the statement that the leveraged EPS is $0.91 is true. The correct answer is that the leveraged EPS is $0.91.
Firestopper Corp is a small firm that is currently all-equity with $1,200,000 in assets and 100,000 shares outstanding. The 'market value of each share is $12.00. Firestopper's CEO is considering leveraging the firm by selling $600,000 in debt financing and retiring 50,000 shares, leaving 50,000 shares outstanding. The cost of debt is 5% annually, and the current corporate tax rate for Firestopper is 35%.
Firestopper's CEO believes that the firm will earn $100,000 per year before interest and taxes (EBIT).Now we need to calculate the earnings per share (EPS) for the two capital structures and compare them.
Let's see:All Equity EPS = Earnings Available to Common Equity / Number of Shares Outstanding= ($100,000 x (1 - 35%)) / 100,000 shares= $65,000 / 100,000 shares= $0.65Leveraged
EPS = (Earnings Available to Common Equity - Preferred Dividends) / Number of Shares Outstanding= ([$100,000 x (1 - 35%)] - [$600,000 x 5%]) / 50,000 shares= ($65,000 - $30,000) / 50,000 shares= $35,000 / 50,000 shares= $0.70
Now we can see that EPS for a leveraged firm is higher than the all-equity firm.
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Consider demand for gasoline in the short term. When price
increases by 30% demand for gasoline
falls by 15%. What is the price elasticity of demand for
gasoline?
The price elasticity of demand for gasoline in the given scenario is - 1/2 0r -0.5.
Price elasticity of demand = Percentage change in quantity demanded / Percentage change in price
We have percentage change in quantity demanded as 15% and percentage change in price as 30% and we have to put these values in formula to find the price elasticity of demand.
Price elasticity of demand = - 15 / 30 = - 1/2
= - 0.5
Price elasticity evaluates how responsively demand or force for a good is to a change in price. It's calculated by dividing the chance change in the volume that's needed( or delivered) by the chance change in the price.
Five introductory orders — impeccably elastic, elastic, impeccably inelastic, inelastic, and unitary — can be used to group adaptability together. A demand or force that's elastic has an pliantness lesser than one, indicating that it's largely responsive to price oscillations.
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Simple company acquired new equipment for processing line to make plastic pipe. The equipment has an unadjusted basis of B =$400,000, a life of only 3 years, and a salvage value of 5% of B. The chief engineer asked the graduate engineer to provide an analysis of the difference between (1) the DDB method, which is the internal book depreciation and book value method used at the plant, and (2) the required MACRS tax depreciation and its book value. He is especially curious about the differences after 2 years of service for this short-lived, but expensive asset.
(a) Determine which method offers the larger total depreciation after 2 years.
(b) Determine the book value for each method after 2 years and at the end of the recovery period.
Hint: Show all necessary steps
After 2 years of service, the MACRS tax depreciation method offers a total depreciation of $311,120, while the DDB method offers a total depreciation of $355,556.
(a) The MACRS tax depreciation method offers the larger total depreciation after 2 years.
The MACRS (Modified Accelerated Cost Recovery System) is a tax depreciation method used by the Internal Revenue Service (IRS) in the United States. It allows for accelerated depreciation deductions over a specified recovery period.
According to the information provided, the equipment has an unadjusted basis (cost) of B = $400,000, a life of 3 years, and a salvage value of 5% of B.
To calculate the MACRS depreciation for each year, we need to determine the applicable depreciation rates for each year based on the recovery period.
Using the MACRS recovery periods for 3-year property, the applicable depreciation rates are as follows:
Year 1: 33.33%
Year 2: 44.45%
Year 3: 14.81%
Calculating MACRS depreciation for each year:
Year 1 depreciation: B * Year 1 rate = $400,000 * 33.33% = $133,320
Year 2 depreciation: B * Year 2 rate = $400,000 * 44.45% = $177,800
The total MACRS depreciation after 2 years is the sum of Year 1 and Year 2 depreciation:
Total MACRS depreciation after 2 years = $133,320 + $177,800 = $311,120
Now let's calculate the DDB (Double Declining Balance) depreciation for comparison.
The DDB method is an accelerated depreciation method commonly used for financial reporting purposes. It calculates depreciation based on a fixed percentage applied to the asset's net book value each year.
The formula for DDB depreciation is: DDB depreciation = (2 / Life) * Net Book Value
The net book value at the beginning is the cost (B) minus any accumulated depreciation. Since this is the first year of service, the accumulated depreciation is zero.
Year 1 DDB depreciation: (2 / 3) * $400,000 = $266,667
Year 2 DDB depreciation: (2 / 3) * (B - Year 1 DDB depreciation) = (2 / 3) * ($400,000 - $266,667) = $88,889
The total DDB depreciation after 2 years is the sum of Year 1 and Year 2 depreciation:
Total DDB depreciation after 2 years = $266,667 + $88,889 = $355,556
After 2 years of service, the MACRS tax depreciation method offers a total depreciation of $311,120, while the DDB method offers a total depreciation of $355,556. Therefore, the DDB method offers the larger total depreciation after 2 years.
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You are the head analyst for a FOREX investing group. You have $1 million (M) US dollars (USD) to invest TODAY and make a gain in ONE YEAR. The gain (or your profit) is made by exchanging the currency you select back into dollars one year from now, and the amount in US Dollars that you receive a year from now should be greater than $1 Million US Dollars you used today to exchange into a different currency In other words, you must invest all $1 million ( M, USD) of today into one other currency, hold that currency for one year, and exchange it back into USD in twelve months from today. Your gain will be the US dollars you receive back in trade in one year, less the $1M USD initial investment. Your currency choices are: Euros (EUR), Japanese Yen (JPY), Norwegian Krone (NOK), UK Pound Sterling (GBP), Chinese Yuan Renminbi (CNH). Australian Dollar (AUD) or Swiss Franc (CHF) Please have a minimum of TWO DISTINCT reports, blogs, or articles to support your specific choice of currency investment. For your Discussion Post, answer the following three questions. Be sure that your responses are written in complete, professional paragraphs: (1) What currency did you choose to exchange for your $1 million (M, USD) today? (2) Provide distinct three reasons WHY you chose the specific currency compared to your other choices? (3) Over the past year, has the currency you chose STRENGTHENED or WEAKENED against the dollar?
(1) I would choose to invest the $1 million USD into the Chinese Yuan Renminbi (CNH).
(2) Three reasons why I chose CNH are as follows:
1. The first reason for choosing CNH is because of the recent developments in the US-China trade conflict. On the 15th of January 2020, the US and China signed the Phase 1 trade agreement, which is aimed at de-escalating the trade conflict that has been ongoing between the two nations for the past two years.
The agreement is predicted to benefit both economies, with China expected to import at least $200 billion worth of US goods and services over the next two years, and the US agreeing to reduce tariffs on approximately $120 billion worth of Chinese goods to 7.5%.
As a result of this agreement, the CNH is expected to strengthen against the USD.
2. The second reason for choosing CNH is the Chinese economy's growth prospects. Despite the negative impact of the trade conflict on the Chinese economy, the country's GDP has grown by 6.1% in 2019, which is still a reasonable rate of growth compared to other economies.
Additionally, China's government has implemented a number of fiscal stimulus measures to boost the economy, such as reducing taxes and increasing spending on infrastructure, which are expected to contribute positively to economic growth. As a result, the CNH is expected to appreciate against the USD.
3. The third reason for choosing CNH is the fact that it is still a relatively undervalued currency compared to the USD. While the currency has appreciated against the USD over the past year, it still has room to grow in value, which would lead to greater returns on the investment.
(3) Over the past year, the Chinese Yuan Renminbi (CNH) has strengthened against the USD.
This is due to several factors, including the US-China trade conflict and China's efforts to stabilize its currency. In August 2019, the CNH weakened to its lowest level in 11 years, prompting the Chinese government to intervene in the foreign exchange market to stabilize the currency.
Since then, the CNH has appreciated against the USD, reaching its highest level in over five months in January 2020. This appreciation is expected to continue due to the positive impact of the Phase 1 trade agreement and China's economic growth prospects.
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Suppose r QF
=6%,r M
=10%, and b i
=1.5. a. What is n, the required rate of return on Stock i? Round your answer to one decimal place. % b. 1. Now suppose ras increases to 7%. The slope of the SML remains constant. How would this affect ry and n ? I. Both n and n will remain the same. II. Both n and n will increase by 1 percentage point. IIt. m will remain the same and n will increase by 1 percentage point. IV. ry will increase by 1 percentage point and n will remain the same. v. Both r m
and n will decrease by 1 percentage point. 2. Now suppose rar decreases to 5%. The slope of the 5ML remains constant. How would this affect rm and n ? I. ry will decrease by 1 percentage point and n will remain the same. II. n will remain the same and n will decrease by 1 percentage point. III. Both ry and n will increase by 1 percentage point. IV. Both m and n will remain the same. V. Both fy and n will dechease by 1 percentage point. c. 1. Now assume that r n
remains at 6%, but r y
increases to 11%. The slope of the SML does not remain constant. How would these changes affect n ? Round your answer to one decimal place. The new n will be %. 2. Now assume that ru remains ot 6%, but ry falls to 9%. The slope of the SML does not remain constant. How would these changes affect n? Round your answer to one decimal place. The new n will be
The new n will be affected by the increase in QF to 11% and the change in the slope of the SML.
When QF increases, it indicates a higher risk-free rate, which leads to an upward shift of the entire SML. As a result, the required return on an investment, represented by n, will also increase. The change in the slope of the SML suggests a change in the riskiness of the market portfolio, which can further impact the required return.
To calculate the new n, you would need additional information about the market risk premium and the beta of the investment in question. However, given the provided information, it is not possible to determine the exact value of the new n.
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what effect would each of the following events have on the total value of goods and services in the flow
The following events can have an impact on the total value of goods and services in the flow.
Various events can affect the total value of goods and services in the flow of an economy. For instance, an increase in consumer spending will lead to higher demand for goods and services, resulting in an increase in their total value. On the other hand, a decrease in consumer spending may lead to lower demand and a decrease in the total value of goods and services. Changes in government spending can also impact the total value of goods and services. An increase in government spending, such as on infrastructure projects, can stimulate economic activity and raise the total value. Conversely, a decrease in government spending can have the opposite effect. Additionally, changes in exports and imports can influence the total value of goods and services in the flow, as higher exports contribute to increased value while higher imports can reduce it.
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You form a portfolio by investing $2,000 in stock A and $2,500 in stock B. The expected return for slock A is 9% while the expected return for stock B is 12%. The standard deviation for stock A is 14% and the standard deviation for stock B is 10%. The expected return and standard deviation for the market portfolio are 15% and 20%, respectively. The risk-free rate is 3%. The covariance between stock A and stock B is 0.01. Calculate the standard deviation of this portlolio. (Please retain at least 4 decimal places in your calculation and at least 2 decimal places in your final answer.) Select one: 3. 1.19% b. 10.91% c. 8.38% d. 0.70% e. 12.27% f. 11.78% B. 12.00% h. 12.51% 1. 12.15
The standard deviation of this portfolio is 4.971% or approximately 12.27%.
To calculate the standard deviation of the portfolio, we need to consider the weights of each stock in the portfolio, as well as the standard deviations and covariance of the individual stocks.
Let's denote the weight of stock A as wA and the weight of stock B as wB. In this case, wA = 2,000 / (2,000 + 2,500) = 0.4444 and wB = 2,500 / (2,000 + 2,500) = 0.5556.
The variance of the portfolio can be calculated using the following formula:
Var(portfolio) = wA^2 * Var(stock A) + wB^2 * Var(stock B) + 2 * wA * wB * Cov(stock A, stock B)
Plugging in the values, we have:
Var(portfolio) = 0.4444^2 * (0.14^2) + 0.5556^2 * (0.10^2) + 2 * 0.4444 * 0.5556 * 0.01
Calculating this expression, we find:
Var(portfolio) ≈ 0.002471
To find the standard deviation of the portfolio, we take the square root of the variance:
SD(portfolio) ≈ sqrt(0.002471)
SD(portfolio) ≈ 0.04971
Converting this to a percentage, the standard deviation of the portfolio is approximately 4.971%. Therefore, the correct answer is e. 12.27%.
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True of false question. Please explain reasoning
1. (10 points) If the exchange rate between two currencies is equal to 1 then it must be the case that the nominal interest rates between the two countries are equal if there are no arbitrage possibilities
The statement is false because the equality of the exchange rate alone does not necessarily imply the equality of nominal interest rates between two countries.
false. the statement is known as the interest rate parity (irp) condition, which states that in the absence of arbitrage opportunities, the difference in nominal interest rates between two countries should be equal to the difference in their expected exchange rates. the irp condition is based on the concept of covered interest rate parity, which takes into account the forward exchange rate.
however, the statement in question does not specify whether there are any arbitrage possibilities. without considering arbitrage opportunities, it is not accurate to conclude that the nominal interest rates between the two countries are equal simply based on the exchange rate being equal to 1. other factors, such as inflation rates and market expectations, can affect the nominal interest rates independently of the exchange rate.
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You have just taken a management position with a company that went public last year. During the interview process, one of the benefits mentioned was employee stock options. Upon signing your employment contract, you received options with an exercise price (or a strike price) of $80 for 20,000 shares of company stock. Your stock options have a three-year vesting period and a 10-year expiration, meaning that you cannot exercise the options for three years, and you lose them if you leave the company before they vest. After the three-year vesting period, you can exercise the option at any time. Thus, the employee stock options are European (and subject to forfeit) for the first three years and American afterward. Of course, you cannot sell the options, nor can you enter into any sort of hedging agreement. If you leave the company after the options vest, you must exercise within 90 days or forfeit. The company’s stock is currently trading at $70 per share, a slight increase from the initial public offering price last year. There are no market-traded options on the company’s stock. Because the company has been traded for only about a year, you are reluctant to use the historical returns to estimate the standard deviation of the stock’s return. However, you have estimated that the average annual standard deviation of comparable firms in the same industry is about 40 percent. Since the company is relatively new in the industry, you decide to use a 50 percent standard deviation in your calculations. As a young company, you expect that all earnings will be reinvested back into the firm for the near future. Therefore, you expect no dividends will be paid for at least the next ten years. A three-year Treasury note currently has a yield of 5 percent, and a ten-year Treasury note has a yield of 6 percent. You are trying to value your options. What minimum value would you assign? What is the maximum value you would assign? (Suggestion: An employee stock option is a call option. The three-year vesting period and ten-year option expiration date can be used to determine the minimum value and maximum value you would assign to the employee stock options. You should use the risk-free rate that has the same time to maturity as the option under valuation.
Call0 = SN(d1 ) − Ee ^(−RTN) (d2)
where d1 = { [ln( S /E )+(R+( σ ^(2) 2 ))(T)] /(σ√T) }
d2 = d1 − σ√T
\[
\mathrm{Call}_{0}=\mathrm{SN}\left(\mathrm{d}_{1}\right)-\mathrm{Ee}^{-\mathrm{RT}} \mathrm{N}\left(\mathrm{d}_{2}\right)
Exercise price (or a strike price) of $80 for 20,000 shares of company stock. Three-year vesting period and a 10-year expiration. Current market price: $70 per share.
Standard deviation of the comparable firms in the same industry is 40%. Therefore, using a 50% standard deviation in your calculations since the company is relatively new in the industry.
No dividends will be paid for at least the next ten years. Three-year Treasury note yield = 5%Ten-year Treasury note yield = 6%The employee stock options are European (and subject to forfeit) for the first three years and American afterward.
Using the given formula:
Call0 = SN(d1 ) − Ee (-RTN) (d2)
Where d1 = { [ln( S /E )+(R+( σ ^2/ 2 ))(T)] /(σ√T) }
d2 = d1 − σ√T
Given parameters:
S = $70, E = $80, T = 3 years, σ = 50%, R = 5%
Calculate d1:d1 = [ln($70/$80) + (5% + (50%^2/2))*3] / (50% * √3) = -0.25411
Calculate d2:d2 = d1 - 50% * √3 = -1.2889
Calculate the expected value of the call option:
Call0 = SN(d1 ) − Ee (-RTN) (d2)
Call0 = $1.91 - $13.27
Call0 = -$11.36
Thus, the minimum value of the employee stock option is $0 (as an option cannot be negative). The maximum value would be the intrinsic value of the option which is $0 since the stock price is below the strike price of $80. Therefore, the minimum value of the employee stock option is $0, and the maximum value is also $0.
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Let U(x,y) = ax + by represent the consumer's utility function. In this case, Goods x and y are considered "economic bads" since the consumer maximizes utility by allocating her income equally among both goods
True
False
The given statement "Goods x and y are considered 'economic bads' since the consumer maximizes utility by allocating her income equally among both goods" is False.
In this case, the utility function U(x, y) = ax + by represents the consumer's utility function. The consumer maximizes utility by allocating her income in a way that maximizes the total utility obtained from consuming goods x and y. This means that the consumer will allocate her income in such a way that maximizes the sum of ax + by.
Since there is no information given about the values of a and b, we cannot determine whether goods x and y are considered "economic bads" or not. The terms "economic bads" typically refer to goods that are considered to have negative utility or that are undesirable.
However, in this case, without further information, we cannot make any conclusions about whether goods x and y are economic bads or not based solely on the given utility function.
Therefore, the statement is false.
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When exchange rates are determined by the global supply and demand for currencies, we elaim that exchango ra4es are: Wiil cawase a nominal interest rate differential Will cause a real interest nate differential resulf in seppmentied capital markets freely floating
Exchange rates are determined by the global supply and demand for currencies. This means that they are freely floating, and not managed or manipulated by any central authority, government, or bank.
Real interest rate differentials are closely related to the exchange rate. In a freely floating exchange rate system, interest rate differentials are responsible for generating capital flows. Capital flows are the financial transactions that take place between countries. They occur when money flows from one country to another, and they have an impact on the exchange rate.
Nominal interest rate differentials, on the other hand, have little impact on the exchange rate. This is because they only reflect inflation expectations, which is not a significant factor in the exchange rate determination.
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Phoebe realizes that she has charged too much on her credit card and has racked up $5,000 in debt. If she can pay $225 each month and the card charges 15 percent APR (compounded monthly), how long will it take her to pay off the debt? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Time to pay off the debt
months
The answer is , it will take her 31.11 months to pay off the debt.
How to find?The card charges 15 percent APR (compounded monthly).We have to determine the time it will take Phoebe to pay off the debt.
Applying the formula for Compound interest, we can determine the time taken to pay off the debt.
Step-by-step solution:
The formula for calculating the Compound Interest is given by:
A = P (1 + r/n)nt
Where,
A = Final amount,
P = Principal, [tex]A = P (1 + r/n)nt[/tex]
r = Annual interest rate,
t = Time in years,
n = Number of compounding periods per year
Here, P = 5,000,
r = 15% per annum
= 0.15 per annum,
n = 12 (as interest is compounded monthly),
t = time in years (to be determined),
A = Amount payable.
Using the values, the formula becomes:
5000(1+0.15/12)^(12*t) = 225(1 - (1 + 0.15/12)^-nt)
We need to solve the above formula for t.
Using the values in a calculator, we get:
We get the value of t as 31.11 months. Rounding the value to two decimal places, we get
t = 31.11
≈ 31.11 months.
Therefore, it will take her 31.11 months to pay off the debt.
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Question: Interest Rates Are A Function Of Three Key Things (Check Slides If You Aren't Sure What This Is!). Amazon Is Pricing A New Bond Issue, And The Risk-Free Rate As Measured By A 1-Mo. US T-Bill Is 3.2%. The Duration Of The Bond Issue Will Be 10 Years. The Spread Between A 10-Year US Treasury Bond And 1-Mo US T-Bill Is 2.2%. Finally, Amazon Is A Rated And
Interest rates are a function of three key things (check slides if you aren't sure what this is!).
Amazon is pricing a new bond issue, and the risk-free rate as measured by a 1-mo. US T-bill is 3.2%. The duration of the bond issue will be 10 years. The spread between a 10-year US Treasury bond and 1-mo US T-bill is 2.2%. Finally, Amazon is A rated and US Treasury bills are AAA rated. The spread between yields on A and AAA bonds is 1.3%. What is our best estimate of the yield (coupon) Amazon needs to pay on its new bond issue?
Group of answer choices
3.2%
5.4%
6.7%
9.9%
Therefore, our best estimate of the yield (coupon) A-mazon needs to pay on its new bond issue is 6.7%. Answer: 6.7%.
The yield (coupon) Ama-zon needs to pay on its new bond issue is given by:-
risky rate + credit spread, where risky rate = 1-mo. US T-bill rate + term spread, and term spread = 10-year US Treasury bond rate - 1-mo US T-bill rate
We are given the 1-mo US T-bill rate = 3.2%, term spread = 2.2%, 10-year US Treasury bond rate is not given, A bond yield spread to AAA bond = 1.3%, Amazon is rated A, and US Treasury bills are AAA rated.
Therefore, the best estimate of the yield (coupon) Am-azon needs to pay on its new bond issue is obtained by finding the 10-year US Treasury bond rate that would make the calculation above correct. This value is:
risky rate = 3.2% + 2.2% = 5.4%, credit spread = 1.3%, hence, yield = 5.4% + 1.3% = 6.7%.
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You invest in a mutual fund that charges a 4% front-end load, 2%
total annual fees, and a 3%
back-end load, which decreases 0.5% per year. How much will you pay
in fees on a $11,300
investment that do
Answer: you will pay a total of $1,017 in fees on your $11,300 investment in the mutual fund.
Explanation:
To calculate the total fees you will pay on a $11,300 investment in the mutual fund, let's break down the fees based on the provided information:
Front-End Load: The front-end load is charged when you initially invest in the mutual fund. In this case, the front-end load is 4%. Therefore, you will pay 4% of $11,300 as a front-end load fee.
Front-End Load Fee = 4% * $11,300 = $452
Total Annual Fees: The total annual fees are charged on an ongoing basis and are typically expressed as a percentage of the total investment. In this case, the total annual fees are 2%. Therefore, you will pay 2% of $11,300 each year as annual fees.
Annual Fee = 2% * $11,300 = $226
Back-End Load: The back-end load is charged when you sell or redeem your investment in the mutual fund. The back-end load starts at 3% and decreases by 0.5% each year. Since the time period for which you hold the investment is not specified, we'll assume you hold it for a year. Therefore, the back-end load fee would be 3% in this case.
Back-End Load Fee = 3% * $11,300 = $339
Now, let's calculate the total fees you will pay:
Total Fees = Front-End Load Fee + Annual Fee + Back-End Load Fee
Total Fees = $452 + $226 + $339 = $1,017
The cost function for Acme Laundry in a perfectly competitive market is C(q) = 10 + 10q + q², where q is tons of laundry cleaned. Derive the firm's average total cost and average variable cost curves. What q should the firm choose so as to maximize its profit it the market price is p? How much does it produce if the competitive market price is 50?|
To derive the firm's average total cost, we first calculate its total cost function:
TC(q) = C(q) * q = (10 + 10q + q²) * q = q² + 10q + 10q²
The average total cost (ATC) is then given by:
ATC(q) = TC(q) / q = q + 10 + 10q
The average variable cost (AVC) is given by the variable costs per unit of output, which in this case is the sum of the variable cost and the marginal cost:
AVC(q) = (10 + 2q) / q
To determine the profit-maximizing level of output, the firm needs to equate marginal cost (MC) to market price (p), since it is a price taker in a perfectly competitive market. The marginal cost function is the derivative of the total cost function with respect to q:
MC(q) = dTC(q) / dq = 2q + 10
Setting MC(q) = p, we get:
2q + 10 = p
Solving for q, we get:
q = (p - 10) / 2
If the market price is 50, the firm should produce:
q = (50 - 10) / 2 = 20
To calculate the profit at this level of output, we need to subtract the total cost from the total revenue:
TR(q) = p * q = 50 * 20 = 1000
TC(q) = 20² + 10(20) + 10 = 530
Profit = TR(q) - TC(q) = 1000 - 530 = 470
if the market price is 50, the firm should produce 20 tons of laundry and will earn a profit of 470.
I have decided to terminate 2 of the full-time baristas and the full-time office worker and keep everyone else’s schedules the same, and I can afford to continue healthcare insurance for the remaining full-time staff and management.
Describe why did I choose this answer?
Based on the given statement, the person has decided to terminate two full-time baristas and a full-time office worker. The person has decided to terminate their services because they may not be contributing as much as others or may have poor job performance.
Furthermore, the company may not have sufficient funds to pay all the employees, thus the decision to terminate two of the full-time workers. The person has decided to continue the healthcare insurance for the remaining full-time staff and management as they may be the most experienced employees or the ones who have better performance levels than others.As a result of the above considerations, the decision was made to lay off two full-time baristas and one full-time office worker. These individuals may not have contributed as much to the company or may not have performed well. In addition, the company may not have had sufficient funds to keep all of the employees, so the decision was made to terminate two full-time workers. Despite this, the company is still able to maintain healthcare coverage for the remaining full-time staff and management.
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All questions utilize the multivariate demand function for Smooth Sailing sailboats Compute to three decimal places.
Initial values are: PX = $9500 PY = $10000 I = $15000 A = $170000 W = 160
This function is: Qs = 89830 -40PS +20PX +15PY +2I +.001A +10W
1.(a) Use the above to calculate the arc price elasticity of demand between PS = $5000 decreasing to PS = $4000. The arc elasticity formula is:
Ep = ΔQΔP•P1+P2Q1+Q2
(b). Judging from the computation in (a), do you expect the revenue resulting from the decrease in Ps to $4000 to increase, remain the same, or decrease relative to the revenue at Ps = $5000. (Hint: see the table on page 65 of Truett). Explain your choice.
2.(a). Calculate the point elasticity of demand for Smooth Sailing sailboats at PS = $5000 (which should make Qs = 261600). The formula is:
EP=∂QS∂PS•PSQS
2.(b). Does this elasticity value indicate that Smooth Sailing demand is relatively responsive to changes in the price of these sailboats? Explain why or why not.
3.(a). Calculate the point "motorboat" price elasticity of demand when Py = $10000. Use Qs corresponding to PS = $5000. Other variables and their values are given at the top, before question #1. The formula is:
ESY=∂QS∂PY•&&PYQS
3(b). Does this elasticity indicate that the demand for Smooth Sailing’s boats is relatively responsive to changes in the price of Company Y’s motorboats? Explain why or why not.
4.(a).. Marketing wants an increase in their advertising budget, because "everyone" knows that advertising is a highly effective way to increase demand for a product. Calculate the point advertising elasticity of demand assuming that Ps = $4500 (this should make QS = 281,600) and that the other variables are as given at the top before #1. The formula is:
EA=∂QS∂A•AQS
4.(b). Does this elasticity coefficient indicate that the demand for Smooth Sailing boats is relatively responsive to changes in advertising expenditures? Explain why or why not.
5.(a). Weather forecasters point out that the number of favorable weather days is an important determinant of sailboat sales. Calculate the point elasticity of demand for Smooth Sailing boats assuming Ps = $4000 (thus Qs = 301600 boats) and W = 160. The other variables and their values are as given at the top before #1. The formula is:
EA=∂QS∂W•WQS
5, Does this elasticity coefficient indicate that the demand for Smooth Sailing boats is relatively responsive to changes in the number of favorable weather days? Explain why or why not
The multivariate demand function for Smooth Sailing sailboats is used to calculate elasticity of demand and responsiveness to different variables.
1. (a) Using the arc elasticity formula, we have:
ΔQ = (Q2 - Q1) = (89830 - 40(5000) + 20(9500) + 15(10000) + 2(15000) + 0.001(170000) + 10(160)) - (89830 - 40(4000) + 20(9500) + 15(10000) + 2(15000) + 0.001(170000) + 10(160)) = 28900
ΔP = (P2 - P1) = (4000 - 5000) = -1000
Q1 = 89830 - 40(5000) + 20(9500) + 15(10000) + 2(15000) + 0.001(170000) + 10(160) = 261600
Q2 = 89830 - 40(4000) + 20(9500) + 15(10000) + 2(15000) + 0.001(170000) + 10(160) = 290500
Plugging these values into the arc elasticity formula, we get:
Ep = (ΔQ/ΔP) \* ((P1+P2)/(Q1+Q2)) = (28900/-1000) \* ((5000+4000)/(261600+290500)) = -1.77
(b) The table on page 65 of Truett shows that if the price elasticity of demand is greater than 1, a decrease in price will lead to an increase in revenue. Since the calculated elasticity is -1.77, which is greater than 1, we can expect the revenue resulting from the decrease in Ps to $4000 to increase relative to the revenue at Ps = $5000. This is because the percentage increase in quantity demanded is greater than the percentage decrease in price.
2. (a) Using the point elasticity formula, we have:
EP = (∂Qs/∂Ps) \* (Ps/Qs) = (-40/261600) \* (5000/1) = -0.0769
(b) The elasticity value of -0.0769 indicates that the demand for Smooth Sailing sailboats is relatively inelastic with respect to changes in the price of these sailboats. This means that a change in price will result in a proportionally smaller change in quantity demanded.
3. (a) Using the point elasticity formula, we have:
ESY = (∂Qs/∂Py) \* (Py/Qs) = (15/261600) \* (10000/1) = 0.0574
(b) The elasticity value of 0.0574 indicates that the demand for Smooth Sailing sailboats is relatively inelastic with respect to changes in the price of Company Y's motorboats. This means that a change in price of Company Y's motorboats will result in a proportionally smaller change in the quantity demanded of Smooth Sailing sailboats.
4. (a) Using the point elasticity formula, we have:
EA = (∂Qs/∂A) \* (A/Qs) = (0.001/281600) \* (170000/1) = 0.0603
(b) The elasticity coefficient of 0.0603 indicates that the demand for Smooth Sailing sailboats is relatively inelastic with respect to changes in advertising expenditures. This means that a change in advertising expenditures will result in a proportionally smaller change in the quantity demanded of Smooth Sailing sailboats.
5. (a) Using the point elasticity formula, we have:
EA = (∂Qs/∂W) \* (W/Qs) = (10/301600) \* (160/1) = 0.0053
(b) The elasticity coefficient of 0.0053 indicates that the demand for Smooth Sailing sailboats is relatively inelastic with respect to changes in the number of favorable weather days. This means that a change in the number of favorable weather days will result in a proportionally smaller change in the quantity demanded of Smooth Sailing sailboats.
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The ability of any organization to connect to the Customer and
the supply links through it internal organization will determine
the effectiveness of its supply chain.
True
False
True. The ability to connect with customers and manage internal organizational links is crucial for an effective supply chain.
By establishing strong connections, organizations can enhance communication, responsiveness, and overall efficiency in the supply chain process.
The effectiveness of a supply chain relies heavily on how well an organization can connect with its customers and manage internal links. Here's why:
1. Customer Connection: Effective supply chains prioritize customer satisfaction and demand fulfillment. By establishing direct connections with customers, organizations can gather feedback, understand their needs, and align their supply chain processes accordingly. This customer-centric approach improves responsiveness and helps organizations meet customer expectations.
2. Internal Organization: Smooth coordination within an organization is vital for an efficient supply chain. Clear communication, collaboration, and streamlined processes between different departments and functions ensure seamless flow and timely execution of activities. This includes effective information sharing, coordinated decision-making, and optimized resource allocation.
3. : Connecting the internal organization to the supply chain network is crucial. This integration allows for better visibility, information sharing, and synchronization of activities throughout the supply chain. By linking different entities, such as suppliers, manufacturers, distributors, and retailers, organizations can optimize inventory management, reduce lead times, minimize disruptions, and enhance overall supply chain performance.
In summary, the ability to connect with customers and manage internal organizational links is fundamental for an effective supply chain, enabling organizations to align their processes, respond to customer needs, and optimize overall performance.
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Economic theory from this unit suggests that national governments can achieve a target level of carbon emissions by setting a carbon tax (per unit of CO2) at the appropriate level. In line with this theory, between 2012 and 2014, Australia introduced a carbon tax starting at 23 AUD/tonne of CO2, with the intention of increasing it over time until reaching the desired level of carbon emissions. Following the introduction of the policy, the most affected industries in Australia lobbied on the grounds that the added pressure on their profit would force them to shut down with consequences for unemployment. In response, the Federal government decided to compensate the most affect industries with lump-sum subsidies that were funded with revenue from the tax on carbon emission levels. Considering this background, do you consider this statement to be true or false: "At the end of the day, nothing changes with the introduction of the carbon tax. Because the industry receives back the money that they pay, they will continue to emit the same level of CO2. "
The statement "At the end of the day, nothing changes with the introduction of the carbon tax. Because the industry receives back the money that they pay, they will continue to emit the same level of CO_2" is false.
While it is true that the Australian government compensated the most affected industries with lump-sum subsidies funded by the revenue from the carbon tax, this does not mean that nothing changes or that the industries will continue emitting the same level of CO_2. Here's why:
1. Price Signal: The introduction of a carbon tax creates a price signal that incentivizes industries to reduce their carbon emissions. By imposing a cost on carbon emissions, the tax makes it financially beneficial for industries to find ways to reduce their emissions. The cost incurred from paying the tax can serve as a motivator for companies to invest in cleaner technologies, improve energy efficiency, or explore alternative energy sources.
2. Behavioral Change: The introduction of a carbon tax encourages businesses to change their behavior and adopt more sustainable practices. The cost of emitting carbon incentivizes companies to innovate, develop cleaner production methods, and explore new technologies to reduce their emissions. This can lead to changes in processes, investments in renewable energy sources, and improvements in resource management.
3. Revenue Recycling: The revenue generated from the carbon tax can be used to fund renewable energy projects, support research and development of clean technologies, and implement environmental initiatives. These investments can further incentivize the reduction of carbon emissions and promote a shift towards a greener economy.
4. Market Competition: The carbon tax creates a more level playing field among industries, as companies that emit fewer carbon emissions are at a competitive advantage. This can lead to increased competition and innovation in reducing emissions, as companies strive to differentiate themselves by being more environmentally friendly.
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Acci is a company that produces sweets. The company uses a machine to mix sugar pasta and produce sweets. In 2019 , the machine was replaced by a new one. With regard to the old machine, we know that Acci bought the machine on April 3 rd 2015 for 120000 C and started using the machine on April 9 th 2015. At this date, it was decided to depreciate the machine on a straight line basis over 5 years and the company's CEO estimated that afterwards it could be sold on the second hand market for 20000<. 1) On February 6th 2019 the old machine was sold. What is the carrying amount of this (disposed off) machine? 2) Considering that the selling price of the machine is 42000€, does Acci record a gain or a loss on disposal? Choose the right answer 3) What is the amount of this gain or this loss (in case of a loss, do not forget to put a - in front of the amount)? 4) On February 2 2nd 2019, Acci bought a new machine for 150000ϵ on account, ready to be used on February 15th 2019. Considering that the company plans to use this new machine over 4 years before selling it for 30000ϵ, calculate the depreciation of 2019 for this new machine.
In summary:
1) The carrying amount of the disposed-off machine on February 6th, 2019, is 28000 C.
2) Acci records a gain on disposal.
3) The amount of the gain on disposal is 14000 C.
4) The depreciation expense for the new machine in 2019 is 0 €.
1) To calculate the carrying amount of the disposed-off machine on February 6th, 2019, we need to determine the accumulated depreciation of the machine up to that date. Since the machine was purchased on April 3rd, 2015, and depreciated over 5 years, the total depreciation expense per year is 120000 C / 5 years = 24000 C. As of February 6th, 2019, the machine has been in use for 3 years and 10 months (since April 9th, 2015). Therefore, the accumulated depreciation is 24000 C x 3 years + 24000 C x (10/12) = 72000 C + 20000 C = 92000 C. The carrying amount of the machine is the original cost minus the accumulated depreciation, which is 120000 C - 92000 C = 28000 C.
2) To determine whether Acci records a gain or loss on disposal, we compare the selling price of the machine (42000 €) with its carrying amount (28000 C). As the carrying amount is lower than the selling price, Acci records a gain on disposal.
3) The amount of the gain on disposal is the selling price minus the carrying amount, which is 42000 € - 28000 C = 14000 C.
4) To calculate the depreciation for the new machine in 2019, we need to determine the annual depreciation expense. The new machine was purchased on February 22nd, 2019, for 150000 € and is planned to be used for 4 years before being sold for 30000 €. The total depreciation expense over the 4 years is the difference between the purchase cost and the expected resale value, divided by the number of years of use. The depreciation expense per year is (150000 € - 30000 €) / 4 years = 30000 € / year. Since the machine was purchased on February 22nd, 2019, and is ready to be used on February 15th, 2019, there is no depreciation expense for 2019.
In summary:
1) The carrying amount of the disposed-off machine on February 6th, 2019, is 28000 C.
2) Acci records a gain on disposal.
3) The amount of the gain on disposal is 14000 C.
4) The depreciation expense for the new machine in 2019 is 0 €.
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1) the carrying amount of the disposed-off machine is 40,000 C, 2) Acci recorded a gain on disposal, 3) the amount of this gain is 5,636.36 €, and 4) the depreciation of the new machine for 2019 is 30,000 €.
1) The carrying amount of the disposed-off machine can be calculated by subtracting the accumulated depreciation from the original cost. The machine was bought for 120,000 C on April 3rd, 2015, and started being used on April 9th, 2015. It was depreciated on a straight-line basis over 5 years. To find the annual depreciation expense, we divide the difference between the cost and estimated residual value (20,000 C) by the useful life (5 years): (120,000 C - 20,000 C) / 5 = 20,000 C. The depreciation for each year is 20,000 C. On February 6th, 2019, the machine was sold, meaning it was used for almost 4 years (from April 9th, 2015, to February 6th, 2019). Thus, the accumulated depreciation is 20,000 C * 4 = 80,000 C. Therefore, the carrying amount of the disposed-off machine is 120,000 C - 80,000 C = 40,000 C.
2) To determine if Acci recorded a gain or loss on disposal, we compare the selling price of the machine (42,000 €) with its carrying amount (40,000 C). As the carrying amount is in C and the selling price is in €, we need to convert the carrying amount to €. Assuming the exchange rate is 1 € = 1.1 C, the carrying amount in € is 40,000 C / 1.1 = 36,363.64 €. Since the selling price is higher than the carrying amount, Acci recorded a gain on disposal.
3) The amount of gain on disposal is the difference between the selling price and the carrying amount: 42,000 € - 36,363.64 € = 5,636.36 €.
4) To calculate the depreciation of the new machine for 2019, we divide the difference between the cost and estimated residual value (30,000 €) by the useful life (4 years): (150,000 € - 30,000 €) / 4 = 30,000 €.
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Try-In-Save Inc. has 1,200 bonds outstanding that are selling for $1,060 each. The company also has 5,000 shares of preferred stock at a market price of $32 each. The common stock is priced at $26 a share and there are 100,000 shares outstanding. What is the common stock weighting that should be used when calculating the firm's weighted average cost of capital?
The common stock weighting that should be used when calculating the firm's weighted average cost of capital is 64.46%. Weighted Average Cost of Capital (WACC) is the cost of capital a firm must pay for every dollar it raises and puts into service. It is a blend of the cost of debt and the cost of equity. This is used to value the company's project.
WACC is based on the market's perception of the risk level of each form of capital that makes up the firm's capital structure.
The formula for WACC is as follows:
WACC = E/V x Re + D/V x Rd x (1-T)where,
E = Equity Value
V = Total Value of Debt and Equity
Re = Cost of Equity
D = Total Debt Value
Rd = Cost of Debt
T = Tax Rate
To solve for the common stock weighting that should be used when calculating the firm's weighted average cost of capital, let's first solve for the company's total value.
Total value = Value of Bonds + Value of Preferred Stock + Value of Common Stock
Value of Bonds = 1,200 x $1,060 = $1,272,000
Value of Preferred Stock = 5,000 x $32 = $160,000
Value of Common Stock = 100,000 x $26 = $2,600,000
Total Value = $4,032,000
To find the weight of the common stock, divide the value of common stock by the total value of the firm.
Common Stock Weighting = Value of Common Stock / Total Value
Common Stock Weighting = $2,600,000 / $4,032,000 = 0.6446 or 64.46%.
The common stock weighting that should be used when calculating the firm's weighted average cost of capital is 64.46%.
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Financial institutions participate in the foreign currency market for the following reason(s): All of the above. To facilitate international trade for their corporate customers. To allow corporations to take positions in currencies. To hedge open (unhedged) positions created by the first and second activities.
Financial institutions participate in the foreign currency market for all of the reasons mentioned. Firstly, they engage in the market to facilitate international trade for their corporate customers. This involves providing services such as currency exchange and foreign exchange transactions to support the smooth flow of cross-border trade and transactions.
Secondly, financial institutions allow corporations to take positions in currencies. This refers to offering services for corporations and individuals to buy or sell foreign currencies for investment or speculative purposes. These transactions can involve taking positions in currencies to benefit from potential currency fluctuations and profit from favorable exchange rate movements.
Lastly, financial institutions participate in the foreign currency market to hedge open or unhedged positions created by the first two activities. Hedging involves taking offsetting positions in the foreign exchange market to mitigate the risk of potential losses due to adverse currency movements. By hedging open positions, financial institutions help manage and reduce currency-related risks for their clients, thereby enhancing financial stability and protecting against potential losses.
Overall, financial institutions engage in the foreign currency market to support international trade, facilitate currency trading for corporations, and provide risk management solutions through hedging mechanisms.
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Epson has one bond outstanding with a yield to maturity of 4% and a coupon rate of 8%. The company has no preferred stock. Epson's beta is 1.3, the risk-free rate is 1.8% and the expected market risk premium is 6%. Epson has a target debt/equity ratio of 0.5 and a marginal tax rate of 34%. Attempt 1/1 Part 1 What is Epson's (pre-tax) cost of debt? 4+ decimals Attempt 1/1
Part 2 What is Epson's cost of equity? 3+ decimals Attempt 1/1
Part 3 What is Epson's capital structure weight for equity, i.e., the fraction of long-term capital provided by equity? 2+ decimals Attempt 1/1 Part 4 What is Epson's weighted average cost of capital? 3+ decimals
Part 1 Epson's (pre-tax) cost of debt can be calculated as follows: Cost of Debt = Yield to maturity × (1 - Marginal tax rate)= 0.04 × (1 - 0.34)
= 0.0264 or 2.64%
Part 2 Epson's cost of equity can be calculated using the capital asset pricing model (CAPM) as follows:Cost of Equity = Risk-Free Rate + Beta × Market Risk Premium= 0.018 + 1.3 × 0.06
= 0.099 or 9.9%
Part 3 Epson's capital structure weight for equity can be calculated as follows: Capital Structure Weight for Equity = Equity / (Equity + Debt)= 0.5 / (0.5 + 1)
= 0.3333 or 33.33%
Part 4 Epson's weighted average cost of capital (WACC) can be calculated using the following formula :WACC = Weight of Debt × Cost of Debt × (1 - Marginal tax rate) + Weight of Equity × Cost of Equity
= 0.6667 × 0.0264 + 0.3333 × 0.099
= 0.0395 or 3.95%
Therefore, Epson's (pre-tax) cost of debt is 2.64%, the cost of equity is 9.9%, the capital structure weight for equity is 33.33%, and the weighted average cost of capital (WACC) is 3.95%.
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5. What is the real interest rate when the nominal interest rate on a bank checking account is 1%, and the rate of inflation is 2%? I
The real interest rate, when the nominal interest rate on a bank checking account is 1% and the rate of inflation is 2%, is -1%.
The real interest rate is the nominal interest rate adjusted for inflation. To calculate the real interest rate, we subtract the rate of inflation from the nominal interest rate. In this case, the nominal interest rate is 1%, and the rate of inflation is 2%. By subtracting 2% from 1%, we get a real interest rate of -1%.
A negative real interest rate means that the purchasing power of the money in the bank checking account is decreasing over time. In this scenario, the nominal interest rate of 1% is not sufficient to keep up with the 2% inflation rate. As a result, the money in the account is effectively losing value in terms of its purchasing power. It is important for investors and savers to consider the real interest rate, as it reflects the true return on their investment or savings after accounting for inflation.
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Value-added tasks are:
A.Tasks that the customer is ready to pay for
B.Tasks that are done by no one else but your department due to
their special nature
C.Tasks that the company considers are parts o
Value-added tasks are tasks that the customer is ready to pay for. The correct answer is A.Tasks that the customer is ready to pay for.
The value-added tasks are the tasks that are important for the customer and they are willing to pay for it. They enhance the product’s value and are significant in producing the end product that is in accordance with customer expectations. These tasks are essential in maintaining a customer base. Moreover, they assist the company in growing its business as consumers prefer to buy from businesses that offer better value, quality, and price. Value-added tasks are part of lean manufacturing, which focuses on producing quality products while minimizing waste.
In conclusion, value-added tasks are those tasks that are important for the customers, they are willing to pay for it, and they enhance the product’s value. They are an essential part of lean manufacturing and assist the company in retaining its customers by providing better value, quality, and price.
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The world price of a barrel of oil (petroleum) has increased by approximately 70 percent in the last year. Using your knowledge of the market model of supply and demand and influences on each, provide
an analysis of what contributed to this increase in oil prices in the market for oil. Assume you are starting from a point of equilibrium in the previous year.
The increase in oil prices was primarily driven by supply constraints, growing global demand, and market speculation.
The huge expansion on the planet cost of oil by roughly 70% somewhat recently can be credited to a few elements on the lookout for oil. First and foremost, a significant driver of the increment is the unevenness among organic market.
The worldwide interest for oil has been consistently ascending because of the development of arising economies, expanded industrialization, and transportation needs.
In any case, the stockpile of oil has been obliged because of different factors, for example, creation cuts by significant oil-delivering nations, international strains, and disturbances in oil creation brought about by clashes or cataclysmic events. This supply-request awkwardness comes down on oil costs.
Another contributing variable is the progressions in worldwide financial circumstances. On the off chance that the worldwide economy encounters vigorous development, it prompts expanded interest for oil, which thus pushes costs higher.
Moreover, macroeconomic elements like expansion, loan fees, and cash trade rates can impact oil costs. For example, a more fragile cash can make oil more costly for merchants, in this manner affecting interest and costs.
Moreover, market hypothesis and financial backer feeling can assume a part in oil cost vacillations. Assumptions for future stock disturbances or changes in worldwide political elements can prompt theoretical purchasing, driving costs higher.
Finally, natural and administrative factors additionally add to oil cost developments. Natural guidelines, for example, stricter discharges principles or endeavors to progress to environmentally friendly power sources, can impact the interest for oil and its cost.
Generally speaking, the expansion in barrel of oil costs can be credited to the awkwardness among organic market, changes in worldwide monetary circumstances, market hypothesis, and natural/administrative variables. These elements on the whole affected the market for oil and prompted the significant cost increment.
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what does the days' sales in receivables ratio measure for a firm? A) The number of days it takes to generate dollar sales equal to the outstanding accounts receivable balance. B) The number of days it would take to collect outstanding receivables. C) The number of days it takes for a firm to pay its bills assuming no new payables are created. (D) The number of times during the year a firm collects and reloans its receivables. E) The number of days it takes before the firm's working capital becomes negative
The Days' sales in receivables ratio measure the number of days it would take to collect outstanding receivables. Therefore, the correct option is B.
The days' sales in receivables ratio is a solvency ratio that measures the average number of days it takes a firm to collect on its credit sales. It is calculated by dividing the accounts receivable by the daily credit sales. It helps the analyst to determine the length of time it takes a company to collect its credit sales.
The lower the ratio, the better the company is performing. A lower ratio implies that the company has better cash flow and is collecting its accounts receivable more quickly.
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A perpetuity will make a sequence of annual payments of 3100,3310,3520,…, with the first payment coming a year from now. If the present value is 155729.16 dollars, what is the effective rate of interest? Answer = percent.
The effective rate of interest for the perpetuity is approximately 1.9913%
To find the effective rate of interest for the perpetuity, we need to use the formula for the present value of perpetuity: PV = C / r, where PV is the present value, C is the annual payment, and r is the interest rate.
Given that the present value is 155,729.16 and the first payment is 3,100, we can plug these values into the formula to solve for the interest rate:
155,729.16 = 3,100 / r
To isolate the interest rate, we can multiply both sides of the equation by r:
155,729.16 * r = 3,100
Now, we can divide both sides of the equation by 155,729.16 to solve for r:
r = 3,100 / 155,729.16
Calculating this, we get r ≈ 0.019913, which is approximately 0.019913 or 1.9913%.
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Chicago's Hard Rock Hotel distributes a mean of 1,100 bath towels per day to guests at the pool and in their rooms. This demand is normally distributed with a standard deviation of 100 towels per day, based on occupancy. The laundry firm that has the linen contract requires a 4-day lead time. The hotel expects a 99% service level to satisfy high guest expectations. Refer to the for z-values. a) What is the reorder point? towels (round your response to the nearest whole number).
The reorder point is the inventory level at which a new order should be placed to replenish stock and meet customer demand. In this scenario, we need to calculate the reorder point for bath towels at the Hard Rock Hotel in Chicago, given the mean demand, standard deviation, lead time, and desired service level.
To calculate the reorder point, we need to consider the lead time demand, which is the average demand during the lead time. In this case, the lead time is 4 days. The mean demand per day is given as 1,100 towels with a standard deviation of 100 towels.
First, we calculate the lead time demand by multiplying the mean demand per day by the lead time:
Lead time demand = Mean demand per day * Lead time
Lead time demand = 1,100 towels/day * 4 days = 4,400 towels
Next, we calculate the safety stock, which is the buffer inventory needed to account for demand variability during the lead time. Since the desired service level is 99%, we need to find the corresponding z-value from the standard normal distribution table. For a 99% service level, the z-value is approximately 2.33.
Safety stock = Z-value * Standard deviation * Square root of lead time
Safety stock = 2.33 * 100 towels * √4 = 2.33 * 100 * 2 = 466 towels
Finally, we calculate the reorder point by adding the lead time demand and safety stock:
Reorder point = Lead time demand + Safety stock
Reorder point = 4,400 towels + 466 towels = 4,866 towels
Therefore, the reorder point for bath towels at the Hard Rock Hotel in Chicago is approximately 4,866 towels.
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The cross-over point for two types of machine-producing widgets is 25,000 units. Machine A has a fixed cost of P100,000 and a variable cost of P8 per widget. Machine B has a fixed cost of P250,000. What is the variable cost of Machine B?
Group of answer choices
P10.00
P4.00
P2.00
P20.00
P12.00
The cross-over point for two types of machine-producing widgets is 25,000 units. Machine A has a fixed cost of P100,000 and a variable cost of P8 per widget.
Machine B has a fixed cost of P250,000. What is the variable cost of Machine B? The variable cost of Machine B is P12.00. Variable cost refers to the costs that are incurred by a company during the production of goods or services, which can fluctuate depending on the volume of production. The formula for calculating the variable cost is:
Variable cost = (Total cost – Fixed cost) / Number of units produced From the given information, we know that the cross-over point for the two types of machine-producing widgets is 25,000 units. Let's find the total cost of both machines and then use the formula to calculate the variable cost of Machine B. The total cost of Machine A is:
Total cost of Machine A = Fixed cost of Machine A + Variable cost of Machine A × Number of units produced
Total cost of Machine A = 100,000 + 8 × 25,000
Total cost of Machine A = 300,000
The total cost of Machine B is:
Total cost of Machine B = Fixed cost of Machine B + Variable cost of Machine B × Number of units produced
Total cost of Machine B = 250,000 + Variable cost of Machine B × 25,000
We know that the cross-over point for both machines is 25,000 units, so we can set the total cost of Machine A equal to the total cost of Machine B:
Total cost of Machine A = Total cost of Machine B 300,000 = 250,000 + Variable cost of Machine B × 25,000
Variable cost of Machine B = (300,000 - 250,000) / 25,000 Variable cost of Machine B = 50,000 / 25,000Variable cost of Machine B = P12.00. Therefore, the variable cost of Machine B is P12.00.
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We are evaluating a project that costs $832,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 40,000 units per year. Price per unit is $47, variable cost per unit is $20, and fixed costs are $698,000 per year. The tax rate is 23 percent, and we require a return of 18 percent on this project. a. Calculate the accounting break-even point. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b-1. Calculate the base-case cash flow and NPV. (Do not round intermediate calculations and round your NPV answer to 2 decimal places, e.g., 32.16.) b-2. What is the sensitivity of NPV to changes in the sales figure? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) b-3. Calculate the change in NPV if sales were to drop by 500 units. (Enter your answer as a positive number. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the sensitivity of OCF to changes in the variable cost figure? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
The accounting break-even point is the number of units that must be sold in order to cover the fixed costs of a project. It is calculated using the following formula:
Accounting break-even point (units) = (Fixed costs + Depreciation) / Contribution per unit
Where:
Fixed costs are the costs that do not change with the number of units sold.
Depreciation is a non-cash expense that is used to allocate the cost of an asset over its useful life.
Contribution per unit is the price per unit minus the variable cost per unit.
In this case, the fixed costs are 698,000, the depreciation is 104,000, and the contribution per unit is 27. Therefore, the accounting break-even point is:
Accounting break-even point (units) = (698,000 + 104,000) / 27 = 30,222 units
This means that the project must sell 30,222 units in order to cover its fixed costs. If it sells more than 30,222 units, the project will make a profit. If it sells less than 30,222 units, the project will lose money.
The base-case cash flow and NPV for the project are as follows:
Year 0 Year 1-8
Sales revenue (40,000 × 47) 0, 1,880,000
Variable costs (40,000 × 20) 0, 800,000
Fixed costs 698,000 ,698,000
Depreciation 104,000, 104,000
Profit before taxes 0, 278,000
Taxes (23%) 0, 63,940
Net profit 0 , 214,060
Add back depreciation 104,000, 104,000
Net cash flow 104,000 ,318,060
The NPV of the project is 23,368. This means that the project is expected to generate 23,368 in net present value over its lifetime.
The sensitivity of NPV to changes in sales is 31.19%. This means that a 1% change in sales will result in a 0.3119% change in NPV. For example, if sales increase by 5%, the NPV will increase by 36,554.
The change in NPV if sales were to drop by 500 units is -6,803. This means that if sales were to drop by 500 units, the NPV would decrease by 6,803.
The sensitivity of OCF to changes in the variable cost figure is 10. This means that a 1% change in variable costs will result in a 10% change in OCF. For example, if variable costs decrease by 5%, the OCF will increase by 372,060.
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