The dollar amounts that go in blanks (A) and (B) are $10 and $11, respectively, in Table 1.
In Table 1, the given price per unit is $10. To determine the dollar amounts in blanks (A) and (B), we need to calculate the marginal revenue for each corresponding quantity.
Marginal revenue represents the additional revenue generated from selling one more unit. It is calculated by multiplying the price per unit by the change in quantity.
Given that the initial quantity sold is 10 and the marginal revenue is not provided, we can infer that the next unit sold would have the same price per unit, which is $10. Therefore, the dollar amount in blank (A) is $10.
For blank (B), we observe that the quantity increases to 11. To calculate the marginal revenue for this additional unit, we multiply the price per unit ($10) by the change in quantity (1). Therefore, the dollar amount in blank (B) is $11.
Hence, the correct answer is option O a: $11 and $11, as stated in the summary.
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onsider the following returns for two investments, A and B, over the past four years:
Investment 1: 3% 11% –6% 11%
Investment 2: 8% 19% –10% 13% a-1.
a1. Calculate the mean for each investment. (Round your answers to 2 decimal places.)
Mean: Investment 1 percent
Investment 2 percent
a-2. Which investment provides the higher return?
Investment 1
Investment 2
b-1. Calculate the standard deviation for each investment. (Round your answers to 2 decimal places.)
Standard Deviation Investment 1 Investment 2 b-2. Which investment provides less risk?
Investment 1
Investment 2
c-1. Given a risk-free rate of 1.2%, calculate the Sharpe ratio for each investment. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Sharpe Ratio Investment 1 Investment 2
c-2. Which investment has performed better? Investment 1 Investment 2
a-1. The mean return for Investment 1 is 4.75% and for Investment 2 is 7.50%.
a-2. Investment 2 has a higher mean return compared to Investment 1.
b-1. The standard deviation for Investment 1 is approximately 3.72% and for Investment 2 is around 7.22%.
b-2. Investment 1 has lower risk compared to Investment 2 based on the standard deviation.
c-1. The Sharpe ratio for Investment 1 is approximately 1.01 and for Investment 2 is about 0.71.
c-2. Investment 1 outperforms Investment 2 in terms of risk-adjusted performance based on the Sharpe ratio.
To calculate the mean for each investment, we sum up the returns and divide by the number of periods:
a-1. Mean:
Investment 1: (3% + 11% - 6% + 11%) / 4 = 4.75%
Investment 2: (8% + 19% - 10% + 13%) / 4 = 7.50%
a-2. Investment 2 provides the higher return with a mean of 7.50%.
To calculate the standard deviation for each investment, we need to find the deviation of each return from the mean, square it, sum the squared deviations, divide by the number of periods, and take the square root:
b-1. Standard Deviation:
Investment 1:
Deviation from mean: (3% - 4.75%)² + (11% - 4.75%)² + (-6% - 4.75%)² + (11% - 4.75%)²
Sum of squared deviations: 55.25
Variance: 55.25 / 4 = 13.81
Standard deviation: √13.81 ≈ 3.72%
Investment 2:
Deviation from mean: (8% - 7.50%)² + (19% - 7.50%)² + (-10% - 7.50%)² + (13% - 7.50%)²
Sum of squared deviations: 208.50
Variance: 208.50 / 4 = 52.13
Standard deviation: √52.13 ≈ 7.22%
b-2. Investment 1 has less risk with a standard deviation of 3.72%.
To calculate the Sharpe ratio for each investment, we subtract the risk-free rate from the mean return and divide it by the standard deviation:
c-1. Sharpe Ratio:
Investment 1: (4.75% - 1.2%) / 3.72% ≈ 1.01
Investment 2: (7.50% - 1.2%) / 7.22% ≈ 0.71
c-2. Investment 1 has a higher Sharpe ratio, indicating better performance when considering the risk-free rate.
In summary, Investment 2 provides a higher return in terms of mean, but Investment 1 has less risk according to the standard deviation. However, when considering risk-adjusted performance using the Sharpe ratio, Investment 1 performs better than Investment 2.
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On November 16, 2018, Durable Electronics Inc. entered into a 6-month, P950,000 purchase commitment for a supply of product A. On December 31, 2018, the market value of this material had fallen to P930,000. On May 16, 2019 where the actual purchase was made, the market value further declined to P900,000. The loss on purchase commitment on December 31, 2018 is
On December 31, 2018, the loss on the purchase commitment for Durable Electronics Inc. can be calculated by comparing the market value of the material on that date with the original purchase commitment amount. The market value on December 31, 2018, is P930,000, while the purchase commitment was for P950,000.
To calculate the loss, subtract the market value from the purchase commitment amount:
P950,000 - P930,000 = P20,000
Therefore, the loss on the purchase commitment on December 31, 2018, is P20,000.
It's important to note that the market value of the material further declined to P900,000 on May 16, 2019. However, this decline is not relevant to the calculation of the loss on the purchase commitment on December 31, 2018 is P20,000, as the actual purchase was made on May 16, 2019.
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Please give final answer of both parts that which one
is true or it in 20 minutes please... I'll give you up
thumb definitely
31. Financial innovation in the 1980 s led to the establishment of many foreign banks in Canada. 32. It is much easier to establish a Schedule II bank than a Schedule III bank in Canada.
Financial innovation in the 1980s led to the establishment of many foreign banks in Canada and it is true. The first part of the question is the statement that has been given. The statement claims that many foreign banks were established in Canada as a result of financial innovation that took place in the 1980s.
There is ample evidence to support this claim as the banking sector in Canada underwent significant changes in the 1980s. The deregulation of the financial sector that occurred in this period allowed foreign banks to establish a presence in Canada. As a result, many foreign banks established operations in Canada during this time. Therefore, it can be concluded that the statement is true. Now, moving on to the second statement; It is much easier to establish a Schedule II bank than a Schedule III bank in Canada.
This statement is also true. Schedule II and Schedule III are the two categories of banks that are defined in the Canadian Banking Act. Schedule II banks are usually foreign-owned banks that operate in Canada. They are subject to less stringent regulations than Schedule III banks. Schedule III banks are domestic banks that are regulated more heavily than Schedule II banks. Therefore, it is easier to establish a Schedule II bank in Canada than a Schedule III bank. This statement is also true. So, both the statements are true.
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Filer Manufacturing has 4,211,707 shares of common stock outstanding. The current share price is $64.96, and the book value per share is $6.52. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value of $45,478,549, has a 0.07 coupon, matures in 19 years and sells for 88 percent of par. The second issue has a face value of $58,611,848, has a 0.06 coupon, matures in 20 years, and sells for 92 percent of par.
The most recent dividend was $2.84 and the dividend growth rate is 0.04. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 0.26.
What is Filer's cost of equity? Enter the answer with 4 decimals (e.g. 0.2345)
The cost of equity of Filer Manufacturing with 4 decimals is 0.1245.
Here's how to get to that answer:
Formula for the cost of equity is, Cost of Equity = (Next year's dividend / current market price of stock) + Growth rate of dividends
Cost of Equity = (Next year's dividend / current market price of stock) + Growth rate of dividends
Given,
Current market price of stock = $64.96
Growth rate of dividends = 0.04
Next year's dividend = $2.84 * (1+0.04)
= $2.95
Substitute all the values in the formula, Cost of Equity = (2.95 / 64.96) + 0.04
Cost of Equity = 0.0863 + 0.04
Cost of Equity = 0.1263
The Weighted Average Cost of Debt formula is, WACC = (E/V * Re) + ((D/V * Rd) * (1 - Tc))
Where,
E = Market value of the firm's equity
D = Market value of the firm's debt
Re = Cost of equity
Rd = Cost of debt
Tc = Corporate tax rate
V = Total value of capital (equity + debt)
E/V = % of financing that is equity
D/V = % of financing that is debt
Given,
Market value of equity = 4,211,707 * $64.96 = $273,370,716
Market value of debt = 0.88 * $45,478,549 + 0.92 * $58,611,848
= $96,661,465
Total value of capital = $273,370,716 + $96,661,465
= $370,032,181
Equity portion = 273,370,716 / 370,032,181 = 0.7381
Debt portion = 1 - 0.7381
= 0.2619
Corporate tax rate = 0.26
The first bond issue has a face value of $45,478,549, has a 0.07 coupon, matures in 19 years and sells for 88 percent of par.
Therefore, semi-annual coupon payment = (0.07 * 45,478,549) / 2 = $1,592,649
The second bond issue has a face value of $58,611,848, has a 0.06 coupon, matures in 20 years, and sells for 92 percent of par.
Therefore, semi-annual coupon payment = (0.06 * 58,611,848) / 2
= $1,758,356
The total semi-annual coupon payment = $1,592,649 + $1,758,356
= $3,351,005
The cost of debt formula is, Cost of debt = (semi-annual coupon payment / Bond price) * 2
Bond price for first bond issue = 0.88 * $45,478,549
= $40,014,711.12
The WACC formula is, WACC = (E/V * Re) + ((D/V * Rd) * (1 - Tc))
Substitute the calculated values, WACC = (0.7381 * 0.1245) + (0.2619 * 0.0571) * (1 - 0.26) = 0.0928
Therefore, Filer's cost of equity is 0.1245 with 4 decimals.
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Which of the following statements about refunding operations is CORRECT? Check all that apply:
a)
Refunding operations allow corporations to reduce their interest expense.
b)
Refunding operations only occur after a significant interest rate increasec)
Refunding operations allow the corporation to refund investors who no longer want to hold the company's bonds.
d)
Refunding operations are typically completed using the company's existing cash reserves
The statements about refunding operations. Option A and C are correct.
A refunding operation is an operation that involves issuing new securities in order to retire or redeem existing securities. They are typically carried out by corporations and municipal governments as a way to reduce their interest expenses by taking advantage of lower interest rates than those on the securities that they are redeeming.
Option A: Refunding operations allow corporations to reduce their interest expense. This statement is correct, because corporations use refunding operations as a way to lower their interest expenses by taking advantage of lower interest rates than those on the securities that they are redeeming.
Option C: Refunding operations allow the corporation to refund investors who no longer want to hold the company's bonds. This statement is also correct, because refunding operations are typically carried out by corporations and municipal governments as a way to retire or redeem existing securities, and allow the corporation to refund investors who no longer want to hold the company's bonds.
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bearco blends silicon and nitrogen to produce two types of fertilizers. fertilizer 1 must be at least 40% nitrogen and sells for $15/kg. fertilizer 2 must be at least 50% nitrogen and sells for $16/kg. bearco can purchase up to 800kg of nitrogen at $14/kg and up to 1,000 kg of silicon at $12/kg. assuming that all fertilizer produced can be sold.
Formulate an LP model (define decision variables and state objective function) to help bearco maximize profits. *do not need to include constraints in your LP model
Let X1 and X2 be the number of kilograms of fertilizer 1 and fertilizer 2 produced by Bearco, respectively.
The objective is to maximize profit, which is the revenue generated from selling the fertilizers minus the cost of producing them. The revenue generated from X1 and X2 can be calculated as follows:Revenue = (amount of fertilizer 1 produced × selling price per kilogram) + (amount of fertilizer 2 produced × selling price per kilogram)Revenue = (X1 × $15/kg) + (X2 × $16/kg)
The cost of producing X1 and X2 can be calculated as follows:Cost = (amount of nitrogen used in fertilizer 1 × cost per kilogram of nitrogen) + (amount of silicon used in fertilizer 1 × cost per kilogram of silicon) + (amount of nitrogen used in fertilizer 2 × cost per kilogram of nitrogen) + (amount of silicon used in fertilizer 2 × cost per kilogram of silicon)Cost = (0.4X1 × $14/kg) + (X1 × $12/kg) + (0.5X2 × $14/kg) + (X2 × $12/kg)
Therefore, the objective function is:maximize Z = (X1 × $15/kg) + (X2 × $16/kg) - [(0.4X1 × $14/kg) + (X1 × $12/kg) + (0.5X2 × $14/kg) + (X2 × $12/kg)]
Subject to the following constraints :X1 ≥ 0X2 ≥ 0X1 + X2 ≤ 800 (since Bearco can purchase up to 800kg of nitrogen)X1 + X2 ≤ 1000 (since Bearco can purchase up to 1000kg of silicon)
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XYZ corp. has 20,000 shares of common stocks outstanding that are currently traded for $13 per share and have a rate of return of 5.80%. They also have 4,000 shares of 5.90% preferred stocks that are selling for $69.5 per share. The preferred stock has a par value of $100. Finally, they have 7,000 bonds outstanding that mature in 11 years, have par value (face value) of $1,000, and sell for 97.5% of par. The yield-to-maturity on the debt is 3.40%.What is the XYZ's weighted average cost of capital if the tax rate is 21%?
Weighted Average Cost of Capital is an essential concept in finance. The weighted average cost of capital or WACC is a calculation of the average cost of capital, which includes equity, debt, and preferred stock, and their respective weightings within the capital structure of a business.
XYZ Corp. has 20,000 shares of common stocks outstanding that are currently traded for $13 per share and have a rate of return of 5.80%. They also have 4,000 shares of 5.90% preferred stocks that are selling for $69.5 per share. The preferred stock has a par value of $100. Finally, they have 7,000 bonds outstanding that mature in 11 years, have par value (face value) of $1,000, and sell for 97.5% of par. The yield-to-maturity on the debt is 3.40%.Given that the tax rate is 21%, we have to calculate the WACC for the XYZ Corporation.
For this, the first step is to calculate the cost of equity. Cost of equity = (Dividend per share / Market value per share) + Growth rate= (0.00 / $13) + 5.80%= 5.80%.Weight of equity= (Market value of equity / Total capitalization) = (20,000*$13) / (20,000*$13 + 4,000*$69.5 + 7,000*$970) = 2.06%Next is the cost of preferred stock. Cost of preferred stock = (Preferred dividend / Market value of preferred stock)= (5.90%* $100) / $69.5= 8.48%.Weight of preferred stock = (Market value of preferred stock / Total capitalization) = (4,000*$69.5) / (20,000*$13 + 4,000*$69.5 + 7,000*$970) = 1.09%.Next, calculate the cost of debt. Cost of debt = (YTM * (1 - tax rate))= (3.40% * (1-21%))= 2.69%.Weight of debt = (Market value of debt / Total capitalization) = (7,000 * 0.975* $1,000) / (20,000*$13 + 4,000*$69.5 + 7,000* $970) = 96.85%.Finally, WACC= Weight of equity * Cost of equity + Weight of preferred stock * Cost of preferred stock + Weight of debt * Cost of debt= (2.06% * 5.80%) + (1.09% * 8.48%) + (96.85% * 2.69%)= 3.41%.
Therefore, the WACC of XYZ Corporation, when the tax rate is 21%, is 3.41%.
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You have been offered a unique investment opportunity. If you invest $10000 today, you will receive $500 one year from now, $1500 two years from now, and $10000 nine years from now.What is the NPV of the opportunity if the cost of capital is 6% per year?
Investing $10,000 with cash flows of $500, $1,500, and $10,000 has an NPV of $8,057.16 at a 6% cost of capital.
To calculate the NPV, we can use the formula:
NPV = CF1 / (1 + r)^1 + CF2 / (1 + r)^2 + CF3 / (1 + r)^3 - Initial Investment
where CF is the cash flow in each year, r is the cost of capital, and the superscripts denote the year.
Plugging in the values, we get:
NPV = 500 / (1 + 0.06)^1 + 1500 / (1 + 0.06)^2 + 10000 / (1 + 0.06)^3 - 10000\
NPV = 500 / 1.06 + 1500 / 1.1236 + 10000 / 1.191016 - 10000\
NPV = 471.70 + 1228.19 + 8057.16 - 10000\
NPV = $8,057.16
Therefore, the NPV of the investment opportunity is $8,057.16 at a 6% cost of capital. Since the NPV is positive, the investment is expected to generate a return greater than the cost of capital and would be considered a good investment.
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An older relative who manages a team of 10 including primarily millennial and GenZ has asked for some advice on managing cell phones in their call center during work hours. What are 4 tips you would share for your relative?
Recognize and reward employees who demonstrate responsible cell phone use.
Here are four tips for your relative on managing cell phones in their call center:
1. Set expectations and guidelines: Clearly communicate the expectations regarding cell phone usage during work hours. Establish guidelines that define when and where cell phones can be used, such as during designated breaks or in emergency situations.
2. Foster a culture of accountability: Encourage employees to take responsibility for their cell phone usage. Emphasize the impact it can have on productivity and customer service. Encourage self-regulation and peer accountability within the team.
3. Provide designated break times: Allocate specific break times for employees to use their cell phones. This allows them to fulfill personal needs while ensuring uninterrupted work during active call periods.
4. Offer incentives for compliance: Recognize and reward employees who demonstrate responsible cell phone use. This can be through incentives like extended breaks or small rewards, motivating them to limit distractions and prioritize their work responsibilities.
By setting expectations, fostering accountability, providing designated break times, and offering incentives, your relative can effectively manage cell phone usage in their call center and maintain productivity and focus among their team members.
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Roderigo offers Janice a "limited edition" crocodile vintage Mior bag at an extremely cheap price. Roderigo tells Janice that the handbag is authentic and that this offer is a rare one. Janice is excited about purchasing the bag as she has heard that only seven (7) of these bags exist. Janice purchases the bag from Roderigo, however a month later an authenticator in Durban confirms that the bag is a replica of the original. 2.1 Question Based on the above a breach of contract between Janice and Roderigo has occurred. What defense can Janice use to cancel the contract entered into with Roderigo? Discuss this defense fully. (You are required to apply the defense to the scenario provided) (7 marks) Discuss fully what Janice must prove for her defence to be regarded as successful. 3 marks) Janice wishes to understand the term "breach" (10 marks) You are required to discuss FIVE (5) types of breach of contract that are recognised by South African Courts.
Janice can use the defense of misrepresentation to cancel the contract with Roderigo. To prove her defense, she must show a false statement, materiality, reliance, causation, and potential damages. Five types of recognized breaches in South African courts include material breach, minor breach, anticipatory breach, fundamental breach, and repudiatory breach.
In the scenario provided, Janice can potentially use the defense of misrepresentation to cancel the contract entered into with Roderigo. Misrepresentation occurs when one party makes a false statement or representation of material facts to induce the other party into entering the contract.
To successfully prove misrepresentation as a defense, Janice must demonstrate the following elements:
1. False statement or representation: Janice needs to show that Roderigo made a false statement regarding the authenticity of the handbag by claiming it to be an authentic limited edition crocodile vintage Mior bag.
2. Materiality: The false statement must be material, meaning it is an important factor that influenced Janice's decision to enter the contract. Janice can argue that the rarity and authenticity of the bag were significant factors in her decision to purchase it.
3. Reliance: Janice must show that she reasonably relied on Roderigo's false statement when deciding to buy the handbag. She can provide evidence such as her excitement, belief in the limited edition nature of the bag, and Roderigo's assurance of its authenticity.
4. Causation: Janice needs to establish that the misrepresentation directly caused her to enter into the contract with Roderigo. If she can prove that she would not have purchased the bag had she known it was a replica, this element can be satisfied.
5. Damages: In some cases, Janice may need to demonstrate that she suffered damages or harm as a result of the misrepresentation. This could include the loss of the expected value or utility of the authentic limited edition bag.
Regarding the term "breach," it refers to the failure to fulfill or perform the obligations or terms stated in a contract. A breach occurs when one party fails to meet their contractual obligations, which may include non-performance, inadequate performance, or any violation of the agreed-upon terms.
In South African courts, five types of breaches of contract recognized are:
1. Material breach: This refers to a significant violation of a contract's terms that goes to the core of the agreement. It often allows the innocent party to terminate the contract and seek damages.
2. Minor breach: Also known as partial breach, this occurs when a party fails to fulfill a minor or non-essential term of the contract. The innocent party can seek damages but is not entitled to terminate the contract.
3. Anticipatory breach: This happens when one party clearly indicates, through words or actions, their intention not to perform their contractual obligations in the future. The innocent party can terminate the contract and seek damages.
4. Fundamental breach: Similar to material breach, this type of breach occurs when a party fails to perform a fundamental term of the contract, undermining the entire purpose of the agreement. The innocent party can terminate the contract and seek damages.
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The Vield To Maturitv On 1-Vear Zero-Coupon Bonds Is Currently 7%; The YTM On 2-Year Zeros Is 8%. The Treasury Plans To Issue A 2-Year Maturity Coupon Bond, Paying Coupons Once Per Year With Acoupon Rate Of 9%. The Face Value Of The Bond Is $100.
The price of the 2-year maturity coupon bond is $103.34.
To find the price of the 2-year maturity coupon bond, we need to calculate the present value of its cash flows. The bond pays coupons once per year with a coupon rate of 9% and a face value of $100.
Step 1: Calculate the present value of each coupon payment.
Using the formula for present value of a single cash flow: PV = CF / (1 + r)^n, where PV is the present value, CF is the cash flow, r is the yield to maturity (YTM), and n is the number of years.
For the first coupon payment:
PV1 = $100 * 0.09 / (1 + 0.08)^1 = $9.00
For the second coupon payment:
PV2 = $100 * 0.09 / (1 + 0.08)^2 = $8.26
Step 2: Calculate the present value of the face value (maturity amount) at the end of the bond's term.
PV3 = $100 / (1 + 0.08)^2 = $86.08
Step 3: Calculate the total present value of the bond by summing the present values of all the cash flows.
Total present value = PV1 + PV2 + PV3 = $9.00 + $8.26 + $86.08 = $103.34
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A company is comparing two different capital structures.
Plan I would result in 13,000 shares of stock and $130,500 in debt.
Plan II would result in 10,400 shares of stock and $243,600 in debt. The interest rate on the debt is 10%.
Assume that EBIT will be $56,000. An all-equity plan would result in 16,000 shares of stock outstanding. Ignore taxes.
Calculate the price per share of equity under Plan I and Plan II:
These answers for the question are wrong: 3.30 , 3.04
The given capital structures are:Plan I: 13,000 shares of stock and $130,500 in debt.Plan II: 10,400 shares of stock and $243,600 in debt.
Given, EBIT = $56,000.Interest rate on the debt = 10%.The all-equity plan would result in 16,000 shares of stock outstanding.
We need to calculate the price per share of equity under Plan I and Plan II.
To find out the price per share of equity under Plan I and Plan II, we need to first calculate the earnings per share (EPS) under both the plans. EPS is calculated as:EPS = (EBIT - Interest)/ No. of sharesOutstandingLet's calculate the EPS under Plan I:No. of shares outstanding = 13,000 + 0 = 13,000 Interest = 10% of $130,500 = $13,050EPS = ($56,000 - $13,050) / 13,000 = $3.73
Similarly, let's calculate the EPS under Plan II:No. of shares outstanding = 10,400 + 0 = 10,400Interest = 10% of $243,600 = $24,360EPS = ($56,000 - $24,360) / 10,400 = $3.07
Now, we can calculate the price per share of equity under both Plan I and Plan II.Price per share = Earnings per share / No. of shares outstandingLet's calculate the price per share of equity under Plan I:Price per share of equity under Plan I = $3.73 / 13,000 = $0.2876 ≈ $0.29Similarly, let's calculate the price per share of equity under Plan II:Price per share of equity under Plan II = $3.07 / 10,400 = $0.2952 ≈ $0.30Therefore, the price per share of equity under Plan I and Plan II are $0.29 and $0.30, respectively.
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4. As a result of the Covid pandemic, the management of FeiFei plc (F) are discussing with the executive workers union Emsa (E), the introduction of more flexible working practices to help increase profits. In return for accepting the new working practices, E are negotiating an increase in salaries. In these negotiations, E are attempting to maximise salaries and F are attempting to maximise their profits. Both F and E realise that they can each employ one of three negotiating strategies, and the profit/salary increase (%) depends upon the strategy employed by both F and E as follows:
E's Strategy
E1
E2
E3
F1
(5,6)
(6,8)
(2,7)
F's
F2
(5,4)
(8,5)
(2,6)
Strategy
F3
(5,3)
(8,3)
(3,4)
(If F employs F1 and E employs E1 then profits will increase by
5% and salaries will increase by 6%)
(a) Determine the likely outcome of these negotiations and explain how a more optimal outcome for both F and E might be achieved.
(300 words maximum) (35 marks)
The management of FeiFei plc (F) is also attempting to renegotiate a deal for the cost of its raw materials from Hippo plc (H). The price that F will pay and the amount that H will receive per unit of raw material (£) depends upon the strategies they both adopt as follows:F's Strategy
F4
F5
F6
H1
8
12
4
H's
H2
10
6
11
H3
10
14
8
Strategy
(If H employs H1 and F employs F4 then H will receive £8 per unit for the raw material and F will pay £8 per unit for the raw material).
(b)
(c)
Discuss why H3, F4 might appear to be a 'solution' to these negotiations and explain why it is unlikely to be achieved in practice.
(250 words maximum) (25 marks)
Determine the optimal strategy for both H and F in these negotiations and the amount which F can expect to pay for the raw materials. Explain the method
adopted at each stage of these calculations.
(300 words maximum) (40 marks)
The outcomes, represented as (profit increase, salary increase), indicate that the most favorable outcome for both F and E is when F employs strategy F2 and E employs strategy E2, resulting in a profit increase of 8% and a salary increase of 8%.
By analyzing the possible strategies and their corresponding outcomes, it becomes clear that F2 and E2 offer the highest gains for both parties. However, to achieve a more optimal outcome, F and E could employ cooperative negotiation strategies. This approach would involve open communication, compromise, and finding a mutually beneficial solution that balances profit maximization for F and salary maximization for E. By focusing on long-term sustainability and growth, both parties can work together to create a win-win situation that addresses their respective objectives.
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What happened to the US real estate market during the 2008 recession? What is the reason it happened? __ How does the real estate crisis affect the stock market in the USA? And how it becomes a worldwide financial crisis?
The US real estate market's collapse during the 2008 recession, driven by the subprime mortgage crisis and the bursting of the housing bubble, had far-reaching effects on both the US stock market and the global economy.
During the 2008 recession, the US real estate market experienced a significant downturn. The reason behind this was a combination of factors, including the subprime mortgage crisis, excessive lending, and the bursting of the housing bubble.
1. Subprime Mortgage Crisis: Lenders offered mortgages to borrowers with poor credit history or insufficient income, resulting in a high number of risky loans.
2. Excessive Lending: Banks and financial institutions provided loans with low-interest rates and relaxed lending standards, encouraging excessive borrowing.
3. Bursting of the Housing Bubble: Home prices had been rising steadily for several years, but eventually reached an unsustainable level. When the bubble burst, home values plummeted, causing many homeowners to owe more on their mortgages than their homes were worth.
The real estate crisis had a profound impact on the stock market in the USA. As home prices declined, mortgage-backed securities, which were bundled together and sold as investments, lost value.
This led to massive losses for financial institutions, affecting their stock prices and causing investor panic.
Additionally, the crisis led to a tightening of credit availability, which hindered businesses and negatively impacted the overall economy.
The real estate crisis in the USA had global repercussions, leading to a worldwide financial crisis.
Financial institutions worldwide held investments tied to the US housing market, resulting in significant losses.
The interconnectedness of global markets meant that the impact spread quickly, causing a credit crunch, a decline in consumer spending, and a slowdown in economic growth worldwide.
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The market price of a stock is $45.60 and it just paid $4.69
dividend. The dividend is expected to grow at 3.79% forever. What
is the required rate of return for the stock?
The required rate of return for the stock is calculated using the Gordon Growth Model, which considers the dividend, market price, and growth rate of the dividend. In this case, the required rate of return is approximately 14.07%.
To calculate the required rate of return for the stock, we can use the Gordon Growth Model.
The Gordon Growth Model formula is:
Required Rate of Return = Dividend / Market Price + Growth Rate of Dividend
Given that the dividend is 4.69 and the market price is 45.60, we can plug these values into the formula:
Required Rate of Return = 4.69 / 45.60 + 3.79%
To simplify the calculation, we convert the percentage to a decimal by dividing it by 100:
Required Rate of Return = 4.69 / 45.60 + 0.0379
Next, we add the two values together:
Required Rate of Return = 0.1028 + 0.0379
Finally, we calculate the sum:
Required Rate of Return = 0.1407
Therefore, the required rate of return for the stock is approximately 14.07%.
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Fituristic Development (FD) generated $5 milian in sales last yeer with assets equal to $5 metion. The firm operated at fiaf capacity last year, Accorditig to FU's belance sheet, the ony current lab ieles are acce unts peyabie, which equals $320,000. The only other lability is long-term debt, which equels $710,000. The coenman equity section is comprised of 400,000 shares of common stock with a book value oqual to 53 millien and $970,000 of retoined eamings. Next year, FD expects its sales will incrase by 19 percent. The company's not pront margin is expected to remain at its current level; which is 11 percent of sales. FO plans to pay dividends equal to s0.60 per shere. It aiso plans to issue 70,000 shares of new common steck, which wall raise $585,000, Estimate the additional funds needed (AFN) to achieven the forocasted sales next year Hound your answer to the nearest delar.
Additional Funds Needed (AFN) for Futuristic Development (FD)Futuristic Development (FD) is a manufacturing company that generated $5 million in sales last year with assets equal to $5 million.
The firm operated at full capacity last year, and the only current liability is accounts payable, which equals $320,000. The only other liability is long-term debt, which equals $710,000. The common equity section is comprised of 400,000 shares of common stock with a book value equal to $53 million and $970,000 of retained earnings. Next year, FD expects its sales will increase by 19 percent.
The company's net profit margin is expected to remain at its current level, which is 11 percent of sales. FD plans to pay dividends equal to $0.60 per share. It also plans to issue 70,000 shares of new common stock, which will raise $585,000.
To calculate the Additional Funds Needed (AFN), we must use the following formula:
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Describe what the term "phased (rolling wave) project planning"
means.
Phased (rolling wave) project planning is an iterative planning approach that enables progressive elaboration in planning as well as improving a project's performance.
Phased (rolling wave) project planning phases the project plan with the most critical details planned first while the less critical details are deferred until later.
What is Phased (rolling wave) project planning?Phased (rolling wave) project planning is an adaptive project management approach that aids in organizing and planning a project.
The phases of the project plan are developed in waves, with each wave going into greater detail regarding the project. The details of the project plan are developed in a manner that encourages ongoing adjustments and modifications.
The primary benefits of phased (rolling wave) project planning include:
Enables a project manager to manage a project in stages and focus on a small section of the project at a time.
It enables quick decision-making for project managers by allowing them to adjust their plans to suit changes in a project as it develops.
The phased approach enables projects to be completed more quickly since project managers can allocate resources more effectively.
The phased (rolling wave) project planning process
The project team develops the most critical parts of the project plan initially and then delays developing the less critical parts until later.
In most cases, the planning of each wave is followed by a review and approval process before proceeding with the next wave.
The most critical details are defined in the initial waves, and subsequent waves give rise to less crucial components until the project is complete.
The process includes the following:
Planning wave one: Project charter, stakeholders, business case, and a high-level project schedule are created.Planning wave two: Risk management plan, scope statement, project schedule, and project plan are developed.Planning wave three: Detailed project schedule, project budget, and project risk assessment are developed.Planning wave four: Detailed project budget, quality control plan, and quality assurance plan are developed.In conclusion, phased (rolling wave) project planning helps project managers to identify the project's most critical components and work on them first.It enables them to create a solid project plan that can accommodate changes that may arise in a project as it progresses.
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A single mispriced asset has an alpha a=2.0%, a beta β=1.0 and unsystematic risk of 5.0%. The market risk premium is 6.0% and the market's Sharpe Ratio is 0.4. In constructing an optimal allocation between the mispriced asset and the market, what proportion of your investment would mispriced asset? a. 12% b. 15% c. 20% d. 25% e. The asset is not mispriced
The calculations for the expected return and standard deviation, we cannot determine the mispriced asset's Sharpe Ratio or the optimal allocation between the mispriced asset and the market. Therefore, the answer is e. The asset is not mispriced.
to determine the optimal allocation between the mispriced asset and the market, we need to consider the asset's alpha, beta, and unsystematic risk, as well as the market risk premium and Sharpe Ratio
1. Calculate the expected return of the mispriced asset:
Expected return = Risk-free rate + Alpha
The risk-free rate is not given in the question, so we cannot calculate the exact expected return.
2. Calculate the expected return of the market:
Expected market return = Risk-free rate + Beta * Market risk premium
3. Calculate the excess return of the mispriced asset:
Excess return = Expected return of the mispriced asset - Risk-free rate
4. Calculate the Sharpe Ratio of the mispriced asset:
Sharpe Ratio = Excess return / Standard deviation of the asset's returns
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b) Tom is a heavy smoker but has decided to go "cold turkey" and quit smoking as of his birthday on July 1, 2022, when he turns 25. He is currently smoking one package of cigarettes a day which costs him $15 each day. He is wondering how much he would save if he put this money aside until his age 65 and invested it at a rate of 6% compounded weekly. Days per year: 365; Weeks per year: 52. ) Calculation for Tom
Tom will save $20,208,366.05
Tom currently smokes a pack of cigarettes every day, which costs him $15. So, each year he spends $5,475 ($15 x 365 days). If he quits smoking on his 25th birthday, he would save $5,475 x 40 years (the number of years from age 25 to 65) = $219,000.
Assuming he invests that money at a weekly compounded interest rate of 6%, the calculation for Tom would be as follows:
FV = $219,000 x [(1 + (0.06/52))^(52 x 40)]
FV = $20,208,366.05
Thus, Tom will save $20,208,366.05 if he puts aside his $15 per day cigarette money until his age 65 and invests it at a rate of 6% compounded weekly.
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Please explain firm's pricing strategy in Perfect Competitive
Market，what is the different between short-run and long run when
you compare to monopoly.
Perfectly competitive market is a theoretical model of the market where numerous small firms produce and supply goods and services to customers without any market power or monopoly. Here, no single seller controls the market, and no consumer has any market influence.
The following are the features of the perfectly competitive market:There are a large number of small firms producing identical products in the market.There are many buyers, each one having a negligible share in the market, and the product is homogeneous.The consumers are aware of the price of the product in the market.There are no entry or exit barriers in the market, and the firms can easily enter or exit the market.There is a complete information exchange between the buyers and sellers.Short run and long run in a perfect competitionShort run is the period where the firm is operating with one fixed factor of production while other factors are variable. For example, the quantity of raw materials and machinery is fixed while the workforce is variable. Here, the company can adjust the output of production and the number of employees employed to maximize its profit. This period is characterized by firms making supernormal profits. Short-run also defines the time period where the company has to pay both the fixed and variable costs. Long-run is the period where the company has adjusted to the fixed factors of production. Here, the company can change both the variable and fixed factors of production to increase the profit. The period is characterized by firms making normal profits.
MonopolyMonopoly is a type of market structure where there is only one seller, and the seller controls the entire market. In other words, there is only one seller with no close substitute products in the market, making it impossible for the customer to switch to a different product. Here, the seller enjoys market power and can charge a high price to maximize profits. Here are the differences between short-run and long run in a perfect competition and monopoly:In a perfect competition, short run and long run are characterized by the company making supernormal profits in the short run while in long run, they are characterized by the company making normal profits.In a monopoly, the company makes supernormal profits both in the short run and long run. Additionally, in a monopoly, there is no possibility of the emergence of new firms since there are entry barriers. The company can, therefore, maintain its monopoly power and charge a higher price for a longer time period.
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write about my difficulties in different barriers.so i have chosen organisational barriers
Organisational barriers refer to obstacles within a company's structure, processes, or culture that impede productivity or hinder progress.
These barriers can include poor communication, hierarchical structures, lack of resources, resistance to change, and inadequate leadership.
Overcoming organisational barriers requires fostering a culture of open communication, promoting collaboration, empowering employees, providing adequate resources, and embracing innovation. Breaking down these barriers improves efficiency, enhances employee morale, and enables the organization to adapt and thrive in a rapidly changing business environment. It's crucial for companies to identify and address these barriers proactively to foster a conducive and inclusive work environment that promotes growth and success.Organisational barriers can manifest in various ways, affecting different aspects of a company's operations. Here are some additional details on common types of organisational barriers:
1. Communication barriers: Ineffective communication channels, lack of transparency, or poor information flow can lead to misunderstandings, delays, and reduced productivity. Encouraging open and honest communication, implementing clear communication channels, and promoting active listening can help overcome these barriers.
2. Hierarchical structures: Rigid hierarchies can create silos and hinder collaboration. Decision-making processes may become slow and bureaucratic, impeding innovation and agility. Adopting a more flexible and flattened organizational structure, promoting cross-functional teams, and fostering a collaborative culture can break down these barriers.
3. Lack of resources: Insufficient budget, staffing, or technology can limit productivity and hinder progress. Conducting thorough resource planning, allocating resources strategically, and seeking ways to optimize efficiency can help overcome these barriers.
4. Resistance to change: Employees or leaders who resist change can impede progress and innovation. Encouraging a growth mindset, providing training and support, involving employees in decision-making processes, and showcasing the benefits of change can help overcome resistance.
5. Inadequate leadership: Poor leadership can create a lack of direction, insufficient support, and low morale among employees. Developing strong leaders, promoting effective communication and feedback, and fostering a positive work culture can address these barriers.
6. Lack of diversity and inclusion: Homogeneous work environments limit creativity and perspectives. Promoting diversity, inclusivity, and equal opportunities for all employees can enhance innovation, problem-solving, and overall organizational performance.
By addressing these organisational barriers, companies can create a more inclusive, collaborative, and productive work environment that enables growth, adaptability, and success.
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If you are the owner or manager of one of the fast food outlets,
for example, McDonald’s , how do you deal with the demand
forecasting, in particular, what to forecast and how to do it? in
150 words
As the owner or manager of a fast food outlet like McDonald's, effective demand forecasting is crucial for ensuring smooth operations and meeting customer demand. To deal with demand forecasting, I would focus on forecasting the following key aspects:
1. Sales volume: Forecasting the expected number of customer orders or sales volume is essential for determining the required inventory levels, staff scheduling, and production planning. Historical sales data, seasonal patterns, and promotional activities can be considered when making these forecasts.
2. Menu popularity: Analyzing historical data and customer preferences can help identify popular menu items and forecast their demand. This information is valuable for optimizing inventory levels, managing ingredient supplies, and minimizing waste.
3. Special events and promotions: Anticipating demand during special events, holidays, or promotional campaigns is crucial to ensure sufficient stock, staff availability, and smooth operations during peak periods. Collaborating with marketing teams to align forecasts with upcoming promotions can be beneficial.
4. Market trends and customer preferences: Staying updated on market trends, emerging food preferences, and changing consumer habits is important for forecasting demand. Monitoring customer feedback, conducting surveys, and leveraging data analytics can provide insights into evolving customer preferences and help adjust forecasts accordingly.
To execute demand forecasting, I would employ a combination of techniques such as quantitative methods (time series analysis, regression analysis) and qualitative methods (expert opinions, market research). Leveraging technology solutions and forecasting tools can streamline the process and improve accuracy.
Regularly reviewing and refining the forecasting process based on actual performance, customer feedback, and market dynamics is crucial to ensure continuous improvement and adaptability to changing demand patterns.
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5. For the business you have identified for prior weeks? discussions, identify a setting where a network model representation is appropriate. For manufacturing oriented settings this could be a real network of transportation, delivery or shipment; for service oriented settings think of possible task appointments and customer/client assignments.
Submit your initial post (at least 200 words) by Thursday at 11:59pm CST. You will be able to see peers' posts after you post your own. Then. Respond to at least one of your peers in a way that advances the conversation (minimum of 50 words) by noting issues missed or misidentified by the original poster. Or by critically expanding on an existing issue. The response is due by Sunday at 11. 59pm CST
A network model representation is appropriate for manufacturing settings to represent the transportation, delivery, or shipment network, Service-oriented settings, it can be used to represent task appointments and customer/client assignments.
In the context of the question, a network model representation can be appropriate for both manufacturing and service-oriented settings. Let's discuss each one separately:
1. Manufacturing Oriented Settings:
In manufacturing, a network model can be used to represent the transportation, delivery, or shipment network. For example, let's consider a business that manufactures and distributes electronics. The network model can represent the flow of products from the manufacturing facility to distribution centers and then to retail stores or directly to customers. The model would include the various transportation routes, such as roads, railways, or airways, connecting different locations. It would also include nodes representing manufacturing facilities, distribution centers, and retail stores. This network model can help in optimizing transportation routes, minimizing costs, and ensuring timely delivery of products.
2. Service Oriented Settings:
In service-oriented settings, a network model can be used to represent task appointments and customer/client assignments. For instance, let's consider a business that provides home cleaning services. The network model can represent the different tasks or appointments assigned to cleaners and the customers they need to serve. The model would include nodes representing customers' locations and tasks to be performed. It would also include the connections between nodes to represent the sequence of appointments and the optimal routes for the cleaners. This network model can help in scheduling tasks efficiently, minimizing travel time, and ensuring timely service for customers.
These models can help optimize operations, minimize costs, and improve overall efficiency.
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A 2-year Treasury security currently earns \( 2.16 \) percent. Over the next two years, the real risk-free rate is expected to be \( 1.55 \) percent per year and the inflation premium is expected to b
The nominal interest rates on 2-year Treasury securities would be \(4.30\) percent in the first year and \(4.80\) percent in the second year.
The Fisher Effect is an economic theory that claims that real interest rates remain constant in the face of fluctuating inflation rates, which means that nominal interest rates must adjust to reflect the changes in inflation rate, and it is calculated by subtracting the expected inflation rate from the nominal interest rate.
A 2-year Treasury security currently earns (2.16) percent.
Over the next two years, the real risk-free rate is expected to be (1.55) percent per year, and the inflation premium is expected to be (2.75) percent in year 1 and (3.25) percent in year 2.
The real interest rate in the next year can be calculated using the formula:
Real interest rate = nominal interest rate − expected inflation rate
Real risk-free rate = 1.55%
Inflation premium in year 1 = 2.75%
Nominal interest rate in year 1 = Real risk-free rate + Inflation premium in year 1
Nominal interest rate in year 1 = 1.55% + 2.75%
Nominal interest rate in year 1 = 4.30%
Inflation premium in year 2 = 3.25%
Nominal interest rate in year 2 = Real risk-free rate + Inflation premium in year 2
Nominal interest rate in year 2 = 1.55% + 3.25%
Nominal interest rate in year 2 = 4.80%
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Compare the structure of the People's Bank of China and the Federal Reserve System.
The People's Bank of China and the Federal Reserve System differ in their structures, with the People's Bank of China operating as a central bank under the direct control of the Chinese government, while the Federal Reserve System in the United States operates as an independent entity with a decentralized structure.
The People's Bank of China (PBOC) is the central bank of China and operates under the direct control of the Chinese government. It is responsible for formulating and implementing monetary policy, regulating financial institutions, and managing the country's currency, the renminbi (RMB).
The PBOC's structure reflects its close ties to the government, with its leadership appointed by the State Council and its policy decisions subject to government approval.
On the other hand, the Federal Reserve System (commonly known as the Fed) in the United States has a decentralized structure. It consists of the Board of Governors, appointed by the President and confirmed by the Senate, and a network of regional Federal Reserve Banks spread across the country.
The Board of Governors sets monetary policy and oversees the entire system, while the regional Reserve Banks contribute to policy discussions and provide various banking services to their respective regions.
The difference in structure reflects the varying degrees of independence and government influence in the two central banks.
While the PBOC operates more directly under the control of the Chinese government, the Federal Reserve System is designed to have a level of independence in its decision-making process, aiming to insulate monetary policy from short-term political considerations.
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The People's Bank of China operates under a centralized, state-controlled structure, while the Federal Reserve System has a decentralized structure with regional branches and a level of independence from direct government control.
The People's Bank of China (PBOC) serves as the central bank of China and operates under a centralized structure. It is directly controlled by the Chinese government and operates with strong government influence.
The PBOC's primary role is to implement monetary policy, regulate financial institutions, and maintain stability in the Chinese financial system. On the other hand, the Federal Reserve System (commonly known as the Fed) in the United States has a decentralized structure.
It consists of a central governing body located in Washington, D.C., known as the Board of Governors, and 12 regional banks spread across different regions of the country.
The regional banks have some degree of independence and operate under the supervision of the Board of Governors. This decentralized structure allows the Federal Reserve System to have a broader perspective on economic conditions across the United States.
Overall, while both institutions serve as central banks, the People's Bank of China operates within a centralized structure with strong government influence, while the Federal Reserve System has a decentralized structure with regional branches and a level of independence from direct government control.
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QUESTION 26
A company is preparing its cash budget for the three months ending 31st March 2020. The opening cash balance at January 1st 2020 was Shs.290,000. The following information relates to the cash receipts and cash payments for the three months: Cash receipts for January Shs1,061,200: for February, Shs1,182.400 and for March, Shs.1,091,700. The cash payments for January were Shs.984,500: for February, Shs,1,210,000 and for March. Shs. 1,075,000. This company desires a minimum cash balance of Shs.340,000. What is the amount of excess cash or deficiency of cash after considering the minimum cash balance required for March?
O a Shs 214,200 excess
Ob. Shs 60,000 deficiency
c. Shs 25,300 excess
Od. Shs 15,800 excess
The amount of excess cash or deficiency of cash after considering the minimum cash balance required for march is shs 15,800 excess.
the amount of excess cash or deficiency of cash after considering the minimum cash balance required for march is shs 25,300 excess.
to calculate the excess cash or deficiency of cash, we need to track the cash receipts and cash payments for the three months and compare it to the desired minimum cash balance.
given:
- opening cash balance on january 1st, 2020 = shs. 290,000- cash receipts for january = shs. 1,061,200
- cash receipts for february = shs. 1,182,400- cash receipts for march = shs. 1,091,700
- cash payments for january = shs. 984,500- cash payments for february = shs. 1,210,000
- cash payments for march = shs. 1,075,000- desired minimum cash balance = shs. 340,000
calculations:
total cash receipts = cash receipts for january + cash receipts for february + cash receipts for march = shs. 1,061,200 + shs. 1,182,400 + shs. 1,091,700
= shs. 3,335,300
total cash payments = cash payments for january + cash payments for february + cash payments for march = shs. 984,500 + shs. 1,210,000 + shs. 1,075,000
= shs. 3,269,500
closing cash balance for march = opening cash balance + total cash receipts - total cash payments = shs. 290,000 + shs. 3,335,300 - shs. 3,269,500
= shs. 355,800
excess cash or deficiency of cash = closing cash balance for march - desired minimum cash balance = shs. 355,800 - shs. 340,000
= shs. 15,800 excess
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if you have enough to borrow 255000 and you have enough saved to
put down 15% down, what is the maximum home price you can
afford?
A 15% down payment is $255,000 * 15% = $38,250. Subtracting the down payment from the total amount, the maximum house price you can afford is:$255,000 - $38,250 = $216,750
Therefore, the maximum home price you can afford is $216,750.
Note: This calculation does not take into account additional expenses such as closing costs, property taxes, and home insurance, which should also be considered in determining affordability.
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At Year-End 2019, Wallace Tandscaping's Total Assets Were $2.21 Million, And Its Accounts Payable Were $435,000. Sales, Which In 2019 Were $2.4 Million, Are Expected To Increase By 25% In 2020 . Total Assets And Accounts Payable Are Proportional To Sales, And That Reiationship Will Be Maintained. Wallace Typically Uses No Current Liabilities Other Than
At Year-End 2020, Wallace Landscaping's Total Assets are expected to be $2.76 million and its Accounts Payable are expected to be $543,000.
At Year-End 2019, Wallace Landscaping's Total Assets were $2.21 million and its Accounts Payable were $435,000. Sales, which were $2.4 million in 2019, are expected to increase by 25% in 2020. Total Assets and Accounts Payable are proportional to Sales, and that relationship will be maintained. Wallace typically uses no current liabilities other than Accounts Payable.
To calculate the expected Total Assets and Accounts Payable for 2020, we can use the proportional relationship with Sales.
Step 1: Calculate the expected Sales for 2020:
Expected Sales for 2020 = 2019 Sales + (2019 Sales * Sales Growth Rate)
Expected Sales for 2020 = $2.4 million + ($2.4 million * 0.25)
Expected Sales for 2020 = $3 million
Step 2: Calculate the expected Total Assets for 2020:
Total Assets for 2020 = 2019 Total Assets * (2020 Sales / 2019 Sales)
Total Assets for 2020 = $2.21 million * ($3 million / $2.4 million)
Total Assets for 2020 = $2.7625 million or $2.76 million (rounded)
Step 3: Calculate the expected Accounts Payable for 2020:
Accounts Payable for 2020 = 2019 Accounts Payable * (2020 Sales / 2019 Sales)
Accounts Payable for 2020 = $435,000 * ($3 million / $2.4 million)
Accounts Payable for 2020 = $543,750 or $543,000 (rounded)
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6) Your neighbor is asking you to invest in a venture that will double your money in 4 year(s). Compute the annual rate of return that he is promising you? (Record your answer as a percent rounded to 1 decimal place; for example, record .186982 = 18.7% as 18.7). Answer= 18.9
The annual rate of return promised by the neighbor's venture is approximately 18.9%, doubling the investment in 4 years.
To compute the annual rate of return, we can use the formula for compound interest:
Rate of return = [(Final value / Initial value)[tex]^{(1/number of years)}[/tex]] - 1
In this case, the neighbor promises that the investment will double in 4 years, which means the final value (FV) is twice the initial value (IV).
Rate of return = [(2/1)[tex]^{(1/4)}[/tex]] - 1
Calculating the expression inside the parentheses:
(2/1)[tex]^{(1/4)}[/tex] ≈ 1.1892071
Substituting this value back into the formula:
Rate of return ≈ 1.1892071 - 1 ≈ 0.1892071
Converting the decimal to a percentage, rounded to one decimal place:
Rate of return ≈ 18.9%
Hence, the annual rate of return promised by the neighbor's venture is approximately 18.9%.
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Part 1) Kelly Cosmetics is expected to pay a dividend of $2 at year-end. The firm is expected to grow at a perpetual rate of 5%. If its required rate of return is 8%, what should be its current stock price?
A) $70
B) $26.25
C) $72
D) 66.67%
The current stock price should be $40.00.
We know that, Current Dividend (D) = $2Perpetual Growth rate (g) = 5%Required Rate of Return (r) = 8%We can calculate the price of a stock with the help of the Gordon growth model, which is: Po = D / (r - g)where, Po = Price of the stock. D = Expected dividend payment. r = Required rate of return. g = Perpetual growth rate.
Substitute the given values into the above formula. Po = $2 / (8% - 5%)= $66.67So, the current stock price should be $66.67Answer in more than 100 words: We are given the following information: Current dividend payment = $2 per share. Perpetual growth rate = 5%. Required rate of return = 8%We need to find the current stock price, which can be calculated with the help of the Gordon Growth Model.
The model states that the price of a stock is equal to the present value of all future dividends, discounted by the required rate of return minus the growth rate. Gordon Growth Model: Po = D / (r - g). where, Po is the price of the stock, D is the expected dividend payment, r is the required rate of return, g is the perpetual growth rate. Substituting the given values, we have, Po = $2 / (8% - 5%)= $66.67So, the current stock price of Kelly Cosmetics should be $66.67.
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