Answer:
Complementary goods are those goods that, as the word implies, are often used together. For example: milk and cereals, or gasoline and cars.
If the price of a complementary good increases, then, the price of the other complementary good will likely increase as well. The quantity demanded for both will fall, will the supply will increase.
This is exactly what would happen in the case, the price of the good that is complementary to lamps will increase, and its quantity demanded will fall.
3. If a balance sheet were prepared for Pala Medical Co. on June 30, 20Y1, what amount should be reported as cash?
Complete Question:
The cash account for Pala Medical Co. at June 30, 20Y1, indicated a balance of $166,436. The bank statement indicated a balance of $195,688 on June 30, 20Y1. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items:
a. Checks outstanding totaled $19,427.
b. A deposit of $12,300, representing receipts of June 30, had been made too late to appear on the bank statement.
c. The bank collected $26,500 on a $25,000 note, including interest of $1,500.
d. A check for $4,000 returned with the statement had been incorrectly recorded by Pala Medical Co. as $400. The check was for the payment of an obligation to Skyline Supply Co. for a purchase on account.
e. A check drawn for $195 had been erroneously charged by the bank as $915.
f. Bank service charges for June amounted to $55.
Answer:
Pala Medical Co.
Cash amount in the balance sheet = $189,281
Explanation:
a) Calculations:
Adjusted Cash balance at June 30, 20Y1
Cash balance $166,436
c) Note received by bank 25,000
c) Interest on the note 1,500
d) Returned check (3,600)
e) Bank charges (55)
Adjusted cash balance $189,281
b) Balance as per bank statement = $195,688
a. Checks outstanding totaled ($19,427)
b. A deposit of $12,300
e. Overstated cheque 720
Adjusted bank statement balance $189,281
c) Preparing a bank reconciliation helps to identify discrepancies between the cash book balance of Pala Medical Co and the company's bank statement balance. After the necessary adjustments, the two balances always agree and the adjusted figure is taken to the balance sheet.
Beartowne Enterprises uses an activityminusbased costing system to assign costs in its autominusparts division.
Activity Est. Indirect Activity Costs Allocation base Cost allocation rate
Materials $55,000 Material moves $3.00/move
Assembling $195,000 Machine hours $6.00/machine hour
Packaging $70,000 # of finished units $3.50/finished unit
The following units were produced in December with the following information. The company incurs no direct labor costs.
Part # # Produced Materials Costs # Moves Machine Hrs.
Part 001 1,450 $1,500 300 500
Part 002 5,500 $4,000 500 300
Part 003 3,950 $8,000 2,300 1,650
Total manufacturing costs for Part 003 is:_________
Answer:
Total manufacturing costs for Part 003 is:_________ $ 38625
Explanation:
Beartowne Enterprises
Activity Based Costing
We multiply the rate of of each activity with allocation base to get the indirect activity costs.
Total manufacturing costs for Part 003 is:_________
Materials Costs $ 8,000
Materials handling = 2,300 moves *$3.00/move= $ 6900
Assembling = 1,650 machine hours * $ 6.0= $ 9900
Packaging = 3,950 units * $3.50/finished unit = $ 13825
Total Manufacturing Costs $ 38625
Given Data
Part # # Produced Materials Costs # Moves Machine Hrs.
Part 001 1,450 $1,500 300 500
Part 002 5,500 $4,000 500 300
Part 003 3,950 $8,000 2,300 1,650
Activity . Indirect Activity Allocation Cost allocation rate
Est Costs base
Materials $55,000 Material moves $3.00/move
Assembling $195,000 Machine hours $6.00/machine hour
Packaging $70,000 # of finished units $3.50/finished unit
Jorgensen High Tech Inc. is a calendar-year, accrual-method taxpayer. At the end of year 1, Jorgensen accrued and deducted the following bonuses for certain employees for financial accounting purposes.
$40,000 for Ken.
$30,000 for Jayne.
$20,000 for Jill.
$10,000 for Justin.
How much of the accrued bonuses can Jorgensen deduct in year 1 under the following alternative scenarios?
(Leave no answer blank. Enter zero if applicable.)
Jorgensen paid the bonuses to employees on March 1 of year 2, and there is a requirement that the employee remain employed with Jorgensen on the payment date to receive the bonus.
Answer:
May deduct 100,000 in year 2 because the amount weren’t fixed at end of year 1 reason been that the employees are tend to be eligible to receive the bonuses only in a situation where they are employed on date that bonuses were been paid.
Explanation:
Calculation of How much of the accrued bonuses can Jorgensen deduct in year 1
March 1 of Year 2
Ken 40,000
Jayne30,000
Jill20,000
Justin 10,000
Total 100,000
In March 1 of year 2 the amount of $ 100,000 may
likely be deducted reason been that it was paid within 2 and a half months of year end.
Since we were told that Jorgensen paid the bonuses to employees on March 1 of year 2 and was as well told that the employee remain employed with Jorgensen on the date of the payment in order to receive the bonus this means that May deduct 100,000 in year 2 because the amount weren’t fixed at end of year 1 reason been that the employees are tend to be eligible to receive the bonuses only in a situation where they are employed on date that bonuses were been paid.
Although labor is typically viewed as a variable cost in the very short run, some labor costs may be fixed. Which of the following items represents an example of a fixed labor cost?A) An hourly employee.B) A temporary worker who is paid by the hour.C) A grad student in a NSF project.D) A salaried manager who has a three-year employment contract.
Answer:
D.
Explanation:
If he already has a fixed salary and a three-year employment then the variable is fixed
An example of a fixed labor cost is a salaried manager who has a three-year employment contract.
A VARIABLE cost is a cost that varies with the production. This is quite different from the FIXED COST that is fixed regardless of production.
In this case, since the worker has a three-year employment contract, his salary is fixed for the three years.
In conclusion, the answer is salaried manager who has a three-year employment contract.
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Assume that you are 30 years old today, and that you are planning on retirement at age 65. You expect your salary to be $42,000 one year from now and you also expect your salary to increase at a rate of 5% per year as long as you work. To save for your retirement, you plan on making annual contributions to a retirement account. Your first contribution will be made on your 31st birthday and will be 8% of this year's salary. Likewise, you expect to deposit 8% of your salary each year until you reach age 65. Assume that the rate of interest is 9%. The present value (PV) (at age 30) of your retirement savings is closest to
Answer:
$50,855.62
Explanation:
I prepared an excel spreadsheet to determine the yearly contributions to the plan and their future value.
once you reach 65 years, your retirement account should have $1,038,165. Now we need to determine the present value = $1,038,165 / (1 + 9%)³⁵ = $50,855.62
Rascal Corp. borrows $500,000 by signing on a 1-year, 12% promissory note from General Finance Company and assigns $600,000 of its accounts receivable as collateral for the loan. General Finance charges a financing fee of 1% of the receivables assigned. The journal entry for Rascal to record the borrowing will include a
Answer:
Dr Cash 494,000
Dr Finance Charge expense6,000
Cr Liability - Financing arrangement 500,000
Explanation:
The journal entry for Rascal to record the borrowing
Since Rascal Corp was said to borrow $500,000 from the General Finance Company in which $600,000 of its accounts receivable as collateral for the loan was been assigned and the General Finance charges a financing fee of 1% of the receivables assigned which mean the transaction will be recorded as:
DrCash 494,000
(500,000-6,000)
Dr Finance Charge expense6,000
Cr Liability - Financing arrangement 500,000
Calculation for Cash (difference)
Account receivable $600,000 ×General Finance charges of 1% =Finance Charge expense 6,000
Reporting Net Sales with Credit Sales, Sales Discounts, and Credit Card Sales
The following transactions were selected from the records of Ocean View Company:
July 12 Sold merchandise to Customer R, who charge d the $3,000 purchase on his
Visa creditCard. Visa charges OceanView a 2 percent credit card fee.
15. Sold merchandise to Customer S at an invoice price of $9,000; terms 3/10, n/30.
20. Sold merchandise to Customer T at an invoice price of $4,000; terms 3/10, n/30.
23 Collected payment from Customer S from July 15sale.
Aug. 25 Collected payment from Customer T from July 20 sale.
Required:
Assuming that Sales Discounts und Credit Card Discount s arc treated as contra-
revenues. compute net sales for the two months ended August 31.
Answer:
Net sales $15,670
Explanation:
Computation of thenet sales for the two months ended August 31.
Sales revenue:
Sales Revenue
July 12 Merchandise Sold to Customer R $3,000
July 20 Merchandise Sold to Customer S $4,000
July 15 Merchandise Sold to Customer T $9,000
Total ($3,000+$4,000+$9,000) $16,000
Less:Sales discounts (270)
($9,000 collected from S x 3%)
Credit card fee ($60)
($3,000 from R x 2%)
Net sales $15,670
Therefore the net sales for the two months ended August 31 will be $15,670
OJ's Orange Juice produces orange juice to sell in a competitive market.Given uncertainty in weather patterns, OJ has to determine how much juice to produce before knowing the competitive price. It is estimated that there is a 10 percent chance the competitive price will be $5 and a 90 percent chance the price will be $2. If the marginal cost of producing orange juice is MC(Q) = 2Q, then to maximize expected profits, OJ should produce:__________.a- 0.25 units. b- 2.5 units. c- 1.15 units. d- 0.9 units.
Answer:
c- 1.15 units.
Explanation:
This can be calculated as follows:
Expected price at 10 percent = $5 * 10% = $0.5
Expected price at 90 percent = $2 * 90% = $1.80
Total expected price (EP) = $0.5 + $1.80 = $2.3
Since profit is maximized when EP = MC, we have:
2.3 = 2Q
Q = 2.3 / 2 = 1.15
Therefore, OJ should produce 1.15 units to maximize expected profit. The correction is therefore c- 1.15 units.
Big Wheel, Inc. collects 25% of its sales on account in the month of the sale and 75% in the month following the sale. Sales on account are budgeted to be $16,300 for March and $32,600 for April. What are the budgeted cash receipts from sales on account for April
Answer:
Total cash collection= $20,375
Explanation:
Giving the following information:
Big Wheel, Inc. collects 25% of its sales on account in the month of the sale and 75% in the month following the sale.
Sales:
March= $16,300
April= $32,600
Cash collection April:
Sales on account from April= 32,600*0.25= 8,150
Sales on account from March= 16,300*0.75= 12,225
Total cash collection= $20,375
The economic situation of Rutenia is characterized by the following facts: GDP. Strong economic growth, of about 4%. Unemployment. Moderate unemployment of around 5% Inflation is very high, around 10% High public deficit.
Answer:
See below
Explanation:
Although a great GDP of 4% gives the impression of a strong economy, as is the case here, the inflation rate is much higher than desired. So, economic policies need to be reviewed in order to determine where the problem lies and what steps can be taken to remedy this situation.
Assume that Clampett, Inc., has $390,000 of sales, $340,000 of cost of goods sold, $250,000 of interest income, and $230,000 of dividends. What is Clampett, Inc.'s excess net passive income
Answer:
Clampett, Inc.'s excess net passive income is $262,500.
Explanation:
First we need to calculate the Gross Receipt
Gross Receipt
Sales $390,000
Interest Income $250,000
Dividend $230,000
Gross receipts $870,000
25% of Gross receipt = $870,000 x 25% = $217,500
Now Calculate the passive income
Interest Income $250,000
Dividend $230,000
Passive Income $480,000
Now calculate the excess passive income
Excess passive income = Passive income - 25% of gross receipt
Excess passive income = $480,000 - $217,500 = $262,500
As an economist working at the International Monetary Fund, you are given the following data for Burundi: observed per capita GDP, relative to the United States, is 0.01; predicted per capita GDP, given by , is 0.18. What is total factor productivity
Answer: 0.056
Explanation:
Total factor productivity is the ratio of the aggregate that is, the total output to the aggregate inputs. Total factor productivity is used to measure economic efficiency of a country.
From the question, we are informed that Burundi's observed per capita GDP, relative to the United States, is 0.01 and the predicted per capita GDP is 0.18. Then, the total factor productivity will be:
= 0.01/0.18
= 0.056
True or false: The plantwide overhead rate method uses multiple rates to allocate overhead costs to products.
Answer:
Flase.
Explanation:
The plantwide overhead rate method uses multiple rates to allocate overhead costs to products.
False.
As the name indicates, the plantwide overhead rate uses a single rate to allocate overhead. When the predetermined overhead rate is calculated using the activity base method, you have as many predetermined rates as activities.
To calculate a plant-wide overhead rate, you need to use the following formula:
Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
True or False: If a firm changes its credit policy and allows customers to pay in 90 days instead of 60 days, and everything else remains the same, the net cash flow in the next quarter is likely to decrease.
Answer:
True
Explanation:
by increasing the time customers can pay to 90 days, the amount of cash inflows is likely to reduce. thus, the net cash flow in the next quarter is likely to decrease.
Firm L has debt with a market value of $200,000 and a yield of 9%. The firm's equity has a market value of $300,000, its earnings are growing at a rate of 5%, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 12%. Under the MM extension with growth, what is Firm L's cost of equity?
Answer:
Firm L's cost of equity is 13.2%
Explanation:
In order to calculate Firm L's cost of equity we would have to calculate the following formula:
Firm L's cost of equity=Unlevered cost of equity+D/E*( Unlevered cost of equity-cost of debt)*(1-tax rate)
D/E = debt/equity
D/E = $200,000/$300,000
D/E=0.6666
Therefore, Firm L's cost of equity= 12%+0.6666*(12%-9%)*(1-0.4)
Firm L's cost of equity=13.2%
Firm L's cost of equity is 13.2%
Max, an employee at HiFi LLC, is responsible for performing the job analysis process in her organization. She is currently planning the job analysis. Which of the following should typically be Max's next step?
a. Preparing for and introducing job analysis
b. Developing job descriptions and job specifications
c. Conducting the job analysis
d. Maintaining and updating job descriptions
Answer:
The correct answer is the option C: Conducting the job analysis.
Explanation:
To begin with, the term of "Job Analysis" refers to a method used in the organizations with the purpose of generating job descriptions and specifications in order to establish a better communication inside the organization and also to know better who the best candidates will be for future jobs. Therefore that this analysis focus on the correct comprehension from the analyst regarding the job that is being under analysis. When the analysis has began the person in charge of it will have to planned carafully the way that she will get the information for later transform it into the job description and that is why that once that the planning has been done the person needs to conduct the job analysis in order to obtain the results expect that are the proper description of the job and all of its specifications for future employees.
Formaggio Vecchio announced its regular quarterly cash dividend of $0.20 per share. Currently there are one million shares outstanding.
Declaration date: October 24, 2006
Ex-dividend date: November 20, 2006
Record date: November 22, 2006
Payment date: December 15, 2006
On ____ will the stock price change to reflect the value of the dividend;
Formaggioâs stock price at the end of November is expected to be $20. The dividend yield is ____;
Suppose that the marginal tax rate on dividend is 15% and the marginal tax rate on capital gain is 10%, the stock price will fall by _____ after the ex-dividend date;
Suppose that the company decides to use the same amount of cash to buy back shares rather than to issue cash dividends. The company will buy back shares at the market price at the end of November. You currently hold 10000 shares, and you decide to sell 1000 shares during the repurchase. The percentage ownership after the repurchase is ____ ;
Suppose that the company decides to issue a 10% stock dividend instead of a cash dividend. The stock price will fall by ___ due to the dilution
Answer:
A.On Ex-dividend date: November 20, 2006
B.1%
C.$0.19
D. $1.82
Explanation:
1.On Ex-dividend date: November 20, 2006
will the stock price change to reflect the value of the dividend
b. Calculation for Formaggio’s dividend yield
Using this formula
Dividend yield = dividend/share price
Let plug in the formula
= .20/20 = 1%
c. Calculation of how much the stock price is likely to fall
0.20*(1 – 15%) = P*(1 – 10%)
Solve for P = $0.19
d. Calculation of How much is the stock price likely to fall Suppose that the company decides to issue a 10% stock dividend instead of a cash dividend.
$1,000,000 + (1,000,000 * 10%)
$1,000,00+$100,000
= 1,100,000 total shares
Hence,
$20,000,000 / 1,100,000 = $18.18 per share
$20 – 18.18 = $1.82 fall
Adair Valley issued $20,000,000 of general obligation bonds to construct a multipurpose arena. These bonds will be serviced by a tax on the revenue from events held in the arena and will mature in 2024. During 2018, Adair Valley budgeted $2,500,000 of tax revenues and $2,000,000 for interest on the bonds in its Debt Service Fund. Prepare the journal entries necessary to record (a) the budget and (b) the expenditure when the interest comes due for payment.
Answer: Please see explanation column for answer.
Explanation:
a) Journal entry to record the budget
Account Debit Credit
Estimated Revenues $2,500,000
Appropriation $2,000,000
Budget fund $500,000
Calculation
Budget fund= Estimated Revenues-Appropriation = $2,500,000- $2,000,000= $500,000
b) Journal entry to record the the expenditure when the interest comes due for payment.
Account Debit Credit
Expenditure Interest $2,000,000
Matured Interest payable $2,000,000
On January 1, the Matthews Band pays $66,600 for sound equipment. The band estimates it will use this equipment for five years and perform 200 concerts. It estimates that after five years it can sell the equipment for $2,000. During the first year, the band performs 55 concerts. Compute the first-year depreciation using the units-of-production method.
Answer:
Annual depreciation= $17,765
Explanation:
Giving the following information:
Original cost= $66,600
Number of units= 200
Salvage value= $2,000
During the first year, the band performs 55 concerts.
To calculate the annual depreciation under the units-of- production method, we need to use the following formula:
Annual depreciation= [(original cost - salvage value)/useful life of production in units]*units operated
Annual depreciation= [(66,600 - 2,000)/200]*55
Annual depreciation= $17,765
Due to use, wear and tear, the monetary worth of an object decreases with time. Depreciation is the term used to describe this reduction.
Annual depreciation= $17,765
Giving the following data:
Original cost= $66,600Number of units= 200Salvage value= $2,000During the first year, the band performs 55 concerts.
To calculate the annual depreciation under the units-of- production method, we need to use the following formula:-Annual depreciation= [(original cost - salvage value)/useful life of production in units]*units operated
Annual depreciation= [(66,600 - 2,000)/200]*55
Annual depreciation= $17,765
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On October 1, Vaughn's Carpet Service borrows $349000 from First National Bank on a 4-month, $349000, 9% note. What entry must Vaughn's Carpet Service make on December 31 before financial statements are prepared
Answer:
Dr Notes Payable 349,000
Dr Interest Payable 10,470
Cr Cash 359,470
Explanation:
Preparation of Vaughn's Carpet Service Journal entry
Since we were told that Vaughn's Carpet Service borrows the amount of $349,000 on 1st October from First National Bank based on a 4-month, $349,000, 9% note the transaction will be recorded as :
Dr Notes Payable 349,000
Dr Interest Payable 10,470
Cr Cash 359,470
$349,000 +($349,000 *.09* 4/12)
=$349,000+10,470
=$359,,470
3. Problems and Applications Q3 This chapter discusses companies that are oligopolists in the market for the goods they sell. Many of the same ideas apply to companies that are oligopolists in the market for the inputs they buy. If sellers who are oligopolists try to increase the price of goods they sell, the goal of buyers who are oligopolists is to try to decrease the prices of goods they buy. Major league baseball team owners have an oligopoly in the market for baseball players. The owners' goal is to keep players' salaries . True or False: This goal is difficult to achieve because teams can attract better players with higher salaries. True False Baseball players went on strike in 1994 because they would not accept the salary cap that the owners wanted to impose. True or False: The owners felt the need for a salary cap to dissolve collusive behavior over salaries. True False
Answer:
Oligopolistic Companies:
a) The owners' goal is to keep players' salaries capped. TRUE
b) Goal is difficult to achieve: TRUE
c) 1994 Baseball players' strike: TRUE
d) Owners needed salary cap to dissolve collusive behavior over salaries: TRUE.
Explanation:
a) According to the Economist, Oligopoly is "a market situation in which each of a few producers affects but does not control the market. Each producer must consider the effect of a price change on the actions of the other producers." There is little competition among the players as each tries to control the market with price cuts and quantity reductions. For example, a cut in price by one may lead to an equal reduction by the others, with the result that each firm will retain approximately the same share of the market as before but at a lowered profit level.
b) According to wikipedia.com, "The 1994–95 Major League Baseball strike was the eighth work stoppage in baseball history, as well as the fourth in-season work stoppage in 22 years. Due to the strike, both the 1994 and 1995 seasons were not played to a complete 162 games; the strike was called after most teams had played at least 113 games in 1994." The strike ended the next April, after 232 days, when the players had successfully resisted the salary cap.
Julie Whiteweiler made $930 this week. Only social security (fully taxable) and federal income taxes attach to her pay. Whiteweiler contributes $100 each week to her company's 401(k) plan and has $25 put into her health savings account (nonqualified) each week. Her employer matches this $25 each week.
Required:
Determine Whiteweiler's take-home pay if she is single and claims 4 allowances (use the wage-bracket method).
Answer:
Step 1: Calculate FICA (OASDI & HI):
Total wage subjected to FICA is $930. Why? Contributions to 401K is only exempted from Fed. Income Tax Withholding (FIT) not FICA. As for HSA contrib., it is exempted for both FICA and FIT. However, the plan is non-qualified, which means that $25 contributed by employee is taxable for both. The $25 matching from employer for HSA is excluded from income and income taxes.
OASDI RATE 2012: 4.2% of $930; therefore, $39.06
HI RATE 2012: 1.45% of $930; therefore, $13.49
TOTAL FICA TAX: $52.55
STEP 2: Calculate FIT:
Total earnings subjected to FIT is ($930-100)= $830. Why? $100 contributions to 401k is exempted from FIT. HSA contrib. is unqualified.; therefore, contributions from employee is taxable. Using Wage Bracket Method 2012, the FIT is $89.
STEP 3: Getting the Take-Home Pay answer:
($930-100(401k))-25(HSA:Employee)-$52.55(FICA)-89(FIT)=$663.45
Explanation:
If the factory overhead is underapplied, then the adjusting journal entry to close the factory overhead account includes a: (Check all that apply.)\
Answer:
Debit to cost of goods sold and credit to factory overhead
Explanation:
Here we are interested in knowing the appropriate journal entry when the factory overhead is under applied.
What happens to the factory overhead journal in this case is that the we should have an adjusting journal entry.
The adjusting journal entry here is that we debit cost of goods sold and credit factory overhead
Gold standard required countries to A. keep the supply of foreign exchange less than their domestic money supply. B. restrict the demand for foreign goods. C. keep the supply of their domestic money constant. D. keep the supply of their domestic money fixed in proportion to their gold holdings.
Answer:
D.) Keep the supply of there domestic money fixed in proportion to their gold holdings.
Explanation:
The Gold Standard was a monetary system under which countries fixed the value of their money in terms of a specified amount of gold. With the gold standard, countries agreed to convert the paper money into a fixed amount of gold.
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Determine the missing 2022 change percentages for (a) Intangible assets and (b) Total assets in the horizontal analysis for Mort Company
Answer:
The information that the question is referring to is this:
Assets 2017 2016 Amount Percent
Current Assets $900,000 $800,000 $100,000 12.50%
Plant Assets $475,000 $550,000 ($75,000) (13.6%)
Intangible Assets $300,000 $225,000 $75,000
Total Assets $1,675,000 $1,575,000 $100,000
Explanation:
Change in intangible assets
75,000 x 100 / 225,000 = 33.3%
Change in total assets
100,000 x 100 / 1,575,000 = 6.3%
Suppose a company will issue new 20-year debt with a par value of $1,000 and a coupon rate of 9%, paid annually. The issue price will be $1,000. The tax rate is 25%. If the flotation cost is 2% of the issue proceeds, then what is the after-tax cost of debt
Answer:
After cost of debt for a floatation cost of 2% is 6.62%
Explanation:
After tax cost of debt = Market interest × (1- tax rate)
We will get the cost of debt using the time value of money principle.
PV = -$1,000
Pmt = $1,000 × 9%
=$90
P/yr = 1
N = 20
FV =1,000
Tax rate = 25%
YTM
The market interest rate is 9% using financial calculator hence;
After-tax cost of debt = Market interest × (1-tax rate)
= 0.09 × (1 - 0.25)
= 0.0675 or 6.75%
If floatation cost is 2%, then
Net receipts after floatation cost = Cost × (1 - floatation rate)
= 0.0675 × (1- 0.02)
= 0.06615 or 6.62%
Your firm (an Australian firm) makes a sale to a Japanese customer. The sale price is 200 million Japanese Yen payable in exactly three months from today. The current exchange rate is AUD/JPY = 90 (i.e., 1 Australian Dollar (AUD) is worth 90 Japanese Yen (JPY)). The current interest rates in Australia and Japan are 3% p.a. and 0.5% p.a., respectively.Given this information, please answer the following questions. Please label your answers according to parts.(a) Given that Australian Dollar is the domestic currency, what is the direct quote of the exchange rate between Australian Dollar and Japanese Yen ? Please round the final answer to five decimal places.(b) What is the theoretical current forward exchange rate quoted directly in terms of Australian Dollar (i.e. JPY/AUD) for delivery three months from today ? Show your input to the formula to arrive at the final answer. Please round the final answer to five decimal places.(c) How can the firm take advantage of any decreases in the exchange rate and also ensure that it receives at least Australian $2 million ? (Hint: Which derivative instrument can be used to achieve this objective?(d) Ignoring the cost of the derivative instrument to be used in part (c), what would be the outcome from hedging if the spot exchange rate in 3 month’s time is (i) AUD/JPY=150 and (ii) AUD/JPY = 50?
Answer:
An Australian Firm Selling to a Japanese Customer
a) Direct Quote of the Exchange Rate between Australian Dollar and Japanese Yen:
A$ 1 = ¥90
Meaning 1 Australian Dollar = 90 Japanese Yen.
Therefore, the price of the goods would be A$ 2,222,222.22222 (¥200 million)/ ¥90
b)Theoretical Current Forward Exchange Rate, quoted in terms of JPY/AUD for delivery in three months:
= Spot Rate x (1 + Japanese Interest Rate) / (1 + Australian Interest Rate) x 360/90
= ¥90 x (1 +0.005) / (1 +0.03) x 360/90 = ¥90 x 1.005/1.03 x 360/90
= ¥351.26214 =A$1
c) The Australian firm can take advantage of any decreases in the exchange rate and also ensure that it receives at least Australian $2 million by entering into a Currency Forwards Contract.
d) If the spot exchange rate in 3 month's time is:
(i) AUD/JPY=150, the outcome of the hedging with a Currency Forwards Contract to get at least A$ 2 million would be the gain of:
Forward Exchange outcome in Australian Dollars = ¥200 million/ ¥150 =
A$ 1,333,333.33333
Hedging outcome minus Forward Exchange outcome
A$2 million - A$ 1,333,333.33333 = A$666,666.66667
(ii) AUD/JPY = 50, the outcome of the hedging with a Currency Forwards Contract to get at least A$ 2 million would be the loss of:
Forward Exchange outcome = in Australian Dollars = ¥200 million/ ¥50 =
A$4 million
Hedging outcome minus Forward Exchange outcome
A$2 million - $4 million = -A$2million
Explanation:
a) Currency forwards contracts and future contracts are used to hedge the currency risk. For example, a company expecting to receive ¥200 million in 90 days, can enter into a forward contract to deliver the ¥200 million and receive equivalent Australian dollars in 90 days at an exchange rate specified today.
b) If A$ 1 = ¥90
Therefore, the price of the goods would be A$ 2,222,222.22222 (¥200 million)/ ¥90 in Australian Dollars.
If a small electric automobile manufacturer is able to gain the social return generated by its electric motor, its demand for financial capital would
Answer: shift to the left
Explanation:
The social return helps in comparing the value of benefits and the costs to achieving the benefits. The social return is the ratio of net present value of the benefits in comparison to the net present value of the investment or the costs to getting the benefits.
In this case, if a small electric automobile manufacturer is able to gain the social return generated by its electric motor, it would decrease the demand for financial capital which simply means that the demand for financial capital will shift to the left. This shift to the left is as a result of the gain in its social return gotten by the electric motor.
Altoona Corporation has two divisions, Hinges and Doors, which are both organized as profit centers; the Hinge Division produces and sells hinges to the Door Division and to outside customers. The Hinge Division has total costs of $43, $26 of which are variable. The Hinge Division is operating significantly below capacity and sells the hinges for $58.The Door Division has received an offer from an outsider vendor to supply all the hinges it needs (32,000 hinges) at a cost of $53. The manager of the Door Division is considering the offer but wants to approach the Hinge Division first.What would be the profit impact to Altoona Corporation as a whole if the Door Division purchased the 32,000 hinges it needs from the outside vendor for $53?a. No change in profit to Altoona.b. $160,000 increase in profits.c. $160,000 decrease in profits.d. $864,000 decrease in profits.
Answer:
d. $864,000 decrease in profits.
Explanation:
Hinge Division's total cost per unit:
variable $26
fixed $17
total $43
sales price $58
contribution margin $32
profit margin $15
Alternative A Alternative B Differential
intercompany outside amount
money paid to $0 $1,696,000 ($1,696,000)
outside vendor
variable costs $832,000 $0 $832,000
fixed costs $544,000 $544,000 $0
total costs $1,376,000 $2,240,000 ($864,000)
If the hinges are purchased form an outside vendor, the corporation's total profits will decrease by $864,000.
If he wanted the cash award of each of the five prizes to be $45,000 and his estate could earn 7% per year, how much would he need to fund his prizes
Answer:
The answer is $3,214,285.71
Explanation:
Price of each award is $45,000
And there are 5
Therefore, we have 5 x $45,000
=$225,000.
So, $225,000 is the future value.
Rate of return(r) in 7% and it is being assumed that it is forever.
So, so how much will be needed to fund his prizes(present value)?:
PV = FV/r
= $225,000/0.07
=$3,214,285.71