Answer:
$1,147.50
Explanation:
The computation of the principal amount of first monthly payment is shown below:
As we know that
Monthly payment comprises of principal + interest
Monthly payment = interest + principal
where,
Monthly payment is $2,400
Interest would be
= $167,000 × 9% ÷ 12 months
= $1,252.50
So, the principal amount is
= $2,400 - $1,252.50
= $1,147.50
What are the portfolio weights for a portfolio that has 148 shares of Stock A that sell for $35 per share and 110 shares of Stock B that sell for $24 per share
Answer:
Weight A= 0.6624
Weight B= 0.3376
Explanation:
From the question above,
Stock A has 148 shares at $35
Stock B has 110 shares at $24
The first step is to calculate the total amount of value
= 148($35)+110($24)
= $5,180+$2,640
= $7,820
Therefore the weight of each stock can be calculated as follows
Weight A= 148($35)/$7,820
= $5,180/$7,820
= 0.6624
Weight B= 110($24)/$7,820
= $2,640/$7,820
= 0.3376
Hence the portfolio weights are 0.6624 and 0.3376 respectively.
Which of the following is true regarding the effect of a debtor offering to pay a different type of payment, for example, goods instead of money, on a debt for which there is not a dispute over the amount or existence of the debt, and the creditor agrees?
A. A liquidated debt is involved, and there is an accord and satisfaction.
B. A liquidated debt is involved, and there is an accord but no satisfaction.
C. A liquidated debt is involved, and there is not a satisfaction or an accord.
D. An un-liquidated debt is involved, and there is an accord and satisfaction.
E. An un-liquidated debt is involved, and there is an accord but not satisfaction.
Answer:
D. An un-liquidated debt is involved, and there is an accord and satisfaction.
Explanation:
The impact when debtor offers to pay the different type of payment like goods instead of money, non dispute debt arises when the unliquidated debt is involved that means the amount is owed as mentioned in the contract or it is under dispute
Plus it also accord and satisfaction
Therefore the correct option is d.
26) A tenant wants to lease a building for $50,000 per year. She signs a five-year rental agreement that states that she will pay $25,000 every six months for the next five years. Draw the timeline for her rental payments, assuming she makes the first payment immediately?
Answer:
Please check the attached image for time line
Explanation:
A time orders series of event in a chronological order.
Because the tenant is paying money, it is cash outflow and thus would have a negative sign in front of it.
I hope my answer helps you
At the date of the business combination, the book values of Spice’s assets and liabilities approximated fair value except for inventory, which had a fair value of, and land, which had a fair value of
Answer:
$830,000.
Explanation:
Step one: determine or Calculate the total number of assets.
Total number of assets = Retained Earnings + inventory(spice) + cash + land fair value + inventory (pumpkin)
Total number of assets = 180,000 + 25,000 + 15,000 + 95,000 + 30,000 = $345,000.
Step two : Calculate or determine the total liabilities.
Total liabilities = retained earnings + bonds payable + Account payable (pumpkin) +
Total liabilities = 180,000 + 40,000 + 10,000 = $230,000.
Step three: determine the value for the total amount of goodwill.
Total amount of Goodwill = A - B
Where A = paid consideration + non controlling interest fair value.= $(210000 + 90000) = $300, 000.
B= acquired Assets - assumed liabilities. = $(345,000 - 230,000) = $115,000.
Total amounts of Goodwill = A - B = $185,000.
Step four: determine the consolidated sheet;
185,000 + 95,000 + 65,000 + 360,000 + 30,000 + 95,000 = $830,000.
What do economists call the period when prices are rising even through the
quantity of goods and services remains constant?
A. Stagnation
B. Contraction
C. Disinflation
D. Inflation
Answer:
D. Inflation
Explanation:
Inflation-a general increase in prices and fall in the purchasing value of money
The situation when prices are rising even through the quantity of goods and services remains constant, is known as inflation. Thus, the correct option is D). Inflation.
What does the term inflation mean?In economics, the term inflation generally refers to the general increase in the prices of goods and services in an economy. It is the rate of increase in prices over a given period of time.
When the general price level rise in an economy, then the particular and each unit of currency buys fewer goods and services that directly means the inflation corresponds to a reduction in the purchasing power of money.
Thus, it can be said the period when prices are rising even through the quantity of goods and services remains constant, the economists call that period inflation.
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Suppose the reserve requirement ratio is 20 percent. Assuming no bank holds excess reserves and nobody withdraws cash, a $10,000 injection of new reserves by the Fed can create (in the entire mult-banking system), a maximum of:
Answer:
The maximum money created is $50000
Explanation:
The given reserve requirement ratio is = 20 percent
The injection of cash = $10000
So, first, we have to find the money multiplier and then multiply with the injected amount.
Since the reserve requirement is 20 percent so the money multiplier = 1/ 20 = 0.5 or 5.
The Fed can create the maximum money = 10,000 x 5 = 50,000
A stock just paid an annual dividend of $0.40 per share. The firm expects to increase the dividend by 20 percent per year for the next four years and 3 percent per year thereafter. The discount rate is 11 percent. Which one of these is correct regarding the two-stage growth formula?
Answer:
12.78
Explanation:
Two stage dividend growth model enables us to identify dividend value by incorporating the effect of multiple growth rates. This model assumes that dividend will pass out through 2 stages of growth. In first stage the dividend grows at a constant rate to a specified time then dividend grows at a further rate.
= Do (1 + g) + D1 (1 +g) + D2 (1 +g) + D3 (1 +g) + D3 * (1 +g2) / (r - g2)
0.4 * 1.2 + 0.48 * 1.2 + 0.6 * 1.2 + 0.7 *1.2 + 0.83 * 1.03 / 11 - 3
= 12.78.
Toll booths on the New York State thruway are often congested because of the large number of cars waiting to pay. A consultant working for the state concluded that if service times are measured from the time a car stops in line until it leaves, service times are exponentially distributed with a mean of 2.7 minutes. What proportion of cars can get through the toll booth in less than 3 minutes?
Answer:
[tex]P(X < 3) = 67.14\%[/tex]
Therefore, 67.14% of the cars can get through the toll booth in less than 3 minutes.
Explanation:
A consultant working for the state concluded that if service times are measured from the time a car stops in line until it leaves, service times are exponentially distributed with a mean of 2.7 minutes.
Let X be a random variable. The service time has an exponential distribution with a mean of 2.7 minutes.
Mean = μ = 2.7 minutes
Decay rate = m = 1 /μ
Decay rate = m = 1/2.7
Decay rate = m = 0.371
The cumulative probability distribution function is given by
[tex]P(X < x) = 1 - e^{-mx}[/tex]
Where m is the decay rate and x < 3
So the proportion of cars that can get through the toll booth in less than 3 minutes is
[tex]P(X < 3) = 1 - e^{-0.371(3)}[/tex]
[tex]P(X < 3) = 1 - 0.3286[/tex]
[tex]P(X < 3) = 0.6714[/tex]
[tex]P(X < 3) = 67.14\%[/tex]
Therefore, 67.14% of the cars can get through the toll booth in less than 3 minutes.
Assume that you have a marginal tax rate of 28 percent, a state income tax rate of 4 percent, and have a city income tax rate of 1 percent. The tax for Social Security and Medicare is 7.65 percent. What would be the effective marginal tax rate on your last dollar of earnings
Answer: 40.65%
Explanation:
The Effective Marginal Tax rate is the amount of a person's additional dollar in income that is taken as taxes.
This means therefore, that all the taxes applicable to an additional dollar are added up to find the Effective Marginal Tax Rate.
= Marginal tax rate + State income tax rate + City income tax rate + Social Security and Medicare
= 28 + 4 + 1 + 7.65
= 40.65%
Sam owns 70 percent of the stock of Club Corporation. Unrelated individuals own the remaining 30 percent. For a stock redemption of Sam's stock to be treated as an exchange under the "substantially disproportionate" test, what percentage of Club stock must Sam own after the redemption
Answer: C.Any percentage less than 50 percent
Explanation:
In relation to the law on meeting the criteria to be treated as an exchange under the "substantially disproportionate" test as stipulated by U.S. Code § 302.Distributions in redemption of stock, Sam must own the lesser of 2 options of Club Corporation stock;
1. Less than 50% of the stock after the redemption
2. Less than 80% of Sam's previous ownership percentage
= 80% * 70%
= 56%
The lesser option is that of owning less than 50% so Sam must own less than 50% of stock after the redemption to meet the requirement to be treated as an exchange under the "substantially disproportionate" test.
g Pluto Company owns 80 percent of the common stock of Star Corporation. During the year, Pluto reported sales of $1,000,000, and Star reported sales of $500,000, including sales to Pluto of $80,000. The amount of sales that should be reported in the consolidated income statement for the year is:
Answer:
The answer is $1,420,000
Explanation:
Consolidated income statement is the combination of both Pluto and Star individual income statement.
Pluto sales for the year is $1,000,000
Star reported sales $500,000
Sales from star to Pluto $80,000
The amount of sales that will be reported in the consolidated income statement for the year is therefore,
$1,000,000 + $500,000 - $80,000
=$1,420,000
Which value rolls up the hierarchy to the manager for both customizable and collaborative forecasts?
A. Expected revenue
B. Product quantity
C. Opportunity amount
D. Quota amount
Answer:
A. Expected revenue
Explanation:
The expected revenue determines the production quantity. Thus, making the expected revenue the most important figure for making forecasts. This is why the production budget is not prepared until the sales forecast had been obtained. It is the sales forecast that will determine how much to produce or purchase. It also allies with that customer service mantra that "customer is king." Without sales, an organization cannot survive. Sales bring in the needed funds for improving financial performance and position. Even though, a company incurs costs first before making the sales, but in the order of hierarchy, sales determines everything, including every cost. All costs should be tied to sales.
An individual has $20,000 invested in a stock with a beta of 0.4 and another $65,000 invested in a stock with a beta of 1.8. If these are the only two investments in her portfolio, what is her portfolio's beta
Answer:
Beta= 1.478
Explanation:
Giving the following information:
An individual has $20,000 invested in a stock with a beta of 0.4 and another $65,000 invested in a stock with a beta of 1.8.
To calculate the portfolio beta, we need to use the following formula:
Beta= (proportion of investment A*beta A) + (proportion of investment B*beta B)
The proportion of investment:
A= 20,000/85,000= 0.23
B= 65,000/85,000= 0.77
Beta= (0.23*0.4) + (0.77*1.8)
Beta= 1.478
The Molding Department of Sheffield Company has the following production data: beginning work in process 25100 units (70% complete), started into production 475500 units, completed and transferred out 449400 units, and ending work in process 51200 units (30% complete). Assuming conversion costs are incurred uniformly during the process, the equivalent units for conversion costs are:
Answer:
Equivalent units= 464,760
Explanation:
Giving the following information:
beginning work in process 25100 units (70% complete)
completed and transferred out 449400 units
ending work in process 51200 units (30% complete).
To calculate the equivalent units for conversion costs, we need to use the following structure:
Beginning work in process = beginning inventory* %incompleted
Units started and completed = units completed - beginning WIP
Ending work in process completed= Ending WIP* %completed
=Number of equivalent units
Beginning work in process = 25,100*0.3= 7,530
Units started and completed = 449,400 - 7,530= 441,870
Ending work in process completed= 51,200*0.3= 15,360
= 464,760
Look at the tables below, which show, respectively, the willingness to pay and willingness to accept of buyers and sellers of bags of oranges. For the following questions, assume that the equilibrium price and quantity will depend on the indicated changes in supply and demand. Assume that the only market participants are those listed by name in the two tables.
Person Max Actual
bob 13 8
barly 12 8
bill 11 8
bart 10 8
brent 9 8
betty 8 8
Person Minimum Actual
carlos 3 8
courtney 4 8
chunk 5 8
cindy 6 8
craig 7 8
chad 8 8
Required:
a. Given that the equilibrium price is $8, what is the equilibrium quantity given the data displayed in the two tables?
b. What if, instead of bags of oranges, the data in the two tables dealt with a public good like fireworks displays? If all the buyers free ride, what will be the quantity supplied by private sellers?
c. Assume that we are back to talking about bags of oranges (a private good), but that the government has decided that tossed orange peels impose a negative externality on the public that must be rectified by imposing a $2-per-bag tax on sellers. What is the new equilibrium price?
Answer and Explanation:
a. The equilibrium quantity for the given two tables is
As if the equilibrium price is $8 so the six consumers i.e bob, barly,bill,bart, brent, betty) are paying more than the equilibrium price and on the other hand six producers (carlos, courtney, chunk, cindy, craig, chad) are accepted the price as the equilibrium price is more than the accepted price
Hence, the equilibrium quantity is 6
b. Now if all the buyers are free to ride so the quantity supplied by private sellers is 0 as the minimum accepted price is more than the willingness price as producers is not able to produced
c. At imposing $2 per bag tax on sellers, the new equilibrium price is $9 as the price rise to $9
Identify which of the following lists of accounts would belong on the statement of retained earnings.
A. Dividends and Account Payable
B. Retained earnings and Dividends
C. Retained earnings and Cash
D. Service Revenue and Wages Expense
Answer:
B. Retained earnings and Dividends
Explanation:
Retained earnings can be defined as the amount of a business’s profits or net income which isn't distributed to shareholders as dividends but are rather reserved so that it can be reinvested subsequently into the business.
Simply stated, retained earnings of an organization is the profit or net income remaining after paying the shareholders their dividends, which can then be reinvested into the business again. These earnings can be used for fixed or capital expenditures such as buying a new equipment, servicing debt profile, researching and development of the company's products.
A statement of retained earnings is a financial document which is usually prepared by an organization for use by the public such as investors, lenders and creditors. Hence, the statement of retained earnings are typically recorded under the shareholder's equity in order to represent the relationship between the balance sheet and income statement. Also, it is important and required that the statement of retained earnings is prepared in accordance with the Generally Accepted Accounting Principles (GAAP).
The following lists of accounts would belong on the statement of retained earnings;
1. Retained earnings: an amount of money left as profits or accumulated net income.
2. Dividends: an amount of money being paid to shareholders from an organization's net income or profit.
The correct option is : B Retained earnings and Dividends
What is retained earnings?Retained earnings refers to the amount of net income left over for the business after it has paid out dividends to its shareholders. ·
It also refers to the portion of a company's profit that is held or retained from net income at the end of a reporting period and saved for future use.
These earnings can be used for fixed or capital expenditures such as buying a new equipment, servicing debt profile, researching and development of the company's products.
Therefore, Retained earnings and Dividends will belong on the statement of retained earnings.
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Schwiesow Corporation has provided the following information:_________. Cost per Unit Cost per PeriodDirect materials $ 7.05 Direct labor $ 3.50 Variable manufacturing overhead $ 1.65 Fixed manufacturing overhead $ 11,000Sales commissions $ 1.00 Variable administrative expense $ 0.40 Fixed selling and administrative expense $ 5,500For financial reporting purposes, the total amount of product costs incurred to make 5,000 units is closest to:A. $72,000B. $61,000C. $11,000D. $77,000
Answer:
Total product cost= $72,000
Explanation:
Giving the following information:
Direct materials $7.05
Direct labor $3.50
Variable manufacturing overhead $1.65
Total unitary variable cost= $12.2
Fixed manufacturing overhead $11,000
The product costs are the sum of direct material, direct labor, and total manufacturing overhead:
Total product cost= 5,000*12.2 + 11,000
Total product cost= $72,000
When countries sell off state-owned enterprises and privatize them, it usually results in a(n) Multiple Choice increase in modernization by new investors. decline in productivity throughout the private sector. lack of accommodation of outside investors. continuing drain on future natural resources. instant change in political leadership.
Answer:
increase in modernization by new investors.
Explanation:
When countries sell off state-owned enterprises and privatize them, it usually results in an increase in modernization by new investors. This is because, new but private investors will want to earn quickly their Investment back, and in so doing, will pump adequate capital into the business, so as to attract customers and enhance iamge of the company.
Note also that:
1. Decline in productivity throughout the private sector can not be caused by sales of geovenrment assets to private investors.
2. Acquisition of government ownend assets can not leads to lack of accommodation of outside investors.
3. Sales of government assets can not continuing to drain on future natural resources. As this will even lead to money being spent somewhere else or wisely saved for future and cogent use.
4. Change in political leadership can not be caused by sales of government assets to probate imvestor(s).
The following data were reported by a corporation: Authorized shares 34,000 Issued shares 29,000 Treasury shares 10,500 The number of outstanding shares is:
Answer:
Number of outstanding shares is $18,500
Explanation:
Simply put, Number of outstanding shares is difference between number of shares issued and number of shares in treasury stock.
Hence, Outstanding shares = Shares issued - Treasury shares
= $29,000 - 10,500
= $18,500
The following data were reported by a corporation: Authorized shares 34,000 Issued shares 29,000 Treasury shares 10,500 The number of outstanding shares is Number of outstanding shares is $18,500. Simply put, Number of outstanding shares is difference between number of shares issued and number of shares in treasury stock Hence, Outstanding shares Shares issued - Treasury shares -$29,000-10,500 = $18,500.
Treasury shares are the shares that a corporation keeps in its own treasury. They could have come from a portion of the float and outstanding shares before being repurchased by the company, or they wouldn't have been possible issued to the public at all.
When a company buys back its own stock, the shares are designated as "treasury stock" and are decommissioned. Treasury stock isn't particularly valuable in and of itself. These stocks have no voting rights as well as do not pay dividends.
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The interest rate on loan would be an effective 5% per semiannual, compounded monthly. What is the APY(annual percentage yield)
Answer:
The APY is 10.43%.
Explanation:
The annual percentage yield (APY) can be described as the real rate of return that is earned on investment or a saving deposit considering the impact of compounding interest. It is different from a simple interest rate that does take into account the effect of compounding interest.
APY can be calculated using the following formula:
APY = [(1 + r)^n] - 1 ............................... (1)
Where, for this question;
r = monthly interest rate = 5% / 6 = 0.83%, or 0.0083
n = Number of compounding periods per year = 2 semiannual in a year * 6 months = 12
Substituting values into equation (1), we have:
APY = [(1 + 0.0083)^12] - 1
APY = 1.1043 - 1
APY = 0.1043, or 10.43%
Therefore, the APY is 10.43%.
The Polaris Company uses a job-Exercise 3-5 Journal Entries and T-accounts [LO3-1, LO3-2] The Polaris Company uses a job-order costing system. The following transactions occurred in October:order costing system. The following transactions occurred in October:
a. Raw materials purchased on account, $210,000.
b. Raw materials used in production, $189,000 ($151,200 direct materials and $37,800 indirect materials).
c. Accrued direct labor cost of $49,000 and indirect labor cost of $20,000.
d. Depreciation recorded on factory equipment, $106,000.
e. Other manufacturing overhead costs accrued during October, $130,000.
f. The company applies manufacturing overhead cost to production using a predetermined rate of $8 per machine-hour. A total of 76,400 machine-hours were used in October.
g. Jobs costing $511,000 according to their job cost sheets were completed during October and transferred to Finished Goods.
h. Jobs that had cost $452,000 to complete according to their job cost sheets were shipped to customers during the month. These jobs were sold on account at 34% above cost.
Required:
a. Prepare journal entries to record the transactions given above.
b. Prepare T-accounts for Manufacturing Overhead and Work in Process. Post the relevant transactions from above to each account. Compute the ending balance in each account, assuming that Work in Process has a beginning balance of $36,000.
Answer:
Required a
a.
Raw Materials $210,000 (debit)
Account Payable $210,000 (credit)
b.
Work In Process : Direct Materials $151,200 (debit)
Work In Process : Indirect Materials $37,800 (credit)
Raw Materials $189,000 (credit)
c.
Work In Process : Direct Labor $49,000 (debit)
Work In Process : Indirect Labor $20,000 (credit)
Salaries Payable $69,000 (credit)
d.
Work In Process : Depreciation $106,000 (debit)
Accumulated Depreciation $106,000(credit)
e.
Manufacturing Overheads $130,000 (debit)
Accounts Payable $130,000 (credit)
f.
Work In Process $611,200 (debit)
Manufacturing Overheads $611,200 (credit)
g.
Finished Goods Inventory $511,000 (debit)
Work In Process $511,000 (credit)
h.
Accounts Receivable $605,680 (debit)
Cost of Goods Sold $452,000 (debit)
Sales Revenue $605,680 (credit)
Finished Goods Inventory $452,000 (credit)
Required b.
Manufacturing Overhead T- Account
Debit :
Indirect Materials $37,800
Indirect Labor $20,000
Depreciation $106,000
Accounts Payable $130,000
Over-Applied $317,400
Totals $611,200
Credit :
Work In Process $611,200
Totals $611,200
Totals
Work in Process T- Account
Debit :
Opening Balance $36,000
Direct Materials $151,200
Direct Labor $49,000
Manufacturing Overheads $611,200
Totals $847,400
Credit :
Finished Goods Inventory $511,000
Closing Balance $336,400
Totals $847,400
Explanation:
Manufacturing Cost Accumulate in the Work In Process Account.
When Goods are completed the cost is De-recognized from Work In Process Account to Finished Goods Inventory Account.
It is from this Finished Goods Inventory Account that Cost of Sales for Goods Sold are determined.
A corporation has operating income of $75,000. What is its taxable income if it receives a $20,000 dividend from another corporation in which it has the following ownership?
a. 10% is:
b. 65% is:
c. 90% is:
Answer:
Taxable income is $ 85000, $82000, and $75000
Explanation:
Given operating income = $75000
The dividend received from other corporations = $20000
Dividend received is taxable as, if the percentage of ownership is less than 20 percent then the deduction is 50 percent. If between 20 percent to 80 percent then 65 percent deduction. If more than 80 percent then 100 percent deduction.
a.10 percent ownership.
Taxable income = 75000 + 20000(1 – 50%) = 85000
b.65 percent ownership.
Taxable income = 75000 + 20000(1 – 65%) = 82000
c.90 percent ownership.
Taxable income = 75000 + 20000(1 – 100%) = 75000
When the balance of an equity account, like Capital Stock, increases, it means that the account has been: Multiple Choice Deposited None of the choices are correct Credited Debited
Answer:
Credited
Explanation:
Equity Account increase on the credit side and decrease on the debit side.
So, when the account increased, we say it has been credited. This means further stock has been issued to new or existing owners.
Indicate whether the following actions would increase, decrease, or not affect Indigo Inc.'s total assets, liabilities, and stockholders' equity:
Question Assets Liabilities Stockholders Equity
1. Authorizing and issuing stock certificates in a stock split
2. Declaring a stock dividend
3. Issuing stock certificates for the stock dividend declared in (2)
4. Declaring a cash dividend
5. Paying the cash dividend declared in (4)
Answer:
Assets Liabilities Stockholder's Equity
1. Authorizing and issuing Not affect Not affect Not affect
stock certificates in a
stock split
2. Declaring a stock Not affect Not affect Not affect
dividend
3. Issuing stock certificates Not affect Not affect Not affect
for the stock dividend
declared in (2)
4. Declaring a cash dividend Not affect Increase Decrease
5. Paying the cash dividend Decrease Decrease Not affect
declared in (4)
ZNet co. is a web based retail company. The company reports the following for the past year. The company's CEO believes that sales for next year will increase by 10% and both profit margin and the level of average invested assets will be the same as for the past year
1. Compute return on investment for 20172. Compute profit margin for 20173. If the CEO's forecast is correct, what will return on investment equal for 2018?4. If the CEO's forecast is correct, what will investment turnover equal for 2018?
Answer:
1. 17%
2. 42.5%
3. $2,748,900
4. 44%
Explanation:
1. Return on Investment for 2017
= [tex]\frac{Operating Income}{Average Invested Assets}[/tex]
= [tex]\frac{2,499,000}{14,700,000}[/tex]
= 17%
2. Profit Margin 2017
= [tex]\frac{Operating Income}{Sales}[/tex]
= [tex]\frac{2,499,000}{5,880,000}[/tex]
= 42.50%
3. Should the sales increase by 10% in 2018 then the new sales figure will be;
= $5,880,000 + ($5,880,000 *10%)
= $6,468,000
Profit = Sales * Profit Margin
= 6,468,000 * 42.5%
= $2,748,900
Return on Investment for 2018
= [tex]\frac{Operating Income}{Average Invested Assets}[/tex]
= [tex]\frac{2,748,900}{14,700,000}[/tex]
= 18.7%
4. Investment turnover equal for 2018
= [tex]\frac{ Sales}{Average Invested Assets}[/tex]
= [tex]\frac{6,468,000}{14,700,000}[/tex]
= 44%
If P represents the price of goods and services measured in money, then 1/P is the value of money measured in terms of goods and services True False
Answer:
The answer is True
Explanation:
There is an inverse relationship between the price level and value of money (also known as purchasing power). An increase in the price level is the same as an decrease in the value of money.
As the price level decreases money is able to buy more goods and services and as the price level increases, money is able to buy less goods and services. inflation decrease the value of money or consumers' purchasing power.
A store has 5 years remaining on its lease in a mall. Rent is $1,900 per month, 60 payments remain, and the next payment is due in 1 month. The mall's owner plans to sell the property in a year and wants rent at that time to be high so that the property will appear more valuable. Therefore, the store has been offered a "great deal" (owner's words) on a new 5-year lease. The new lease calls for no rent for 9 months, then payments of $2,600 per month for the next 51 months. The lease cannot be broken, and the store's WACC is 12% (or 1% per month).
A. Should the new lease be accepted? (Hint: Be sure to use 1% per month.)
B. If the store owner decided to bargain with the mall's owner over the new lease payment, what new lease payment would make the store owner indifferent between the new and the old leases?
C. The store owner is not sure of the 12% WACC. It could be higher or lower. At what nominal WACC would the store owner be indifferent between the two leases?
Answer:
A. Should the new lease be accepted?
No, since the PV of the new deal is much higher than the PV of the current deal.
current deal's PV = $1,900 x annuity factor (1%, 60 periods) = $1,900 x 44.40459 = $84,368.72
new deal's PV:
$2,600 x annuity factor (1%, 51 periods) = $2,600 x 39.79814 = $104,475.16
$104,475.16 / 1.01⁹ = $95,525.80
B. If the store owner decided to bargain with the mall's owner over the new lease payment, what new lease payment would make the store owner indifferent between the new and the old leases?
To determine which lease value would make the store owner indifferent between the two options, we have to determine the future value of the first 9 payments that are not paid. Then that value should be equal to the present value of the increase in rent for the next 51 months:
step 1, calculate future value of 9 payments:
F V = payment x [(1 + r)ⁿ - 1] / r
payment = $1,900 r = 1% n = 9F V = $1,900 x [(1 + 0.01)⁹ - 1] / 0.01 = $17,800
step 2, calculate the present value of the increase in rent:
PV = payment / {1 - [1 / (1 + r)ⁿ] / r}
payment = $17,800r = 1% n = 51PV = $19,674 / ({1 - [1 / (1 + 0.01)⁵¹]} / 0.01) = $17,800 / 39.8 = $447.24
the new lease payment for which the store owner would be indifferent = $1,900 + $447.24 = $2,347.24
C. The store owner is not sure of the 12% WACC. It could be higher or lower. At what nominal WACC would the store owner be indifferent between the two leases?
in order to determine at what WACC would the store owner be indifferent between both alternatives, I used an excel spreadsheet to determine the IRR of the differential amount between both lease amounts:
periods 1 - 9 = -$1,900
periods 10 - 50 = $700
this results in a monthly IRR = 2.74%
WACC = 2.74% x 12 = 32.88%
Assume the total cost of a college education will be $395,000 when your child enters college in 18 years. You presently have $65,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child’s college education?
Answer:
8.87%
Explanation:
Calculation for the annual rate of interest you must earn on your investment to cover the cost of your child’s college education
Using this formula
FV = PV(1 + r)t
Based on the information we were told to calculate for annual rate of return, this means we would be Solving for r
r = (FV / PV)1 / t– 1
Where,
FV =$300,000
PV=$65,000
=1 / t =1/18 years
Let plug in the formula
r = ($300,000 / $65,000)1/18– 1
r=(4.6153846)^0.055555 -1
r=1.08867-1
r= 0.0887 *100
r=8.87%
Therefore the annual rate of interest you must earn on your investment to cover the cost of your child’s college education will be 8.87%
When advertising a test product, should test locations in particular markets be isolated from media with a far reach, such as television?
Answer:
Yes
Explanation:
In a test scenario such as this one, the test locations should be isolated from media with a far reach, such as television. This is mainly due to the fact that if media advertising reaches areas outside the market being tested, it will eventually attract customers from outside the test population which will in term contaminate the data. This can lead to false results, such as a product selling more than it really will.
It is based on perceived characteristics such as style, fashion or peer acceptance.
Answer:
Consumer buying behavior
Explanation:
Due to various factors that affect consumer's purchase decision, crucial among them is emotional factors.Thus, many consumer marketing put more efforts in creating a stimulating discretionary buying behavior through catchy and enticing advertisement to create and increase demand.
Hence, considering that often times consumer goods are discretionary products people may want but don’t necessarily need, such as entertainment services and vacation travel, it can be concluded that CONSUMER BUYING BEHAVIOR is based on perceived characteristics such as style, fashion or peer acceptance.