Answer: d) market sentiment toward the firm
Explanation:
The Price to Earnings ratio is calculated by dividing the market price of a stock by the earnings per share and the market to book ratio checks the market price to the book value of a share.
Both measures use the market price in relation to a company matric. They are therefore checking the sentiment to the company from the market in relation to certain measures of the company such as the earnings per share.
Lisa and Bob, potential business associates, met at a bar and grill regarding a new business venture they had been planning. Lisa brought a typed of copy of a contract, listing specific responsibilities and financial commitments that would be a part of the business venture. They both discussed the business venture under a nice meal. Since Lisa does not drink alcohol, she did not order any alcoholic beverages. Bob does and started off with a few drinks and throughout the night, increased them quite a bit to the point that he was so intoxicated he realized the smart thing to do was not do drive. He left his car at the restaurant and had Uber take him home. Bob also signed the contract that Lisa brought.
Required:
a. Is this a valid contract that can be enforced why or why not?
b. How about if Bob signed the contract before his drinks arrived?
c. What about if Bob was a minor and sober and signed the contract? Is the contract valid?
Answer & Explanation:
a). The contract between Lisa and Bob is valid and enforceable as a valid contract is an agreement between parties lacking no element. The contract was very detailed and well discussed regardless of Bob drinking it is still enforceable unless Bob can proof that the intoxication impaired his judgement and made him incompetent to sign the contract thereby making it void.
b). The contract will be valid if Bob signed it before the drinks arrived as the document was complete and his signature show acceptance of the terms of the contract.
c). A minor can not enter into a contract as they may lack the capacity to enter into a valid contract. As such, if Bob was a minor regardless of him being sober any contract signed by him can be completely voidable.
You must choose between four pieces of comparable equipment based on the cash flows given below. All four pieces have a life of 8 years.
Parameter A B C D
First cost $25,000 $35,000 $20,000 $40,000
Annual costs $8,000 $6,000 $9,000 $5,000
Salvage value $2,500 $3,500 $2,000 $4,000
The discount rate is 12%. Ignore taxes. The most preferable top two projects and the difference between their present worth values are most nearly:_____.
A. A and C, $234.
B. B and D, $170.
C. A and C, $170.
D. B and D, $234.
Answer:
You must choose between four pieces of comparable equipment based on the cash flows.
Explanation:
Belltower, Inc. has net income for 2016 of $370,000. At January 1, 2016, the company had outstanding 54,000 shares of $50 par value common stock and 10,000 shares of 6%, $100 par value cumulative preferred stock. On September 1, 2016, an additional 18,000 shares of common stock were issued.
What is the earnings per share for 2016 (to the nearest cent)?
A. $5.17
B. $4.31
C. $4.44
D. $6.17
Answer:
A. $5.17
Explanation:
Use the following formula to calculate the Earnings per share
Earnings per share = ( Net Income - preferred Dividend ) / Weighted average numbers of outstanding shares
Where
Net Income = $370,000
Preferred Dividend = 10,000 x $100 x 6% = $60,000
Weighted average numbers of outstanding shares = 54,000 shares + ( 18,000 shares x 4/12 ) = 54,000 shares + 6,000 shares = 60,000 shares
Placing values in the formula
Earnings per share = ( $370,000 - $60,000 ) / 60,000 shares
Earnings per share = $5.17 per share
Scoring: Your score will be based on the number of correct matches. There is no penalty for incorrect or missing matches.
Match each phrase that follows with the term it describes.
Clear All
Evaluation of how profit will change based on an alternative course of action
Possible result of using an inappropriate overhead allocation method
Revenue forgone from an alternative use of an asset
Strategy that focuses on reducing the influence of bottlenecks
Not relevant to future decisions
Product cost distortion
Opportunity cost
Differential analysis
Sunk cost
Theory of constraints
Scoring: Your score will be based on the number of correct matches. There is no penalty for incorrect or missing matches.
Match each phrase that follows with the term it describes.
Clear All
Recognizes that a dollar today is worth more than a dollar tomorrow
Often referred to as the discounted cash flow method
Also referred to as capital budgeting
Average income as a percentage of average investment
Can be determined by initial cost divided by annual net cash inflow of an investment
Cash payback period
Capital investment analysis
Average rate of return
Net present value method
Time value of money concept
Scoring: Your score will be based on the number of correct matches. There is no penalty for incorrect or missing matches.
Match the following descriptions and examples with the four performance perspectives in the balanced scorecard.
Clear All
Focuses on operational efficiencies and issues like improving manufacturing performance
Focuses on obtaining and retaining customers and customer base
Focuses on traditional accounting measures of performance, such as net income and cash flow
Focuses on research and development initiatives and employee training, retention, and satisfaction efforts
Customer
Learning and growth
Internal processes
Financial
Answer:
1. Match each phrase that follows with the term it describes:
a. Evaluation of how profit will change based on an alternative course of action
Correct term: Differential analysis
b. Possible result of using an inappropriate overhead allocation metho
Correct term: Product cost distortion
c. Revenue forgone from an alternative use of an asset
Correct term: Opportunity cost
d. Strategy that focuses on reducing the influence of bottlenecks
Correct term: Theory of constraints
e. Not relevant to future decisions
Correct term: Sunk cost
2. Match each phrase that follows with the term it describes:
a. Recognizes that a dollar today is worth more than a dollar tomorrow
Correct term: Time value of money concept
b. Often referred to as the discounted cash flow method
Correct term: Net present value method
c. Also referred to as capital budgeting
Correct term: Capital investment analysis
d. Average income as a percentage of average investment
Correct term: Average rate of return
e. Can be determined by initial cost divided by annual net cash inflow of an investment
Correct term: Cash payback period
3. Match the following descriptions and examples with the four performance perspectives in the balanced scorecard:
a. Focuses on operational efficiencies and issues like improving manufacturing performance
Correct option: Internal processes
b. Focuses on obtaining and retaining customers and customer base
Correct option: Customer
c. Focuses on traditional accounting measures of performance, such as net income and cash flow
Correct option: Financial
d. Focuses on research and development initiatives and employee training, retention, and satisfaction efforts
Correct option: Learning and growth
Which of the following statements is correct?
a. The current cash flow from existing assets is highly relevant to investors. However, since the value of the firm depends primarily upon its growth opportunities, accounting net income projections from those opportunities are the only relevant future flows with which investors are concerned.
b. Two metrics that are used to measure a company's financial performance are net income and free cash flow. Accountants tend to emphasize net income as calculated in accordance with generally accepted accounting principles. Finance people generally put at least as much weight on free cash flows as they do on net income.
c. To estimate the net cash provided by operations, depreciation must be subtracted from net income because it is a non-cash charge that has been added to revenue.
d. Interest paid by a corporation is a tax deduction for the paying corporation, but dividends paid are not deductible. This treatment, other things held constant, tends to discourage the use of debt financing by corporations.
e. If Congress changed depreciation allowances so that companies had to report higher depreciation levels for tax purposes in 2013, this would lower their free cash flows for 2013.
Answer:
The correct statement is:
b. Two metrics that are used to measure a company's financial performance are net income and free cash flow. Accountants tend to emphasize net income as calculated in accordance with generally accepted accounting principles. Finance people generally put at least as much weight on free cash flows as they do on net income.
Explanation:
Net income and free cash flow are profitability measures. While net income measures profitability by including all expenses: cash and non-cash, free cash flow measures profitability by excluding the non-cash expenses but instead includes spending on assets and working capital periodic changes.
A great way to systematically explore the future of marketing is by considering several well-documented broad trends that are likely to impact the future of the field.
a. True
b. False
Dairy Cream Inc. makes and sells ice cream. Dairy Cream wants to merge with EZ Freeze Inc., its main competitor and a maker of ice cream and other frozen desserts. In a challenge to the deal on a charge of monopolization, the relevant product market includes ice cream and:_______
a. no other products.
b. products that have identical attributes, such as frozen yogurt.
c. products that must be kept cold, such as frozen fruit.
d. products that are related, such as cake.
Answer:
b. products that have identical attributes, such as frozen yogurt.
Explanation:
A monopoly is formed when a firm or a group of firms have a an unfair advantage in supplying a product and faces no competition while operating.
It is important to identify the market where the monopolist exists.
In the given scenario where Dairy Cream wants to merge with EZ Freeze Inc., its main competitor and a maker of ice cream and other frozen desserts. The merger will eliminate competition and the product market is defined under ice cream and products that have identical attributes, such as frozen yogurt.
Following the sale by one of its partners of her interest in the partnership, Glendale Partnership is required to increase the basis of its assets under Code Sec. 743(b). The total Code Sec. 743(b) adjustment is $8,000. The purchasing partner's share of the partnership's assets is as follows:
Inventory $2,000 $5,000
Property 1 (Sec. 1231 asset) 10,000 25,000
Property 2 (Sec. 1231 asset) 20,000 10,000
$32,000 $40,000
How much of the basis adjustment should be allocated to the inventory?
a. $1,000.
b. $3,000.
c. zero.
d. none of these.
Answer:
b. $3,000.
Explanation:
The computation of the amount of the basis adjustment allocated to the inventory is shown below;
= $5,000 - $2,000
= $3,000
This $3,000 would represent the basis adjustment and the same would be allocated to the inventory
hence, the correct option is b.
And, the rest of the options would be incorrect
On January 1, Marigold Corp. issued $6600000, 9% bonds for $7029000. The market rate of interest for these bonds is 8%. Interest is payable annually on December 31. Marigold uses the effective-interest method of amortizing bond premium. At the end of the first year, Marigold should report unamortized bond premium of:________
a) $397320
b) $398580
c) $375320
d) $297000
Answer:
a) $397320
Explanation:
Total premium of bond = Issue price - Par value
Total premium of bond = $7,029,000 - $6,600,000
Total premium of bond = $429,000
Total Annual payment to be made by firm = Coupon rate* par value of bond
= 0.09*$6,600,000
= $594,000
Interest part of the total annual payment made by firm = Market rate*Issue price of bond
= 0.08*$7,029,000
= $562,320
Premium of bond to be amortized at the end of year 1 = Total Annual payment to be made by firm - Interest part of the total annual payment made by firm
= $594,000 - $562,320
= $31,680
Unamortized premium at the end of year 1 = total premium of bond - amortized premium at the end of year 1
= $429,000 - $31,680
= $397,320
The Morgan Corporation has two different bonds currently outstanding. Bond M has a face value of $30,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $800 every six months over the subsequent eight years, and finally pays $1,000 every six months over the last six years. Bond N also has a face value of $30,000 and a maturity of 20 years; it makes no coupon payments over the life of the bond. If the required return on both these bonds is 8 percent compounded semiannually, what is the current price of Bond M? of Bond N?
Answer:
a. Current value of Bond M = $5,066.47
b. Current value of Bond N = $1,380.93
Explanation:
a. Calculation of current price of Bond M
Note: See the attached excel file for the calculation of the total present of value of the coupon payment of Bond M.
From the attached excel file, we have:
Total present of value of the coupon payment of Bond M = $3,685.54
Present value of the face value of Bond M = Face value / (100% + Required return)^(Number of years to maturity * Number of years in a year) = $30,000 / (100% + 8%)^(20 * 2) = $1,380.93
Current value of Bond M = Total present of value of the coupon payment of Bond M + Present value of the face value of Bond M = $3,685.54 + $1,380.93 = $5,066.47
b. Calculation of current price of Bond N
Since no coupon payments is made over the life of Bond N, we have:
Current value of Bond N = Present value of the face value of Bond N = Face value / (100% + Required return)^(Number of years to maturity * Number of years in a year) = $30,000 / (100% + 8%)^(20 * 2) = $1,380.93
successfulness of the competition policy in South Africa
ABC Lawn Care service continuously makes an effort to set up multiple points of interaction with its customers. ABC wants to provide lawn care every week to keep its customers' yards looking manicured and ultimately to develop a relationship with its customers. Which of the following does not describe relationship selling?
a. Its end result is loyal customers.
b. It emphasizes making a one-time sale.
c. It focuses on building mutual trust between the buyer and seller.
d. Its strategy is often less expensive than continuously marketing products.
Answer:
b. It emphasizes making a one-time sale
Explanation:
Relationship selling is a when a seller focuses on building connections with customers when selling a product. This is a longer term strategy to make repeat buyers of the customer.
The focus is not on price rather it is on interaction with customers.
One time sales therefore is not consistent with relationship selling.
In the given scenarionABC wants to provide lawn care every week to keep its customers' yards looking manicured and ultimately to develop a relationship with its customers.
This is an example of relationship selling.
Which portion of government does reapportionment significantly impact? A. Congress
B. Judicial branch, specifically federal judges
C. Senate
D. House of Representatoves
Answer:
judicial branch , specifically federal judges
Assume that during 2019, Cypress Semiconductor Corporation reported net cash provided by operating activities of $155,955,000, net cash used in investing activities of $207,200,000 (including cash spent for plant assets of $132,930,000), and net cash used in financing activities of $33,350,000. Dividends of $4,860,000 were paid.
Required:
Calculate free cash flow.
Answer:
$18,165,000
Explanation:
Given that;
Cash provided by operating activities = $155,955,000
Net cash used in investing activities = $207,200,000 (including cash spent for plant asset of $132,930,000)
Net cash used in financing activities = $33,350,000
Dividends = $4,860,000
Then,
The free cash flow
= Cash provided by operating activities - Net cash used in investing activities - Dividends
= $155,955,000 - $132,930,000 - $4,860,000
= $18,165,000
On September 30, 2021, Bricker Enterprises purchased a machine for $212,000. The estimated service life is 10 years with a $21,000 residual value. Bricker records partial-year depreciation based on the number of months in service.
Depreciation (to the nearest dollar) for 2022, using sum-of-the-years'-digits method, would be:_________. (Do not round intermediate calculations.)
a. $33,859.
b. $31,282.
c. $37,583.
d. $56,700.
Answer:
a. $33,859
Explanation:
The computation of the depreciation expense for the year 2022 is given below;
The Depreciable Value of the Asset is
= Cost - Residual Value
= $212,000 - $21,000
= $191,000
Now
Total Sum of the Years is
= (1+2+3+4+5+6+7+8+9+10)
= 55
Now
Depreciation for the year 2022
For Jan 1st 2022 to Sept 30 is
= 10 ÷ 55 × 9 ÷ 12 × $191,000
= $26,045
And,
For Oct 1st Dec 31 is
= 9 ÷ 55 × 3 ÷ 12 × $191,000
= $7,813
So,
Depreciation expense is
= $26,045 + $7,814
= $33,859
Jordan performs services for Ryan. Which, if any, of the following factors indicate that Jordan is an independent
contractor, rather than an employee?
a. Ryan sets the work schedule
b. Ryan provides the tools used.
c. Jordan follows a specific set of instructions from Ryan to complete tasks.
d. Jordan is paid based on tasks performed.
Answer:
d. Jordan is paid based on tasks performed.
Explanation:
In the given options, the option d seems to be an independent contractor instead of an employee as the independent contractor would be paid that depend upon the performance of the task. They are free to choose their time and resources in order to performing the task. In other way, they dont have to depend upon others
So, the option d is correct
what does it mean to be an economically responsible citizen?
Answer: Hope This Helps!
Explanation:
A responsible citizen has knowledge about his/her role in community, state and the world. A responsible citizen has a role in making the world a better place to live (for every components in biosphere). A responsible citizen is change agent that acts out against injustice in social, economic, and environmental sectors.
What is the third rule to normalize a database?
Answer:
If the first rule is observed, the database is said to be in "first normal form." If the first three rules are observed, the database is considered to be in "third normal form." Although other levels of normalization are possible, third normal form is considered the highest level.
How are the FDIC and NCUA similar? Select all that apply
They both regulate credit unions.
They both provide insurance for financial institutions.
They both regulate federally chartered banks.
They are both by the US government.
Butler Corporation is considering the purchase of new equipment costing $84,000. The projected annual after-tax net income from the equipment is $3,000, after deducting $28,000 for depreciation. The revenue is to be received at the end of each year. The machine has a useful life of 3 years and no salvage value. Butler requires a 9% return on its investments. The present value of an annuity of $1 for different periods follows:
Periods 11 Percent
1 0.9009
2 1.7125
3 2.4437
4 3.1024
What is the net present value of the machine?
a. $(4,502).
b. $48,000.
c. $5,400.
d. $43,498.
e. $39,099.
Answer:
($16,2470.30)
Explanation:
After-tax cash flow = After-tax net income + Depreciation
After-tax cash flow = $3,000 + $28,000
After-tax cash flow = $31,000
Net present value = Purchase cost + After-tax cash flow*PVIFA(%, n)
Net present value = -$84,000 + $31,000*PVIFA(9%, 3)
Net present value = -$84,000 + $31,000*2.5313
Net present value = -$84,000 + $78,470.30
Net present value = -$16,2470.30
Madeline is a research assistant for her favorite biology professor, Dr. Ogechi. Dr. Ogechi is interested in studying the effects of aquarium temperature on the number of offspring produced by a certain species of fish. Madeline knows, from her economics class, that to isolate the effects of a particular phenomenon, all other things must remain the same. In Latin, this is referred to as:______.
A. pluribus unum
B. dum versaste, nox fit
C. onay oremay atinlay
D. ceteris paribus
Answer:
D. ceteris paribus
Explanation:
Ceteris paribus is Latin for - all things being equal or constant.
In evaluating the effect of a factor in research it is important to keep all other factors constant so that the effect of the action of interest can isolated.
In the given scenario Dr. Ogechi is interested in studying the effects of aquarium temperature on the number of offspring produced by a certain species of fish.
For the effect of temperature to be accurately studied there is need for all other factors like pressure, salt content of water, oxygen content, and so on be constant.
This isolates effect of temperature on the experiment.
(Learning Outcome 2) Watson Plumbing performed plumbing services for ABC Daycare on account for $565. How will this transaction affect ABC Daycare's accounting equation?
Answer:
ABC Daycare
Effect of Performing Plumbing Services on account on the Accounting Equation:
Assets (Accounts receivable) will increase by $565 and Equity (Retained Earnings) will equally increase by $565
Explanation:
a) Data and Analysis:
Accounts receivable $565 Service Revenue $565
The accounting equation that equals assets to liabilities and equity is always true at all times and with every correctly posted transaction. It implies that assets are financed through the contributions made by either the owners (equity) or the creditors (debts), or a combination of the two. This equation forms the basis for the double-entry system of financial accounting.
list three classified ways of getting into small business?
Answer:
sole , partnership , team business
PaulCo, DavidCo, and Sean form a partnership with cash contributions of $80,000, $50,000 and $30,000, respectively, and agree to share profits and losses in the ratio of their original cash contributions. PaulCo uses a January 31 fiscal year-end, while DavidCo and Sean use a November 30 and December 31 year-end, respectively. The partnership must use the least aggregate deferral method to determine its year end.
a. True
b. False
Answer:
True
Explanation:
Based on the information given The partnership MUST USE THE LEAST AGGREGATE DEFERRAL METHOD IN ORDER TO DETERMINE ITS YEAR END reason been that PaulCo ownership is not more than 50% and lastly the three partners year end is different as PaulCo make use of January 31, DavidCo November 30 and Sean December 31.
Therefore The partnership must make use of the LEAST AGGREGATE DEFERRAL METHOD to determine its year end.
Charlotte is a partner in, and sales manager for, CD Partners, a domestic business that is not a "specified services" business. During the tax year, she receives guaranteed payments of $161,400 from CD Partners for her services to the partnership as its sales manager. In addition, her distributive share of CD Partners' ordinary income (its only item of income or loss) was $96,840.
Required:
What is Charlotte's qualified business income?
Answer and Explanation:
Qualified business income represents which do not involve the income from services performing in terms of the employee.
Therefore, Charlotte qualified business income (QBI) $96,840 as it does not involve the $161,400 income as sales manager.
Presidential Profits. Linda was president of a publicly traded tractor company, Tough Tractors. Linda became aware that stock in her company would likely increase significantly in value because her company had a contract to purchase the assets of Rough Tractors. The boards of both companies wanted the information kept confidential until the purchase was complete and a news release was made. Before the news was made public, Linda immediately purchased a significant number of shares in Tough Tractors. Linda also told her friend Frank about the contract to purchase assets. Frank, who knew that the information was not public, told his brother, George. Frank and George purchased a number of shares of stock in Tough Tractors prior to any public announcement of the sale. After the public announcement was made and the purchase of assets went through, Linda, George and Frank, all sold their shares in Tough Tractors and made a significant profit. Which of the following describes Frank in providing information about the asset sale to George?
A. Tipper.
B. Third-party beneficiary.
C. Informant.
D. Leaker.
E. Enabler.
Answer: Tipper
Explanation
An act whereby non-public information regarding a publicly traded company is provided to a person who shouldn't have the information is referred to as tipping.
In this case, Frank is a tipper since he passed the information to George whom is the tippee in order to gain profit. Therefore, the correct option is A.
Tristen Company purchased a five-story office building on January 1, 2019, at a cost of $5,000,000. The building has a residual value of $200,000 and a 30-year life. The straight-line depreciation method is used. On June 30, 2021, construction of a sixth floor was completed at a cost of $1,650,000.
Required:
Calculate the depreciation on the building and building addition for 2018 and 2019 assuming that the addition did not change the life or residual value of the building.
Answer:
Depreciation expense on Building
Depreciation expense per annum under straight line method = (Cost - Residual value) / Useful life
= ($5,000,000 - $200,000) / 30
= $4,800,000 / 30
= $160,000
Depreciation expense for 2018 = $160,000
Depreciation expense for 2019 = $160,000
Depreciation expense on Building addition
Useful life = 30.00 years - 2.50 years = 27.50 years
Depreciation expense per annum under straight line method = (Cost - Residual value) / Useful life
= ($1,650,000 - $0) / 27.50
= $60,000
Depreciation expense for 2018 for 6 months = $60,000 * (6/12) = $30,000
Depreciation expense for 2019 = $60,000
The employee credit union at State University is planning the allocation of funds for the coming year. The credit union makes four types of loans to its members. In addition, the credit union invests in risk-free securities to stabilize income. The various revenue-producing investments together with annual rates of return are as follows:
Type of Loan/Investment Annual Rate of Return (%)
Automobile loans 8
Furniture loans 10
Other secured loans 11
Signature loans 12
Risk-free securities 9
The credit union will have $2 million available for investment during the coming year. State laws and credit union policies impose the following restrictions on the composition of the loans and investments:
• Risk-free securities may not exceed 25% of the total funds available for investment.
• Signature loans may not exceed 11% of the funds invested in all loans (automobile, furniture, other secured, and signature loans).
• Furniture loans plus other secured loans may not exceed the automobile loans.
• Other secured loans plus signature loans may not exceed the funds invested in risk-free securities.
How should the $2 million be allocated to each of the loan/investment alternatives to maximize total annual return?
Type of Loan/Investment Fund Allocation
Automobile loans $_____________
Furniture loans $_____________
Other secured loans $______________
Signature loans $_____________
Risk-free securities $______________
What is the projected total annual return?
Annual Return = $_______________
Answer:
Employee Credit Union at State University
1. Allocation of the $2 million:
Automobile loans $____667,500_____
Furniture loans $_____332,500__
Other secured loans $___335,000_____
Signature loans $_____165,000____
Risk-free securities $____500,000____
2. The projected total annual return is:
= $188,300.
Explanation:
a) Data and Calculations:
Type of Loan/Investment Annual Rate Allocation based Annual
of Return (%) on constraints Returns
Automobile loans 8 $667,500 $53,400
Furniture loans 10 332,500 33,250
Other secured loans 11 335,000 36,850
Signature loans 12 165,000 19,800
Risk-free securities 9 500,000 45,000
Total $2,000,000 $188,300
Amount available for investment = $2 million
Restrictions:
Type of Loan/Investment Constraints Allocation based
on constraints
Automobile loans = ($332,500 + $336,000) $667,500
Furniture loans = ($667,500 - $335,000) 332,500
Other secured loans = ($500,000 - $165,000) 335,000
Signature loans = (11% * 75% * $2,000,000) 165,000
Risk-free securities = (25% * $2,000,000) 500,000
Total loans = Total funds available $2,000,000
Based on the graph, how many people are willing to work when the government of a country raises the minimum wage from $17 to $25?
A. 9
B. 12
C. 16
D. 19
E. 28
Answer:
Post Test: Government
Economics
Question #5
Based on the graph, how many people are willing to work when the government of a country raises the minimum wage from $17 to $25?
Answers:
A. 9
B. 12
C. 16
D. 19
E. 28
__________________________________________________________
The 100% correct answer is:
E. 28
Explanation:
I took the test and this is 100% it
Hope this helped
Tyreek Hill of the Kansas City Chiefs, and his agent are evaluating three contract options. Each option offers a signing bonus and a series of payments over the life of the contract. Hill uses a 10.375 percent rate of return to evaluate the contracts. Given the cash flows for each option, whish one should he choose? Show your work.
Year 0 CF Type Signing Bonus Option A $ 6,000,000.00 Option B $ 5,800,000.00 Option C $ 7,000,000.00 1 Annual Salary $ 650,000.00 $13,000,000.00 $10,800,000.00 2 Annual Salary $ 715,000.00 $13,000,000.00 $11,000,000.00 3 Annual Salary $ 822,250.00 $13,000,000.00 $11,200,000.00 4 Annual Salary $ 975,000.00 $13,000,000.00 $11,400,000.00 5 Annual Salary $20,000,000.00 $11,600,000.00 6 Annual Salary $30,000,000.00
Answer:
He should choose Option B because it has the highest equivalent annual annuity,
Explanation:
To decide which option is better, calculate the equivalent annual annuity using the following formula
Equivalent Annual Annuity = Total Present value / Total Present value Factor
Option A
Where
Total Present value = $37,245,058
Total Present value Factor = 5.30781306
Placing values in the formula
Equivalent Annual Annuity = $37,245,058 / 5.30781306 = $7,017,025.18
Option B
Where
Total Present value = $46,675,950
Total Present value Factor = 4.144303839
Placing values in the formula
Equivalent Annual Annuity = $46,675,950 / 4.144303839 = $11,262,675.64
Option C
Where
Total Present value = $48,905,550
Total Present value Factor = 4.754748665
Placing values in the formula
Equivalent Annual Annuity = $48,905,550 / 4.754748665 = $10,285,622.48
Tyreek Hill should choose option C.
In order to determine the choice he would make, the present value of each option has to be determined. Present value is the sum of discounted cash flows. Present value can be determined using a financial calculator.
Present value of Option A using a discount rate of 10.375% = 37.28 million
Present value of Option B using a discount rate of 10.375% = 46.68 million
Present value of Option C using a discount rate of 10.35% = 48.91 million
A similar question was solved here: https://brainly.com/question/15660588