 of preferred stock at a cost of 12.2%, and $880,000 of equity at a cost of 14.7%. The firm faces a tax rate of 40%. What will be the WACC for this project? Consider the case of Kuhn Co. Kuhn Co. is considering a new project that will require an initial investment of $20 million. It has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. Kuhn has noncallable bonds outstanding that mature in 15 years with a face value of $1,000, an annual coupon rate of 11%, and a market price of $1, 555.38. The yield on the company's current bonds is a good approximation of the yield on any new bonds that it issues. The company can sell shares of preferred stock that pay an annual dividend of $8 at a price of $95.70 per share. Kuhn does not have any retained earnings available to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently selling for $33.35 per share, and it is expected to pay a dividend of $1.36 at the end of next year. Flotation costs will represent 8% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 8.7%, and they face a tax rate of 40%. Determine what Kuhn Company's WACC will be for this project.
Turnbull's weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings is 0.75%. Option A is correct.
What is Weighted Average Cost of Capital?Weighted average cost of capital is a weighted average of each source of long term fund or capital employed with its market expectation of investor considering the tax adjustment on it during the financial year.
It shows the economic value addition from net operating profit after tax over the weight average cost of capital employed in long term securities such common stock, preferred stock, Long term debt & Retained earnings.
It can be calculated from following formula:
[tex]WACC = W1*Cost of Debt + W2 * Cost of preferred stock + W3 * cost of equity[/tex]
WA Cost of equity = value of common stock & value of retained earnings in the firm.
A) WACC (old) = 0.58 × 11.1% (1-.40) + 0.06 × 12.20% + 0.36 × 14.70%
Cost of Capital Employed = Debt weight × after tax debt rate + Preferred equity weight × Cost of preferred Equity + Cost of Common equity & retained earnings × cost of equity
∴ WACC = 9.89 % (old) if equity raise from retained earnings.
B) WACC (new) = 0.58 × 11.1% (1-.40) + 0.06 × 12.20% + 0.36 × 16.80%
∴ WACC = 10.64% (New) if equity raise from fresh issue.
Thus the increase in WACC after issue of fresh equity from market is 0.75% (10.64% - 9.89%).
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