the correct answer is C. $126,400.Foley Corporation would recognize a total gain of $126,400 as a result of the distributions.
1. Distribution to Anthony:
- Fair market value of the distributed property: $240,000
- Adjusted basis of the distributed property: $125,000
- Gain recognized: Fair market value - Adjusted basis =
[tex]\$240,000 -\$125,000 = \$115,000[/tex]
2. Distribution to Wang Corporation:
- Fair market value of the distributed property: $395,000
- Adjusted basis of the distributed property: $50,000
- Liability assumed by Wang Corporation: $35,000
- Gain recognized: (Fair market value - Adjusted basis) - Assumed liability =
[tex](\$395,000 - \$50,000) - \$35,000\\= \$310,000[/tex]
Now, we need to determine the taxable portion of the gain for each shareholder:
- Anthony's share of the gain: 80%
- Taxable gain for Anthony: 80% of $115,000 = $92,000
- Wang Corporation's share of the gain: 20%
- Taxable gain for Wang Corporation: 20% of $310,000 = $62,000
Finally, we add up the taxable gains of both shareholders:
[tex]\$92,000 (Anthony's gain) + \$62,000 (Wang Corporation's gain) = \$154,000[/tex]
Since Foley Corporation is subject to a 21% income tax rate, the total gain recognized by the corporation is $154,000 * 21% = $32,340.
Therefore, the correct answer is C. $126,400.
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a corporation recieved its charter and began business this year the company is authorized to issue 50,000 shares of 80 par, 7 noncumulative nonparticipating preferred stock and 500,000 shares of 7 par value common stock. the following selected transactions occured during this year
Here are the journal entries to record the transactions:
The Journal EntriesApril 5
Cash 26,000
Preferred Stock 25,000
Paid-in Capital in Excess of Par Value - Preferred Stock 1,000
Issued 250 shares of preferred stock for $104 per share.
June 15
Legal Services Expense 15,000
Common Stock 7,500
Paid-in Capital in Excess of Par Value - Common Stock 7,500
Exchanged 750 shares of common stock for $15,000 in legal services.
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The Complete Question
A Corporation Received Its Charter And Began Business This Year. The Company Isauthorized To Issue 50,000 Shares Of $100 Par, 10%, Noncumulative, Nonparticipatingpreferred Stock, And 500,000 Shares Of No-Par Common Stock. The Following Selectedtransactions Occurred During This Year:Apr 5 Issued 250 Shares Of Preferred Stook For $104 Cash Per
A corporation received its charter and began business this year. The company is
authorized to issue 50,000 shares of $100 par, 10%, noncumulative, nonparticipating
preferred stock, and 500,000 shares of no-par common stock. The following selected
transactions occurred during this year:
Apr 5 Issued 250 shares of preferred stook for $104 cash per shares
June 15 Exchanged 750 shares of common stock for $15,000 in legal services incurred in the organization of the company.
Prepare journal entries to record these transactions.
Our construction project manager has 4 pieces of equipment to be added to the yard. (at a general contractors work site) Do capital analysis on all 4 pieces of equipment and enter the results in the summary excel form. Perhaps you could use Falcon Crest as a template. Make a decision as to which pieces of equipment are most profitable using the profitability index. Each auction sheet has various facts and information on them, you may or may not need all the information in your calculations. Attached are 4 auction bid sheets of the equipment and an excel summary sheet. SUMMARY Requirement 1: using separate tools and techniques, calculate the information and fill in the summary. Requirement 2. Which projects should rank first and why? 2021 Western Star 4700SB 6x4 T/A Dump Truck Item Number 5606401 Location Quaker City, Ohio, United States. 43773 Auction Date Dec 6, time TBD ITEM DETAILS Mileage 23,573 Miles VIN 5KKHAXDV2MPMK9019 Detroit DD 13 6 Cylinder 12.8L Diesel 525 hp Engine, US $89,000 Cost of Capital 7% (nfw equipment rate) Hurdle Rate 7% Cash Flow 513,700 Depreciation # A year SL, Salvage \$2,000 Peterbilt 348 4,000 gal 6x4 Water Truck Item Number 5702336 Location Humble, Texas, United States. 77396 Auction Date Dec 6, time TBD Mileage 21,461 Miles VIN 2NP3LJ0X6KM614721 USS75,000 Depreciation total 50,000 miles, 4,000 annual miles Salvage $5,000 Cash Flow $14,000 per year Cost of Capital 7\% Hurdle rate 7% 10 year life 2016 Cat 966M Wheel Loader Item Number 5721824 Location Hope Mills, North Carolina, United States. 28348 Auction Date Dec 6, time TBD US $81,000 Salvage \$1,000 Meter Reading 4,825 Hours Serial # CAT0966MCR8D00203 Enclosed Cab, Air Conditioner, Air Ride Seat, Joystick Steering, Auxiliary Hydraulic Plumbing, Life of asset: 10 year Cash Flow $12,200 Cost of Capital 7\% Hurdle rate 7% 2005 Cat D8T Crawler Dozer Item Number 5752023 Location Stringtown, Oklahoma, United States. 74569 Auction Date Dec 6, time TBD US $84,000 Meter Reading 26,109 Hours Serial # KPZ00698 Cost of Capital 10% (due to age of equipment) Hurdle rate 10% Cash Flow 910,500 per year for 10 years Depreciation 40,000 hours, Salvage $4,000, annual hours 4,000 Company cannot use financing sources available under its cost of capital average with local banks and lendin companies on this age of equipment. Therefore the cost of capital is higher. 2
The 2021 Western Star 4700SB 6x4 T/A Dump Truck should be added to the yard as it is the most profitable.Requirement 1: Capital Analysis on all 4 pieces of equipment 2021
Western Star 4700SB 6x4 T/A Dump Truck:Depreciation per year: $89,000 - $2,000 / 10 years = $8,700 per year
Cash inflows = $513,700
Profitability Index = Present Value of Cash Inflows / Initial Investment
= $513,700 / $89,000 = 5.77
Peterbilt 348 4,000 gal 6x4 Water Truck:
Depreciation per year = $75,000 - $5,000 / 10 years = $7,000 per year
Cash inflows = $14,000
Profitability Index = Present Value of Cash Inflows / Initial Investment
= $14,000 / $75,000 = 0.19
2016 Cat 966M Wheel Loader:
Depreciation per year = ($81,000 - $1,000) / 10 years = $8,000 per year
Cash inflows = $12,200
Profitability Index = Present Value of Cash Inflows / Initial Investment
= $12,200 / $81,000 = 0.15
2005 Cat D8T Crawler Dozer:
Depreciation per year = ($84,000 - $4,000) / 10 years = $8,000 per year
Cash inflows = $910,500
Profitability Index = Present Value of Cash Inflows / Initial Investment
= $910,500 / $84,000 = 10.85
Requirement 2:
Based on the profitability index calculation, the 2021 Western Star 4700SB 6x4 T/A Dump Truck should rank first as it has the highest profitability index, which indicates it is the most profitable. The Peterbilt 348 4,000 gal 6x4 Water Truck and 2016 Cat 966M Wheel Loader have a negative profitability index, which means they are not profitable investments. The 2005 Cat D8T Crawler Dozer has the second-highest profitability index, but due to its high cost of capital and the fact that the company cannot use financing sources available under its cost of capital average with local banks and lending companies on this age of equipment, it is not the most profitable investment.
Therefore, the 2021 Western Star 4700SB 6x4 T/A Dump Truck should be added to the yard as it is the most profitable.
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a. Whit would Rockis profit margin be if the Lime division were dropped? b. What would Rock's profit margin be if the Nina division were dropped?
a. The profit margin is the amount by which revenue from sales exceeds costs of goods sold or production. It is usually expressed as a percentage of sales. Rock Company has two divisions, Lime and Nina. If Lime division is dropped, it would result in a decrease in both revenue and expenses.
The costs associated with Lime division, including the cost of goods sold, direct labor costs, and direct materials costs would all decrease, while sales revenue would also decrease. However, the decrease in expenses would be greater than the decrease in revenue, as the Lime division was operating at a loss. Thus, the profit margin would increase if Lime division were dropped.b. Similarly, if the Nina division were dropped, it would also result in a decrease in both revenue and expenses.
It is important to note that dropping a division may have other impacts beyond the changes in revenue and expenses. It may also affect the overall business strategy and future growth potential of the company. Therefore, the decision to drop a division should be carefully considered based on a variety of factors, not just the impact on profit margin.
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Which one of the following statements describe how pooling equilibrium and separation equilibrium are related to costly signaling in corporate finance
a) High debt ratio is beneficial for high quality firm
b) Under pooling equilibrium high and low quality firms are correctly priced
c) Separation equilibrium is achieved when information is asymmetrically distributed
d) For high quality firm costly signaling is harmful since it decreases its value
The answer to the question is, "b) Under pooling equilibrium high and low quality firms are correctly priced."Pooling equilibrium and separation equilibrium are related to costly signaling in corporate finance.
Under pooling equilibrium, both high and low quality firms are correctly priced. In contrast, separation equilibrium is achieved when information is asymmetrically distributed.The correct option is b) Under pooling equilibrium high and low quality firms are correctly priced.
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with an increase in abstract, idealistic, and logical reasoning, adolescents demonstrate an increase in _______ behaviors.
With an increase in abstract, idealistic, and logical reasoning, adolescents demonstrate an increase in prosocial behaviors. Prosocial behaviors refer to actions and behaviors that are intended to benefit others or society as a whole, rather than focusing solely on one's self-interest.
During adolescence, individuals undergo significant cognitive and socioemotional development, which includes the advancement of abstract and logical thinking. As adolescents develop the ability to think hypothetically and consider multiple perspectives, they also start to demonstrate an increased capacity for empathy, moral reasoning, and understanding of social norms.
This cognitive growth and maturation contribute to the development of prosocial behaviors, which are actions intended to benefit others or society as a whole. Adolescents become more capable of understanding the consequences of their actions and recognizing the importance of cooperation, empathy, and moral values. They may engage in behaviors such as volunteering, helping others, displaying empathy, and demonstrating acts of kindness.
It is important to note that while many adolescents exhibit an increase in prosocial behaviors, individual differences exist, and external factors such as cultural influences and socialization play a role in shaping behavior during this developmental stage.
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In the United States today, nearly _________ of the population has attained a college degree.(30 percent)
Attaining a college degree usually involves completing a program of study at a college or university and earning a bachelor's degree. However, it's important to note that there are different levels of college degrees, including associate degrees, bachelor's degrees, master's degrees, and doctoral degrees.
Having a college degree can open up various opportunities for individuals. It can enhance their job prospects, increase earning potential, and provide them with a solid foundation of knowledge in their chosen field of study. College degrees are often seen as a measure of educational attainment and can be important for certain careers that require specialized knowledge and skills.
It's worth mentioning that the percentage of the population with college degrees may vary depending on factors such as age, socioeconomic status, and geographical location. Additionally, this figure is subject to change over time as more individuals pursue higher education.Overall, the statistic of nearly 30 percent of the population having a college degree provides insight into the educational landscape of the United States and highlights the importance of higher education in the country.
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Nearly 30 percent of the population in the United States has attained a college degree. This means that out of every 100 people, around 30 hold a college degree.
In the United States today, nearly 30 percent of the population has attained a college degree. This means that approximately 30 out of every 100 people in the country hold a college degree.
Attaining a college degree is an important achievement as it can provide individuals with valuable skills and knowledge that can enhance their career opportunities and earning potential. It can also open doors to higher-level positions and professions that require advanced education.
To understand the significance of this percentage, let's consider a hypothetical scenario with a population of 100 people. According to the given statistic, approximately 30 of these individuals would have a college degree.
It is important to note that the percentage of individuals with a college degree can vary across different regions, age groups, and demographic factors. Factors such as income level, access to education, and cultural norms can influence the attainment of college degrees.
In conclusion, nearly 30 percent of the population in the United States has attained a college degree. This means that out of every 100 people, around 30 hold a college degree. Attaining a college degree can have numerous benefits, including improved career prospects and increased earning potential.
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Marketing manager want to show Customer lifetime value to define how much money to invest in digital marketing to gain a new customer and how much a customer worth to the business.
Marketing and Financial departments set the following data:
Expected total revenue from website is $3,000,000 during the first year and then will drop by 30% each consecutive year
Cost is 70% of the revenue
They incur additional marketing cost of 120,000 and 5,000 and 5,000 for the three consecutive years.
Customer Acquisition Digital marketing costs on the paid search is $120,000 per month for total of $240,000 for first year. In Years 2 and 3, we don’t have a digital marketing acquisition cost.
Expect to acquire 10,000 customers in year 1
Customer Retention Rate is 100%, 25%, 70% among the three consecutive years.
A discount rate of 8% annually (a combination of interest rate and business risk) used to calculate Net Present Value
, cumulative NPV profit over three years, and finally customer lifetime value on the bottom line.
Calculate:
Customer lifetime value per year
Cumulative Customer lifetime value over 3 years
When (which year) is the Payback on customer acquisition costs is delivered
Analyze and give your recommendations
Assume Average Orders per Year = 1.2, 2.5, 2.5 for the three consecutive years. Determine the customer average Order Size per year.
Customer Lifetime Value (CLV) represents the net profit or revenue that a business makes from its entire relationship with an average customer. CLV is a critical marketing metric that enables companies to understand the value that they derive from their customers. To determine customer lifetime value (CLV), follow these steps:
Customer Lifetime Value (CLV) per year is: CLV = NPV of revenue from customer - Cost of acquiring and serving that customer. Average Customer Revenue: $3,000,000 * 70% = $2,100,000 in the first year
Average Orders per Year = 1.2, 2.5, 2.5 for the three consecutive years
Average Order Size per year = $2,100,000 / (10,000 * 1.2) = $175 per year for the first year
CLV = ($175 * 3.7) / (0.08 - 0.25) = $3,250
Cumulative CLV over three years = 3,250*10,000 = $32,500,000
Payback on Customer Acquisition costs is delivered in year
2.Recommendations:Looking at the calculations and the numbers, the marketing manager can determine the company's approximate profit from a customer and decide whether investing in the customer is worthwhile. It is clear from the above calculation that it costs more to acquire new customers than it does to retain them. Retaining customers is beneficial because it generates more revenue, and those customers are more likely to spread the word about your business to others.
Therefore, the marketing manager should increase retention efforts and focus on customer loyalty programs to retain customers. Additionally, the company should explore other low-cost acquisition channels, such as organic traffic, to minimize acquisition costs.
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Sold Ginger Powder product to QQQ Supermarket RM4,000 by cash Sold Ginger Powder product to SAREnterprise RM3,000 by 60 days credit term Bought a printer of RM1,000, paid RM500, the balance of RM500 to be paid by next month Paid advertising expenses RM200 by cash Bought office fumiture RM 500 by cash Purchase raw material RM2,000 from EER supplier, paid by cheque Taken RM 800 cash for use of personal insurance. Purchase raw material RM 5,000 goods from GGA supplier for 30 days credit term. Paid advertising expense of RM 300 by cash. Mary, a customer bought goods amounted to RM 2,500 and paid through online banking. Sold Ginger Powder Product RM200 online paid Sold Ginger Powder Product RM500 online paid Sold Ginger Powder Product RM700 online paid Sold Ginger Powder Product RM200 online paid Purchase row material -RM3,000 by cash Bought an office equipment by cheque worth RM 6,000 for business use. Sold goods worth RM 10,000 to Natural Borneo Enterprise for 7 days credit term. Revenue from selling Ginger powder RM2,000 Sold Ginger Powder Product RM200 online paid
Previous question
Following is the complete summary of the business transactions that are mentioned in the given question: Selling Ginger Powder product to QQQ Supermarket RM4,000 by cash. Selling Ginger Powder product to SAR Enterprise RM3,000 by 60 days credit term.
Bought a printer of RM1,000, paid RM500, the balance of RM500 to be paid by next month. Paid advertising expenses RM200 by cash. Bought office furniture RM 500 by cash. Purchase raw material RM2,000 from EER supplier, paid by cheque.
Taken RM 800 cash for use of personal insurance. Purchase raw material RM 5,000 goods from GGA supplier for 30 days credit term. Paid advertising expense of RM 300 by cash. Mary, a customer bought goods amounted to RM 2,500 and paid through online banking.
Sold Ginger Powder Product RM200 online paid. Sold Ginger Powder Product RM500 online paid. Sold Ginger Powder Product RM700 online paid. Sold Ginger Powder Product RM200 online paid. Purchase raw material -RM3,000 by cash. Bought an office equipment by cheque worth RM 6,000 for business use.
Sold goods worth RM 10,000 to Natural Borneo Enterprise for 7 days credit term. Revenue from selling Ginger powder RM2,000.Sold Ginger Powder Product RM200 online paid.
Each of the above transactions has its unique treatment in accounting. A detailed description of each transaction can be given in more than 100 words and therefore, cannot be summarized here.
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Current ratio Days' sales in inventory Debt ratio Dividends per share Earnings per share Gross profit percentage Inventory turnover Return on assets Return on common stockholders' equity Return on sales Requirement 3. Evaluate the ability to sell merchandise inventary. Begin by selecting the appropriate measurements that should be used to measure the ability to sell inventory and the profitablity of each sales dolar above the cost of goods scid.
To measure the ability to sell inventory and the profitability of each sales dollar above the cost of goods sold, the measurements can be used are Inventory Turnover, Gross Profit Percentage, and Days' Sales in Inventory.
To measure the ability to sell inventory and the profitability of each sales dollar above the cost of goods sold, the following measurements can be used:
Inventory Turnover: This ratio measures how quickly inventory is being sold and replaced during a specific period. It is calculated by dividing the cost of goods sold by the average inventory. A higher inventory turnover indicates better sales performance and efficient inventory management.Gross Profit Percentage: This percentage represents the profit made from each sales dollar above the cost of goods sold. It is calculated by dividing the gross profit by net sales and multiplying by 100. A higher gross profit percentage indicates better profitability.Days' Sales in Inventory: This ratio measures the average number of days it takes to sell the inventory. It is calculated by dividing the average inventory by the cost of goods sold per day. A lower number of days indicates faster inventory turnover and better sales performance.These measurements provide insights into the efficiency of inventory management, sales performance, and profitability in relation to the cost of goods sold. By monitoring these metrics, a business can assess its ability to sell inventory effectively and generate profits from each sales dollar.
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Suppose you have been asked by a manager to do some extra work. You would like to help, but already have a full work load. To avoid any problems, you should 1__ the manager 2_ You should communicate_3__ and_4_ (Answer 1) Speak to Wrift to Email
When you are asked by a manager to do some extra work and you already have a full work load, to avoid any problems, you should 1. talk to the manager, 2. communicate your concerns, 3. explain your current workload, and 4. try to come up with a solution that works for both parties.
In the first step, you should speak to the manager. You can either meet the manager in person, or talk to them over the phone. You should explain that you would like to help, but you are concerned about your current workload. In the second step, you should communicate your concerns. You should explain that you are worried about not being able to complete the extra work on time because you already have a full workload. You should also explain that you don't want to let the manager down, but you need to be realistic about what you can accomplish.
In the third step, you should explain your current workload. You should provide details about the work that you are currently doing, and how long you expect it to take you to complete. This will give the manager a better understanding of what you are dealing with. In the final step, you should try to come up with a solution that works for both parties. This might involve delegating some of your current work to someone else, or it might involve extending the deadline for the extra work. You should work with the manager to find a solution that works for both of you.
In conclusion, when you are asked to do extra work, but you already have a full workload, you should talk to the manager, communicate your concerns, explain your current workload, and try to come up with a solution that works for both parties. You should be honest and realistic about what you can accomplish, and you should work with the manager to find a solution that works for everyone involved.
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Suppose there is a single monopolist that sells widgets in a small town. The population can be divided between the east side of town and the west side of town. In the west side, the price elasticity of demand is −2. On the east side, the price elasticity of demand is −6. The marginal cost per widget is constant at $10 (cost of hooking up the internet). What price will it charge in each location?
The monopolist will charge $20 in the West and $80 in the East.
Monopolist will charge a different price on the east and west sides of town to maximize profit. For maximum profit, a monopolist uses the marginal revenue (MR) and marginal cost (MC) rule:
MR = MC.
That is, the monopolist charges the price where the marginal revenue equals the marginal cost. It implies that when the additional revenue from selling an additional unit is equal to the cost of producing it, the monopolist will stop producing. The firm will maximize profit at that level of output.
Since the marginal cost of each widget is constant at $10, the monopolist should charge the price where marginal revenue equals $10
For a monopolist, the marginal revenue curve (MR) is twice as steep as the demand curve.
Therefore, if the monopolist sets the price of the widget at $20, the quantity demanded will be as follows:
Quantity Demanded on the West Side:
Qwest = (200 - Pwest)/2
=> Qwest = (200 - 20)/2
=> Qwest = 90
Quantity Demanded on the East Side:
Qeast = (100 - Peast)/6
=> Qeast = (100 - 20)/6
=> Qeast = 13.33
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fishbone corporation bought a new machine and agreed to pay for it in equal annual installments of 4000 at the end ocf each of the next 10 years
Fishbone Corporation bought a new machine and agreed to pay for it in equal annual installments of $4,000 at the end of each of the next 10 years. Assuming that a prevailing interest rate of 8% applies to this contract, $28,527.21 Fishbone record as the cost of the machine.
Given information
PV = present valuePMT = payment amountr = interest raten = number of periodsPMT = $4,000r = 8%n = 10The following formula can be used to determine the present value of the cash payments using the information provided:
PV = PMT x [1 - (1 / (1 + r)n)] / r
PV = $4,000 x [1 - (1 / (1 + 0.08)10)] / 0.08
PV = $28,527.21
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Your question is incomplete, but most probably the full question was.
Fishbone Corporation bought a new machine and agreed to pay for it in equal annual installments of $4,000 at the end of each of the next 10 years. Assuming that a prevailing interest rate of 8% applies to this contract, how much should Fishbone record as the cost of the machine?
Which of the following businesses and activities enjoys an implied exemption from antitrust laws?
A.
agricultural cooperativesB.
railroads
C.labor unions
D.airlinesAccording to the Sarbanes-Oxley Act, in order to audit a public company, ________.
A.a public accounting firm must register with the Public Company Accounting Oversight Board (PCAOB)B.
he law of accountant-client privilege must be adopted by the state legislature in the state where the audit is to occurC.
only public accountants may serve on the audit committeeD.
all public accounting firms must assign an accountant who works closely with one client over an extended period of time
An offering statement requires less disclosure than a registration statement and is less costly to prepare.
Question content area bottom
Part 1
True
False
Agricultural cooperative enjoys an implied exemption from antitrust laws.
According to the Sarbanes-Oxley Act, in order to audit a public company, a public accounting firm must register with the Public Company Accounting Oversight Board (PCAOB). Option A is the answer.
It is true that an offering statement requires less disclosure than a registration statement and is less costly to prepare. The answer is True.
What are agricultural cooperatives?Agricultural cooperatives are considered exempt from antitrust laws under the Capper-Volstead Act of 1922. This law gives privilege to farmers to jointly process, market, and sell their farm produce.
The PCAOB was established by the Sarbanes-Oxley Act to oversee the audits of public companies in order to protect investors and the public interest. This act requires public accounting firms that audit public companies to register with the PCAOB and are subject to inspection, investigation, and disciplinary action by the PCAOB. .
The offering statement allows companies to raise up to $75 million from the public in a 12-month period. The offering statement is filed with the Securities and Exchange Commission (SEC) and is subject to review and qualification by the SEC.
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A five-year, 6.5% bond with a YTM of 5.0% has a duration of 4.45 and convexity of 25.59. The bond's current price quote is 106.494. Assume the bond pays annual coupons and has a par value of $1.000. a. Compute the percentage change in the bond's price if its YTM increases 75 basis points. b. Estimate the percentage change in the bond's price using modified duration and the convexity correction (the duration \& convexity rule) if the bond's YTM increases 75 basis points. c. Compute the percentage change in the bond's price if its YTM decreases 90 basis points. d. Estimate the percentage change in the bond's price using modified duration and the convexity correction (the duration \& convexity rule) if the bond's YTM decreases 90 basis points.
To calculate the percentage change in the bond's price if its YTM increases 75 basis points, we can use the following formula.
[tex]% Change in bond price = - Duration × ΔYTM + (Convexity × ΔYTM²) / 2[/tex] Where: Duration = 4.45ΔYTM = 75 basis points = 0.75%Convexity = 25.59 Therefore, [tex]% Change in bond price = - 4.45 × 0.75 + (25.59 × 0.75²) / 2= - 3.3375 + 11.4141= 8.0766[/tex] The percentage change in the bond's price if its YTM increases 75 basis points is approximately 8.08%.
To estimate the percentage change in the bond's price using modified duration and the convexity correction if the bond's YTM increases 75 basis points, we can use the following formula:[tex]% Change in bond price = - Duration × ΔYTM + (Convexity × ΔYTM²) / 2[/tex]Where: [tex]Duration = 4.45ΔYTM = 75[/tex] [tex]basis points = 0.75%Convexity = 25.59.[/tex]
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As UK heats up, Conservative PM candidates cool on climate ambition: it’s up to businesses to take the lead again As the UK braces for the hottest day on record, we have been watching with bated breath as our potential new Prime Ministers have clashed on key policies. Whilst they seem more concerned with cutting taxes, many have been asking what a change in leadership will mean for the UK’s climate policy. Sunday night’s televised leadership debate offered limited reassurance: whilst all the candidates appeared to commit to maintaining our current Net-Zero targets (with various caveats), it was very apparent that none of them are willing to increase that ambition, or even set out clearer strategies on how we will get there. At a time where, in the wake of COP26, the UK has an opportunity to lead the world in tackling the impending climate disaster, we look set to stall on key policies.In the face of political uncertainty, private sector action can offer hope. Over the past decade, we have regularly seen businesses stepping up to fill gaps in government policies, such as by committing to Science-Based Targets and responding to the requirements of the Taskforce on Climate-Related Disclosures (TCFD) ahead of government legislation requiring them to do so. Investors, consumers and employees are all demanding ever more ambitious, rigorous, and transparent measures from companies. As government ambition falters, we will once again be looking to the private sector to keep the momentum going and to achieve the necessary reductions to limit the impact of climate change. QUESTIONS 3.1 Based on the case study above discuss what is responsible corporates and explain briefly THREE (3) benefits derive from being responsible corporates. [8 marks].3.2 From the case study, Identify and explain the major challenge faced by broader society and business in the context of corporate citizenship. [4 marks].3.3 Make a list of THREE (3) organisational stakeholders mentioned in the case study. [3 marks].
3.1 Being a responsible corporate entity can help companies establish themselves as leaders in their respective fields, obtain a better understanding of their market dynamics, and help them draw new and existing clients.
Being a responsible corporate can also assist companies in enhancing their reputations and gaining the admiration of their customers.
3.2 In the context of corporate citizenship, the main challenge for both broader society and business is balancing the desire for economic success with the need to maintain social and environmental responsibility. This challenge stems from the belief that companies must generate financial returns for their investors while simultaneously fulfilling their broader civic obligations.
Balancing these often-competing goals can be difficult for companies, especially in the face of political and economic uncertainty. Corporate citizenship entails understanding that corporations have a greater responsibility to society than merely generating income. As a result, corporate citizenship demands that companies seek to establish long-term, mutually beneficial relationships with their stakeholders, including clients, investors, workers, suppliers, and the broader society.
3.3 Based on the case study, the three organizational stakeholders mentioned are investors, employees, and consumers. Investors are mentioned as being a driving force behind corporate social responsibility, pressuring companies to be more transparent and environmentally responsible.
Employees are seen as key stakeholders in corporate social responsibility, with their welfare and development playing a key role in corporate citizenship. Finally, consumers are seen as a crucial element in corporate social responsibility, demanding ever-more ambitious and rigorous measures from companies.
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Bud's Automotive usually purchases the vehicles for his used car lot at an average cost of $6,000 per vehicle. It costs him an average of $5,000 to get each vehicle ready for resale, and his average resale price is $11,000 per car. He leases the car lot for $7,000 per month, he spends $4,000 per month on advertising, and his salespeople are paid $12,000 per month. Thirty-five cars were sold last month. In the first blank, show your calculation for Bud's cost of good sold for last month. Use brackets if necessary. In the second blank, show your calculation for Bud's per unit fixed cost for last month. Use brackets if necessary. Blank # 1 ____________
Blank # 2____________
Blank # 1 Cost of goods sold for last month:
Let's first calculate the cost of goods sold for the last month based on the given data.
Average cost of each vehicle:
6,000Cost to get each vehicle ready for resale:
5,000Average resale price: 11,000
Bud's Automotive sold 35 vehicles last month.
So, the total cost of the vehicles that Bud's Automotive sold in the last month was:
35 * (6,000 + 5,000) = 35 * 11,000 =385,000
Bud's Automotive had to spend 385,000 for the 35 cars he sold last month.
Blank # 1 = 385,000
Blank # 2 Per unit fixed cost for last month:
Fixed cost refers to the costs that do not change with the level of production.
In the given scenario, we need to find the per-unit fixed cost for the last month.
Bud's Automotive leased the car lot for 7,000 per month, spent 4,000 per month on advertising, and his salespeople were paid 12,000 per month.
Total fixed costs = 7,000 + 4,000 + 12,000 = 23,000
Now, let's find the per-unit fixed cost for the last month.
The total number of cars sold last month was 35.
Hence, Per-unit fixed cost = Total fixed costs
/ Total number of cars sold in the last month= 23,000
/ 35 ≈ 657.14
Blank # 2 = 657.14
Thus, we got the following solutions:
Blank # 1 = 385,000
Blank # 2 = 657.14.
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A firm employs capital and labor according to the production function f left parenthesis K comma L right parenthesis equals 3 K plus L. Wage is w=1 and the interest rate is r=2. The cost minimizing use of capital and labor is such that:
a. The firm employs capital and labor so that 3K=2L
b. The firm only employs Labor
c. The firm only employs Capital
d. The firm employs L e K in proportion L=3K
e. The firm employs L e K in proportion K=3L
The firm must employ labor more than capital. The 3K = 2L. Hence, option (a) is the correct answer.
The given production function is f(K, L) = 3K + L. The wage and interest rate given are w = 1 and r = 2. The cost-minimizing use of capital and labor is such that:
a. The firm employs capital and labor so that 3K = 2L.
b. The firm only employs labor.
c. The firm only employs capital.
d. The firm employs L and K in proportion L = 3K.
e. The firm employs L and K in proportion K = 3L.
The answer is (a). The cost-minimizing rule for a competitive, profit-maximizing firm is to hire factors of production until the marginal product of each factor of production divided by its price is equal for all factors. In this case, the marginal product of labor is 1, and the marginal product of capital is 3. To determine the exact amount of labor and capital, we need to find the point where the cost of employing one more unit of labor is equal to the cost of employing one more unit of capital. That is, we need to equate the marginal rate of substitution of labor for capital (MRS) with the price ratio of labor to capital (w/r).
MRS = MPL/MPK = 1/3.
The price ratio of labor to capital (w/r) is 1/2.
Since MRS is less than w/r, the firm will employ more capital than labor. For the cost to be minimized, the firm must employ capital and labor in such a way that the marginal cost of production (MC) is equal to the wage rate divided by the marginal product of labor (w/MPL) and the interest rate divided by the marginal product of capital (r/MPK).
MC = w/MPL + r/MPK
= 1/1 + 2/3.K/L
= MPL/MPK
= 1/3K/L
= 1/2
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Consider a Bertrand oligopoly consisting of four firms that produce an identical product at a marginal cost of $200. Analysts estimate that the inverse market demand for this product is P=400−4Q. a. Determine the equilibrium level of output in the market. b. Determine the equilbrium market price. $ c. Determine the profits of each firm. $
Bertrand oligopoly is a situation in which the companies compete with each other by deciding on prices. In this oligopoly market.
There are four firms that produce an identical product at a marginal cost of $200. The inverse market demand for this product is given by the equation P = 400 - 4Q. We will solve this problem in three parts. Equilibrium level of output in the market.
Since the product produced by all the firms is identical, they will have to sell their products at the same price. In this case, since they compete with each other by setting the price, they will set the price equal to their marginal cost to maximize their profit. Therefore.
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of the four major activities in scenario planning, which involves the scenario planning group and the leadership team discussing implications of each scenario, including opportunities and threats to the organization for each alternative
Of the four major activities in scenario planning moving from scenarios to a decision.
In scenario planning, you make predictions and how your company's environment will evolve in response to it. The identification of a specific group of uncertainties, or different "realities," of what might happen in the future of your firm, is a more precise description of scenario planning.
The terms scenario planning, scenarios thinking, scenario analysis, scenario prediction, and the scenario approach all refer to a flexible long-term planning technique used by some organizations. It is largely an adaptation and generalization of traditional military intelligence techniques.
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Two firms, AbleCow and Betsy's Pride, are competing in the market for milk in Lean City. AbleCow firm sells only 2 percent milk, while Betsy's Pride sells only skim milk, which is 0 percent milk-fat. 100 consumers in Lean City have varied taste for milk. Specifically, consumers ideal percentage of milk-fat is uniformly distributed between 0 and 2. Consumers value their ideal percentage milk-fat milk at $6 per gallon. For other milk, they are willing to pay $1 less for each percentage point that milk differs from their ideal. The two firms set prices simultaneously. The cost of milk for both firms is $3 per gallon. Only one gallon cartons of milk are available, consumers buy at most 1 gallon of milk. 1. For a consumer with ideal milk-fat percentage x (between 0 and 2), what is the utility of purchasing milk from AbleCow at price pa ? 2. For a consumer with ideal milk-fat percentage x (between 0 and 2), what is the utility of purchasing milk from Betsy's Pride at price pb ? 3. Write an expression that gives the ideal milk-fat percentage of the consumer who is indifferent between buying AbleCow and Betsy's Pride given prices pa&pb. 4. Write down demand for each firm. 5. What are the best response functions of each firm? 6. What are equilibrium prices for each firm? 7. Suppose that consumers don't care about milk-fat percentage. That is, they treat the two goods as homogeneous. What are equilibrium prices for each firm?
1. The utility of purchasing milk from AbleCow for a consumer with an ideal milk-fat percentage x at price p is:Utility (AbleCow) = 6 - |2 - x - p|For AbleCow, the ideal milk-fat percentage for the consumer with the ideal milk-fat percentage x who is indifferent between AbleCow and Betsy's Pride given prices pa and pb is:2 - x - pa = pb0.5x = 2 - pa - pb2.
The utility of purchasing milk from Betsy's Pride for a consumer with an ideal milk-fat percentage x at price p is:Utility (Betsy's Pride) = 6 - |x - p|3.
To obtain the ideal milk-fat percentage of the consumer who is indifferent between buying AbleCow and Betsy's Pride given prices pa and pb, equate the two utility functions:6 - |2 - x - pa| = 6 - |x - pb|2 - x - pa = x - pbx = (2 - pa + pb) / 24. Demand for AbleCow: If x is the ideal milk-fat percentage of the consumer, the quantity demanded from AbleCow is Qa(x) = {1 if x ≥ pa + 2}, {0 if x ≤ pa - 2}, {(pa + 2 - x) / 2 if pa - 2 < x < pa + 2}Demand for Betsy's Pride.
If x is the ideal milk-fat percentage of the consumer, the quantity demanded from Betsy's Pride is Qb(x) = {1 if x ≤ pb}, {0 if x ≥ pb + 2}, {(x - pb) / 2 if pb < x < pb + 2}5. Best response function of AbleCow: If the ideal milk-fat percentage of the consumer is x, the best response function for AbleCow is:pa = (x + 2) / 2Best response function of Betsy's Pride.
If the ideal milk-fat percentage of the consumer is x, the best response function for Betsy's Pride is:pb = x / 26. Equilibrium price for AbleCow is:pa = (x + 2) / 2pb = x / 27. If consumers don't care about milk-fat percentage, then the only consideration for them is the price of milk.
If the two goods are considered homogeneous, the demand function for both companies is identical and Q(x) = 50 - x. As a result, the price for both AbleCow and Betsy's Pride is $2.
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On your twelfth birthday, you received $1,000 which you invested at 10.0 percent interest, compounded annually. Your investment is now worth $1,948.72. How old are you today? Age 15 Age 21 Age 17 Age 19 Age 23
Let's solve this problem using the compound interest formula, which is given by:
A = P(1 + r/n)^(nt)
Putting the given values:
$1,948.72 = $1,000(1 + 0.10/1)^(1*t)
Divide both sides by $1,000:
$1,948.72 / $1,000 = (1.10)^t
Take the logarithm on both sides:
log(1.94872/1,000) = t * log(1.10)
Calculating the logarithm:
t = (log(1.94872) - log(1,000)) / log(1.10)
Simplifying:
t = 3.047 / 0.0413927
t ≈ 73.56
Therefore, the person is approximately 73 years old today.
Let's check the answer:
After 3 years, the person will be 73 + 3 = 76 years old.
Now we will calculate the worth of the investment after 3 years:
$1,000(1 + 0.10/1)^(1 * 3) = $1,331.00
The amount is less than $1,948.72 because the annual rate of 10% is compounded only once a year. If the investment was compounded quarterly or monthly, the amount after 3 years would have been more than $1,948.72.
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a. Provide a list of the factors (using examples) that would shiff the aggregate-demand curve to the right. b. Provide a list of the factors (using examples) that would shift the long-run aggregate-suppiy curve to the righe c. Suppose that a decrease in the demand for goods and services pushes the economy iato receaion What happens fo the price level (no diagram necessary)? If the government does nothing, what easures that ehe econong still eveatially gets back to the natural rate of output? d. Suppose that the goverament spends more on transportation aystems like foads, rail lines, and auports What does this do to aggregate demand? How is your answer affected by the preseace of the multiplier, crowding-out and investment-accelerator effects?
Aggregate demand (AD) is the total of all the goods and services demanded at various price levels.
It's the sum of consumption, investment, government spending, and net exports (exports minus imports).
Here are the lists of factors that shift the aggregate-demand curve to the right and the long-run aggregate-supply curve to the right:
Factors that shift the aggregate-demand curve to the right:
An increase in consumer spending An increase in investment spending An increase in government spending A decrease in taxes An increase in net exports An increase in the money supply.
Factors that shift the long-run aggregate-supply curve to the right:
An increase in the quantity of labor
An increase in the quantity of capital
An increase in the quality of labor or capital
Technological advancements
the crowding-out effect reduces private spending,
and the investment-accelerator effect amplifies the increase in investment.
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At a computer fair, Porter saw a demonstration by Maxwell of an excellent new accounting software package published by Slyckbyte Co., but he felt it was overpriced at $750. "At $350," he said, "I would definitely buy it." Maxwell said that she was not authorized to give deals to anyone, not even such a good customer as Porter. Porter bought another package from a different company. Four days later, he received a package from Maxwell that contained the new software and a letter which said that Slyckbyte was happy to give him the discount he had wanted and that she looked forward to receiving his cheque within the next few days.
Discuss whether Porter must pay for the software.
Porter must pay for the software as per the general rule of contract law, i.e., acceptance of an offer is effective upon dispatch, not on receipt.
However, there are some important factors to be considered:
Porter bought a software package from another company,
which implies that he had no intention to buy the overpriced Sly Kbyte software in the first place.
Despite that, he received the package from Maxwell,
which contained the software and a letter stating that Sly Kbyte was happy to give him the discount he had wanted and that she looked forward to receiving his cheque within the next few days.
we can conclude that the contract was not made between Porter and Sly Kbyte on the day of the computer fair as there was no offer and acceptance.
But, it was made four days later when Porter received the package with the software and a letter from Maxwell.
So, the question is:
Is Porter bound to the terms and conditions mentioned in the letter?
As per the general rule of contract law, acceptance of an offer is effective upon dispatch, not on receipt.
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Using the following information, answer the following 6 questions.
You assist the controller of a newly established technology firm offering a pension plan to its employees. The company is considering going public in the next three years, and the president wants to be sure the company chooses accounting policies closest to IFRS so that changes in the future when the company goes public will be minimized.
The controller, Mr. Teslax provides you with the following information. You are required to assist him with the pension worksheet for the calendar year 2020.
The balance on January 1, 2020 of the Net Defined Benefit Liability/Asset account amounted to $240 Debit, which represents 20% the plan asset fair value at the beginning of 2020.
Mr. Teslax acknowledges that the company has incurred current service costs for 2020 but was unable to recall the amount. Also, he was sure that on January 1, 2020, the company amended its pension plan, which resulted in a reduction in prior service benefits for current employees. The present value of the reduced benefits (past service cost) were incurred at the beginning of 2020 but Mr. Teslax was unable to provide you with an amount.
A discount rate of 2% was used by the company. Based on this rate and the policy of using the opening balance for the year as the base amount, the annual interest cost was 19.4.
While the company determined the expected returns on invested assets to be $24, the plan asset has done well and received a higher return amounting to $38 for 2020.
The total pension expense was $98; the benefits paid to retired employees amounted to $112 and the fund received $152 as contributions from the company.
Mr. Teslax was very sure the fund obligation balance at the end of the year was correctly computed at $970 however the actuaries, upon reviewing the balance, suggested this balance was overstated by $90.4.
The net defined benefit liability/asset balance is calculated by adding the total pension expense, contributions from the company, and subtracting the benefits paid to retired employees.
To assist Mr. Teslax with the pension worksheet for the calendar year 2020, let's calculate the various components based on the provided information:
What is the amount of the current service cost for 2020?
Unfortunately, the amount of the current service cost for 2020 is not provided in the given information. We would need this information to calculate the current service cost.
What is the amount of the past service cost (reduction in prior service benefits) incurred at the beginning of 2020?
The amount of the past service cost is also not provided. Without this information, we cannot calculate the past service cost.
What is the interest cost for 2020?
The interest cost represents the increase in the present value of the projected benefit obligation (PBO) due to the passage of time. It is calculated by multiplying the discount rate by the opening balance of the net defined benefit liability/asset.
Interest Cost = Discount Rate * Opening Balance of Net Defined Benefit Liability/Asset
Interest Cost = 2% * $240 (opening balance)
Interest Cost = $4.8
Therefore, the interest cost for 2020 is $4.8.
What is the return on plan assets for 2020?
The return on plan assets is the actual return earned on the plan assets during the year. It is provided as $38.
What is the total pension expense for 2020?
The total pension expense consists of the current service cost, the past service cost, the interest cost, the expected return on plan assets, and any actuarial gains or losses.
Total Pension Expense = Current Service Cost + Past Service Cost + Interest Cost - Expected Return on Plan Assets
Total Pension Expense = Unknown + Unknown + $4.8 - $24 (expected return on plan assets)
Total Pension Expense = Unknown
Since the amounts for the current service cost and past service cost are not provided, we cannot calculate the total pension expense.
What is the net defined benefit liability/asset balance at the end of 2020?
The net defined benefit liability/asset balance is calculated by adding the total pension expense, contributions from the company, and subtracting the benefits paid to retired employees.
Net Defined Benefit Liability/Asset = Opening Balance + Total Pension Expense + Contributions - Benefits Paid
Net Defined Benefit Liability/Asset = $240 + Unknown + $152 - $112
Net Defined Benefit Liability/Asset = Unknown
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Ayn Company reported net credit sales for the current year of $1 million. The financial statements also disclosed that the beginning balance of net accounts receivable was $250,000 and the ending balance was $220,000. Assuming that no collections were made on accounts previously written off and that cash collected from customers was $970.000. the amount of uncollectible accounts written off was
a. 0
b. 160,000
c. 30,000
d. 60,000
The amount of uncollectible accounts written off is $60,000.
Explanation:
Given,
Net credit sales for the current year = $1,000,000
Beginning balance of net accounts receivable = $250,000
Ending balance of net accounts receivable = $220,000
Cash collected from customers = $970,000
Uncollectible accounts written off is calculated by using the following formula:
Uncollectible accounts written off = Beginning balance of net accounts receivable + Net credit sales - Ending balance of net accounts receivable - Cash collected from customers
Uncollectible accounts written off = $250,000 + $1,000,000 - $220,000 - $970,000
Uncollectible accounts written off = $60,000
the amount of uncollectible accounts written off was $60,000.
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Indicate one concept or question from any of the 10 project management knowledge areas.
One of the project management knowledge areas is Project Quality Management. The concept in this knowledge area is Quality Assurance.
The quality assurance is a process that is used to verify that the project outcomes, which are products, services, or results meet the quality requirements that have been set. The primary aim of quality assurance is to improve the quality of the product and reduce the chances of errors, defects, or poor quality of output. In addition, it is a process of measuring and controlling the quality of project deliverables.The quality assurance process involves creating a plan for quality assurance, executing the plan, and monitoring the outcomes to ensure the project's quality standards are met. The process can be used for different phases of a project and must be planned and implemented as early as possible. The quality assurance process can help prevent the risks associated with quality by detecting defects before they happen.
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If Mr. Smith thinks the last dollar spent on shirts yields less satisfaction than the last dollar spent on cola, and Smith is a utility-maximizing consumer, he should
a. decrease his spending on cola.
b. decrease his spending on cola and increase his spending on shirts.
c. increase his spending on shirts.
d. increase his spending on cola and decrease his spending on shirts
Answer:
Increase his spending on cola and decrease his spending on shirts.
Explanation:
Jim deposits $14.9,000 annually into a life insurance fund for the next 6 years, at which time he plans to retire. Instead of a lump sum, Jim wishes to receive annuities for the next 23 years. What is the annual payment he expects to receive beginning the year he retires if he assumes an interest rate of 8.1 percent for the whole time period?
To calculate the annual payment Jim expects to receive beginning the year he retires, if he assumes an interest rate of 8.1 percent for the whole time period given that Jim deposits $14,900 annually into a life insurance fund for the next 6 years, the following steps will be followed.
Step 1: Compute the value of the periodic payment.Using the future value of an ordinary annuity formula where: FVA = P[((1 + r)n - 1) / r] FVA is the future value of an annuity P is the amount of each payment r is the interest rate per period n is the total number of periods of the annuity.It becomes: $FVA =$ 14,900[((1 + 0.081)^(23-1) - 1) / 0.081] =$ 14,900[((1.081)^22 - 1) / 0.081] =$ 14,900[(4.872398 - 1) / 0.081] =$ 14,900[49.426] =$ 736,987.4.Step 2: Divide the future value of the annuity by the number of years of payments expected to be received. Payment per year = $736,987.4 / 23 Payment per year = $32,086.42Therefore, the annual payment Jim expects to receive beginning the year he retires if he assumes an interest rate of 8.1 percent for the whole time period is $32,086.42.
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Blue Mountain Distributors has a $40 million bond outstanding that carries a 12 percent coupon rate paid annually. Current bonds yield are 9.5 percent. The $40 million bond was issued 20 years ago with 30 years to maturity and carries a call premium of 5%. With the fall in interest rates the company's Finance Manager has recommended that the bond be refunded. The new bond issue would require $1.2 million in underwriting cost and an overlap period of one month is anticipated. Short term money market rates are currently 7 percent and Blue Mountain has a tax rate of 40 percent. Required: Advise Blue Mountain Distributors on whether or not they should refund the bond. (Show all calculations)
Given:Blue Mountain Distributors has a $40 million bond outstanding that carries a 12 percent coupon rate paid annually. Current bonds yield are 9.5 percent.
The $40 million bond was issued 20 years ago with 30 years to maturity and carries a call premium of 5%.The new bond issue would require $1.2 million in underwriting cost and an overlap period of one month is anticipated.Short term money market rates are currently 7 percent and Blue Mountain has a tax rate of 40 percent.To find:Should Blue Mountain Distributors refund the bond?Solution:The call price is the present value of $1000 paid annually for 30 years and discounted at 12% plus 5% premium for a bond callable at $1050.Call price = PV of annuity + premium= $1000 × [1 - 1/(1.12)30] / 0.12 + $1050 × (1 / 1.12)30= $9379.36 + $118.46= $9497.82
The company would receive $9497.82 for every $1000 bond if they decide to call the bond.The current value of the bond is the present value of $120 coupon payment plus the present value of the call price discounted at the yield to maturity.Yield to maturity (YTM) of old bond = 12%Current yield of bonds = 9.5%Therefore, the bond price should be higher than its par value, so it is selling at a premium.
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Rhys Carter would like to invest some money into a new business venture. To invest in this business, he will need to cough up R115000 by the end of the week. Unfortunately, he does not have R115000 available for investment, so will need to get a loan for the investment. Luckily, Bank of Dad has agreed to give him an interest-free loan provided he starts sleeping through the night and stops keeping his dad up all night. Before giving this loan, Rhys' dad would like to discuss the feasibility of the investment. Once invested in the business, Rhys expects to receive a payment of R30000 yearly for the next 5 years (at the end of each year). a) Calculate the value of Rhys' future income stream in the current period if the current interest rate in the economy is 10%. [4] b) Given the loan size, should Rhys take advantage of the investment opportunity? [2] c) Now suppose the interest rate in the economy changes to 8%. Would this have an impact on his investment decision? [4] Question 2 (20 Marks) Stella's endowment for the current period is R100000, and she expects to receive R140000 in the next period. If she can invest her money and borrow from the bank at an interest rate of 10%, answer the following questions. a) What is the most she can consume in the current period? [2] b) What is the most she can consume in the next period? [2] c) Graph her feasibility frontier for the set interest rate. [5] d) If she would like to smooth her consumption perfectly across both periods, how much can she consume in each period? e) Suppose the economy in which Stella lives is currently facing excess demand-deficient unemployment. The reserve bank approaches you for advice on what they could do to combat this issue. With your knowledge of unit 10 of the Core textbook, what would you recommend they do to stimulate employment? [2] f) Graph the impact of this change on Stella's feasibility frontier
The value of Rhys' future income stream in the current period if the current interest rate in the economy is 10% can be calculated using the formula of present value of an annuity.
the payment is an annuity since it is received at the end of each year for 5 years.
Present Value = Payment × (1 - 1/(1+r)n) / r Present Value
= 30000 × (1 - 1/(1+0.10)5) / 0.10
= R 115,223.18
The loan size Rhys received from his dad is R 115,000. Since Rhys is receiving R 115,223.18 from the business, it would be profitable to take advantage of this investment opportunity and take the loan size.
If the interest rate in the economy changes to 8%, the present value of the income stream would change since it is inversely proportional to the interest rate.
Present Value = Payment × (1 - 1/(1+r)n) / r Present Value = 30000 × (1 - 1/(1+0.08)5) / 0.08= R 130,128.02
As we can see, the present value has increased, making it more profitable to take advantage of the investment opportunity.
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