Answer: d. As a footnote of the financial statements
Explanation:
The settlement that the company expects is contingent in nature and should only be recognised in the statements if it is probable that it will happen.
The company anticipates that it will win this therefore making it probable that it will do so. The amount is also quantifiable as well. However, going by the Accrual principle in Accounting, revenue is only recorded when earned.
The Gain Contingent will have to be recorded as a footnote until it is realized then it can be recorded.
Assume that you are a new analyst hired to evaluate the capital budgeting projects of the company which is considering investing in two CPEC projects, “Expansion Zone North” and “Expansion Zone East”. The initial cost of each project is Rs. 10,000. Company discount all projects based on WACC. Further, all the projects are equally risky projects and the company uses only debt and common equity for financing these projects. It can borrow unlimited amounts at an interest rate of rd 10% as long as it finances at its target capital structure, which calls for 50% debt and 50% common equity. The dividend for next period is $2.0, its expected that they will grow at the constant growth rate of 8%, and the company’s common stock sells for $20. The tax rate is 50%. The cash flows of both the projects are given in table below: Time Expansion Zone North Cashflows (amount in Rs.) Expansion Zone East Cashflows (amount in Rs.) 0 - 10,000 - 10,000 1 6,500 3,500 2 3,000 3,500 3 3,000 3,500 4 1,000 3,500 Carefully analyze the above table and answer the following questions in detail. I. Calculate the weighted average cost of capital for this firm? (2.5 marks) II. Compute each project’s IRR, NPV, payback, MIRR, and discounted payback. (2.5 Marks) III. Which project(s) should be accepted if they are mutually exclusive? Explain (1.5 Marks) IV. Which project(s) should be accepted if they are independent? Explain (1.5 Marks)
Answer:
Assume that you are a new analyst hired to evaluate the capital budgeting projects of the company which is considering investing in two CPEC projects, “Expansion Zone North” and “Expansion Zone East”. The initial cost of each project is Rs. 10,000. Company discount all projects based on WACC. Further, all the projects are equally risky projects and the company uses only debt and common equity for financing these projects. It can borrow unlimited amounts at an interest rate of rd 10% as long as it finances at its target capital structure, which calls for 50% debt and 50% common equity. The dividend for next period is $2.0, its expected that they will grow at the constant growth rate of 8%, and the company’s common stock sells for $20. The tax rate is 50%.
Answer:
Explanation:
Assume that you are a new analyst hired to evaluate the capital budgeting projects of the company which is considering investing in two CPEC projects, “Expansion Zone North” and “Expansion Zone East”. The initial cost of each project is Rs. 10,000. Company discount all projects based on WACC. Further, all the projects are equally risky projects and the company uses only debt and common equity for financing these projects. It can borrow unlimited amounts at an interest rate of rd 10% as long as it finances at its target capital structure, which calls for 50% debt and 50% common equity. The dividend for next period is $2.0, its expected that they will grow at the constant growth rate of 8%, and the company’s common stock sells for $20. The tax rate is 50%. The cash flows of both the projects are given in table below: Time Expansion Zone North Cashflows (amount in Rs.) Expansion Zone East Cashflows (amount in Rs.) 0 - 10,000 - 10,000 1 6,500 3,500 2 3,000 3,500 3 3,000 3,500 4 1,000 3,500 Carefully analyze the above table and answer the following questions in detail. I. Calculate the weighted average cost of capital for this firm? (2.5 marks) II. Compute each project’s IRR, NPV, payback, MIRR, and discounted payback. (2.5 Marks) III. Which project(s) should be accepted if they are mutually exclusive? Explain (1.5 Marks) IV. Which project(s) should be accepted if they are independent? Explain (1.5 Marks)
A. Considerations for research
a. What cultures to study?
i. Examining a theoretical variable
ii. Examining degrees of universality
b. Meaningful cross-cultural comparisons
i. Developing knowledge about cultures
ii. Different versus similar cultures
iii. Methodological issues
Explanation:
A.
a). i. Examining a theoretical variable
A culture may be defined as the information that is acquired from the other members of any species through the social learning. It is the particular information or it is the group of the individuals who exists in the shared context. Choosing what cultures to study is based on the theoretical consideration or the theoretical variable and examining the degrees of the variability.
b). ii. Different versus similar cultures
Cross cultural comparisons is a study which examines whether the measure of the psychological construct that was previously generated in the single culture is also applicable meaningfully and thus equivalent in the another culture.
Olly & Sons is a construction company. The company started the year with $90,000 in the land account. During Year 2, Olly & Sons purchased multiple lots of land. The first lot cost $25,000, the second lot cost $28,000 and the third lot cost $31,000. The company sold one lot that had a cost of $50,000 for $50,000. What is the ending balance in the land account?
Answer:
$124,000
Explanation:
The computation of ending balance in the land account is shown below:-
ending balance in the land account = Beginning balance of Land account + Total balance of land - Cost of land sold
= $90,000 + ($25,000 + $28,000 + $31,000) - $50,000
= $90,000 + $174,000 - $50,000
= $124,000
Therefore for computing the ending balance in the land account we simply applied the above formula.
On October 31, a company finances the purchase of equipment with a $500,000 5-year note payable. The note has an interest rate of 12% and a monthly payment of $11,122, due at the end of each month. After two payments have been made, what amount should the company report as the note payable balance in its December 31 balance sheet?
a. $490,061
b. $487,695
c. $477,756
d. $487,756
Answer: b. $487,695
Explanation:
When the $11,122 monthly payment is made, it comprises of 2 things. The interest payment and the principal repayment.
For the first payment, the interest is;
= 500,000 * 12% * 1/12 ( monthly adjustment)
= $5,000
The remaining amount will be the principal repayment;
= 11,122 - 5,000
= $6,122
The note payable will reduce to;
= 500,000 - 6,122
= $493,878
Second payment;
Interest = 493,878 * 12% * 1/12
= $4,938.78
Principal Repayment = 11,122 - 4,938.78
= $6,183.22
The note payable will become;
= 493,878 - 6,183.22
= 487,694.78
= $487,695
On December 31, 2020, Elena and Edgardo would like to give the maximum amount possible to their five married children, their spouses, and their six grandchildren. Under the Federal gift tax annual exclusion, and assuming that Elena and Edgardo elect gift splitting, how much can they give their family (in total) for 2020
Answer:
$480,000
Explanation:
The Federal gift tax annual exclusion is $15,000 per person. Since they are gift splitting, they can give up to $30,000 per person. The limit is imposed by the couple's total lifetime exclusion which is $11.58 million for 2020. This means that you can make gifts to multiple people during your lifetime and if the total gifts do not pass the lifetime exclusion, you will not be taxed for it.
5 children x 2 (their spouses) = 10 people
6 grandchildren
total = 16 people
total annual gifts = 16 x $30,000 = $480,000
Maria wants to start a new business in collaboration with her husband and brother-in-law. The features she is looking for in the business are as follows: least possible regulatory controls, faster decision making, and ease of organization. She also wants a business in which she will not be forced to pay off any business debts from her personal assets. Which type of business ownership will be best suited to her needs? Question 1 options: A) C corporation B) Limited partnership C) S corporation D) General partnership E) Sole proprietorship pdf
Answer:
B) Limited partnership
Explanation:
Limited partnership is one where the partners involved are liable only to the extent to which they contributed to the partnership.
Also some partners only contribute financially. That means they shielded to the extent of their contribution.
In this type of partnership there is least possible regulatory controls, faster decision making, and ease of organisation because partners actually involved in running the business are few or only one person.
It also has the advantage of being a business in which the active partner will not be forced to pay off any business debts from their personal assets.
Spruce Inc. completed Job No. A20 during 2020. The job cost sheet listed the following: Job No. A20 Costs for 5000 units produced: Direct materials $30,000 Direct labor $45,000 Manufacturing overhead applied $20,000 Units sold 2,000 units How much is the cost of the finished goods on hand at the end of the period from this job?
Answer: $57,000
Explanation:
Cost of finished goods on hand at end of period = Goods on hand * Unit Cost
Goods on hand = Units Produced - Units sold
= 5,000 - 2,000
= 3,000 units
Unit Cost = Total Cost / Units Produced
= ( Direct materials + Direct Labor + Manufacturing overhead)/ Units produced
= ( 30,000 + 45,000 + 20,000) / 5,000
= $19
Cost of finished goods on hand at end of period = 3,000 * 19
= $57,000
Which account would be listed on a post-closing trial balance?
a. Sales Revenue
b. Depreciation Expense
c. Retained Earnings
d. Income Tax Expense.
Answer: c. Retained Earnings
Explanation:
The post-closing trial balance reflects balance sheet items that do not have a $0 balance in them when a period has ended and is prepared after the temporary accounts have been closed off. The purpose is to make sure that the debits equal the credits.
As there are no temporary accounts, all income statement items will have been closed off and moved to the Retained earnings account which will reflect the total for the income statement for the year. The only account that will be listed in the post-closing trial balance therefore will be the Retained earnings account.
Assume that the level of capital flows between the U.S. and the country of Krendo is negligible (close to zero) and will continue to be negligible. There is a substantial amount of trade between the U.S. and the country of Krendo and no capital flows. Thus, the inflation effect will be _____ than the interest rate effect in influencing the exchanger rate of Krendo against U.S. dollar.
Answer:
Stronger
Explanation:
Given that inflation affects trade flows, as the higher price of commodities have negative impacts on exports rates. Thus, all things being equal, it is expected that high inflation should cause downward pressure on the exchanger rate of Krendo.
Hence, the inflation effect will be STRONGER than the interest rate effect in influencing the exchanger rate of Krendo against the U.S. dollar.
"An unexpected benefit of deliberate practice is ______"
Question options :
A. You become more skilled at perceiving situations
B. your life becomes organized
C. you become successful
D. your children learn valuable lessons from watching
Answer:
A. You become more skilled at perceiving situations
Explanation:
Deliberate practice involves focused and careful directed efforts towards improving performance in a chosen field.
deliberate practice brings unexpected benefits such as being able to understand complex patterns and adapting easily to changes. This is because individuals who experience this are able to develop their intuitions in this way
Selected current year company information follows: Net income $ 15,953 Net sales 712,855 Total liabilities, beginning-year 83,932 Total liabilities, end-of-year 103,201 Total stockholders' equity, beginning-year 198,935 Total stockholders' equity, end-of-year 121,851 The return on total assets is:
Answer:
Return on total assets =7.09%Explanation:
Return on total asset is the proportion of the total amount invested in assets that is earned as net income. It is a measure of the efficiency of the use of assets to generate profit.
It is calculated as follows:
Return on total assets = Net Profit/Total assets× 100
Note that Total assets = Total liabilities + stockholder's equity
Data:
Total assets = 103,201 + 121,851 = 225,052
Net income = 15,953
Return on total assets = 15,953/225,052 × 100= 7.09%
Return on total assets =7.09%
Why is the answer D?
Explanation:
When gas prices are low, there is less need for alternative fuel cars, so the demand falls. People will be less willing to pay high prices, so the price also falls. And since there's less demand, there doesn't need to be as many cars on the market, so the equilibrium quantity falls.
When a salesperson asks for the sale, he or she is trying to:_________.
Answer:
Close the sale.
Explanation:
When a salesperson asks for the sale, he or she is trying to close the sale. In sales and marketing, the term closing with respect to a sales can be defined as the process of making a business sale successful such as through the exchange of money for a particular product or goods.
For a salesperson to be able to close a sales, he or she require abilities such as courage, negotiation skills, listening ears and interpersonal skills to do so or achieve a successful sales.
Although appealing to more refined tastes, art as a collectible has not always performed so profitably. In 2010, an auction house sold a painting at auction for a price of $1,130,000. Unfortunately for the previous owner, he had purchased it three years earlier at a price of $1,710,000. What was his annual rate of return on this painting
Answer:
rate of interest = -12.90%
Explanation:
The computation of the annual rate of return is shown below:
As we know that
Future value = Present value * (1 + interest rate)^number of years
$1,130,000 = $1,710,000 × (1 + interest rate)^3
0.660819 = (1 + interest rate)^3
0.8710 = 1 + interest rate
So, the rate of interest is
rate of interest = -0.128981
rate of interest = -12.90%
Fill in each of the following T-accounts for Belle Co.'s seven transactions listed here. The T-accounts repre sent Belle Co.'s general ledger. Code each entry with transaction number / through 7 (in order) for reference
1. D. Belle created a new business and invested $6,000 cash, $7,600 of equipment, and $12,000 in web servers in exchange for common stock.
2. The company paid $4,800 cash in advance for prepaid insurance coverage.
3. The company purchased $900 of supplies on account.
4. The company paid $800 cash for selling expenses.
5. The company received $4,500 cash for services provided.
6. The company paid $900 cash toward accounts payable.
7. The company paid $3,400 cash for equipment.
Juoda Prepaid Insurance Supplies Cash Web Servers Accounts Payable Equipment Common Stock Services Revenue Selling Expenses
Answer:
Belle Co.
T-accounts:
Date Accounts Debit Credit
Prepaid Insurance
2. Cash $4,800
Date Accounts Debit Credit
Supplies
3. Accounts Payable $900
Date Accounts Debit Credit
Cash
1. Common Stock $6,000
2. Prepaid Insurance $4,800
4. Selling expenses 800
5. Service Revenue 4,500
6. Accounts Payable 900
7. Equipment 3,400
Date Accounts Debit Credit
Web Servers
1. Common Stock $12,000
Date Accounts Debit Credit
Accounts Payable
3. Supplies $900
6. Cash $900
Date Accounts Debit Credit
Equipment
1. Common Stock $7,600
7. Cash 3,400
Date Accounts Debit Credit
Common Stock
1. Cash $6,000
1. Equipment 7,600
1. Web Servers 12,000
Date Accounts Debit Credit
Services Revenue
5. Cash $4,500
Date Accounts Debit Credit
Selling Expenses
4. Cash $800
Explanation:
Belle Co's seven transactions are posted to the T-accounts, that is, the general ledger as they occur on a daily basis with one account debited and the other credited for the same transaction, in accordance with the double entry system of accounting. This ensures that the accounting equation is in balance with each transaction.
Which of the following accounts are closed at the end of the year?A. accounts receivableB. retained earningsC. salaries expenseD. service revenue
Answer:
C. salaries expense
D. service revenue
Explanation:
All temporary accounts need to be closed off at the end of the year. Temporary accounts are accounts that both begin and end the period with a $0 balance so that they do not get mixed up with figures from the next period.
Items in the income statement such as revenue and expenses are closed at year end and will form part of the Retained earnings account as they would have been accounted for in the net income.
Salaries expense and service revenue will therefore be closed at the end of the year.
A scatter graph is used to test the assumption that the relationship between cost and activity level is ________. A. curvilinear B. cyclical C. unpredictable D. linear
Answer:
Option D (linear) is the right approach.
Explanation:
The scatter graph seems to be a graphic method to determine the relationship regarding expense and degree of operation. It could be used to evaluate the expense behavior of adjusting this same degree of operation. It is being used to verify the system suitability or linearity statement that is true.Some other decisions taken are not relevant to the situation in question. Although it is indeed the best option.
Which of the following is the process the listener takes to assess the information received from the speaker?
A. Evaluating
B. Receiving
C. Providing feedback D. Understanding
Answer:
Explanation:
A- Evaluating
xpenditures for research and development intended to lead to new products of commercial value: Group of answer choices Should be capitalized only if patents are expected to be granted. Should be recorded as intangible assets and amortized during the years in which benefits are expected. None is correct. Should be charged to expense when incurred. Should be classified as deferred charges.
Answer: Should be charged to expense when incurred.
Explanation:
Under the GAAP system, Research and Development costs are considered to be period costs. This includes whether or not the company did the R&D themselves or hired another company to do it or purchased their services.
Period costs are to be expensed in the period that they are incurred which is why R&D costs are to be expensed when incurred and reflected in the Income Statement.
Suppose the government sets an effective price floor (that is, a price above equilibrium) in the market for oranges and agrees to buy all oranges that go unsold at that price. The oranges purchased by the government are discarded. Illustrate the number of oranges purchased by the government. Illustrate the gains and losses to all relevant groups of Americans and the dead weight loss.
Answer:
If the market floor is over demand, there is a surplus supply at that point. As a result , the number for oranges bought by the state would be Q1Q2 across the table.
Benefit is to the growers growing oranges as they've been having a better price and the cost is to the customers and community at large as it increases in deadweight losses. The triangular region in the graph reflects a moral hazard, DWL.
Pigot Corporation uses job costing and has two production departments, M and A. Budgeted manufacturing costs for the year are as follows: Dept. MDept. A Direct materials$718,000 $118,000 Direct labor 218,000 836,000 Factory overhead 654,000 418,000 The actual direct materials and direct labor costs charged to Job. No. 432 during the year were as follows: Direct materials $58,000 Direct labor: Department M$26,000 Department A 30,000 56,000 Pigot applies manufacturing overhead to production orders on the basis of direct labor cost using departmental rates predetermined at the beginning of the year based on the annual budget. The total cost associated with Job. No. 432 for the year should be:
Answer:
Total cost= $207,000
Explanation:
Giving the following information:
Budgeted manufacturing costs Dept. M Dept. A:
Direct labor 218,000 836,000
Factory overhead 654,000 418,000
Job. No. 432:
Direct materials $58,000
Direct labor: Department M$26,000 Department A 30,000
First, we need to determine the predetermined overhead rate for each department:
Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Departement M= 654,000/218,000= $3 per direct labor dollar
Department A= 418,000/836,000= $0.5 per direct labor dollar
Now, we can calculate the total cost:
Total cost= direct material + direct labor + allocated overhead:
Total cost= 58,000 + 56,000 + (3*26,000 + 0.5*30,000)
Total cost= $207,000
The stock of Smashburger Inc. is currently trading at a price of $40. Smashburger is expected to pay a dividend of $3.00 per share one year from now (t = 1) and then the dividend is expected to grow at a constant growth rate gL. Assuming that the market is in equilibrium, the risk free rate of return is 5.2%, the market risk premium is 6%, and that the beta of Smashburger is 0.8, what is the long run growth rate gL?
Answer:
g or gL = 0.025 or 2.5%
Explanation:
The constant growth model of DDM is used to calculate the price of a stock whose dividends are expected to grow at a constant rate. The DDM values a stock based on the present value of the expected future dividends from the stock. The formula for price today under this model is,
P0 = D1 / r - g
Where,
D1 is the dividend expected for the next periodr is the required rate of returng is the constant or long term growth rateFirst we need to calculate the value of r. We will use the CAPM equation to calculate r.
r = rRF + Beta * rpM
Where,
rRF is the risk free raterpM is the market risk premiumr = 0.052 + 0.8 * 0.06
r = 0.1 or 10%
As we already know the P0, r and D1, we will input these values in the formula of price under constant growth model to calculate teh value of g or gL.
40 = 3 / (0.1 - g)
40 * (0.1 - g) = 3
4 - 40g = 3
4 - 3 = 40g
1 / 40 = g
g = 0.025 or 2.5%
Colorado Rocky Cookie Company offers credit terms to its customers. At the end of 2016, accounts receivable totaled $720,000. The allowance method is used to account for uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $51,000 at the beginning of 2016 and $30,500 in receivables were written off during the year as uncollectible. Also, $3,100 in cash was received in December from a customer whose account previously had been written off. The company estimates bad debts by applying a percentage of 10% to accounts receivable at the end of the year. Required: 1. Prepare journal entries to record the write-off of receivables, the collection of $3,100 for previously written off receivables, and the year-end adjusting entry for bad debt expense. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Answer:
Journal
Date Account Titles and Explanation Debit Credit
Allowance for uncollectible accounts $30,500
Accounts Receivables $30,500
(To write off uncollectibles during the year)
Journal
Date Account Titles and Explanation Debit Credit
Account receivables $3,100
Allowance for uncollectible accounts $3,100
(To reinstate receivables written off earlier)
Journal
Date Account Titles and Explanation Debit Credit
Cash $3,100
Account receivables $3,100
(To record the recovery of bad debts)
Journal
Date Account Titles and Explanation Debit Credit
Bad debt expenses $48,000
Allowance for uncollectible accounts $48,000
(To record bad debts expenses)
Workings
Closing allowance = Opening allowance - Receivables written off + Receivables reinstated = $51,000 - $30,500 + $3,100 = $23,600
Expenses Bad debt = Receivables at the end of 2016 * Estimated percentage = $720,000 * 10% = $72,000
Allowance to be created = Estimated bad debts - Balance of Allowance at year end = $72,000 - $23,600 = $48,400
When the current price of an item is greater than the item's market clearing price:_________.
A) supply is greater than demand.
B) demand is greater than supply.
C) quantity supplied is greater than quantity demanded.
D) quantity supplied is less than quantity demanded.
Answer:
C) quantity supplied is greater than the quantity demanded.
Explanation:
We need not be confused, the market-clearing price is referring to the equilibrium price. Thus, if the current price is above the market-clearing price (that is, the price at which quantity demanded equals quantity supplied), it means the quantity supplied is greater than the quantity demanded of the item.
For example, at a price of $1 per orange, there's an equal amount in quantity demanded and quantity supplied of orange. However, the price increases to $2 per orange; which makes the current price of an orange greater than the market-clearing price of $1.
What word would Harvard Business School professor Clayton M. Christensen use to describe the rapid growth of the
widespread use of mobile computing devices?
Answer: c
Explanation:
If the government decides to raise the minimum wage,ceteris paribus:_________.
A) All workers are better off.
B) All workers are worse off.
C) Some workers are better off and some are worse off.
D) Workers are not affected by a minimum wage increase,only by a decrease.
Answer:
C) Some workers are better off and some are worse off.
Explanation:
If the government raises minimum wages, the cost of hiring labour increases and as a result, some firms would lay off some workers especially those that are low skilled labours.
As a result some would lose their jobs while others would benefit from the increased wages
Equivalent Units of Conversion Costs The Rolling Department of Oak Ridge Steel Company had 10,712 tons in beginning work in process inventory (70% complete) on July 1. During July, 82,400 tons were completed. The ending work in process inventory on July 31 was 7,416 tons (60% complete). What are the total equivalent units for conversion costs? Round to the nearest whole unit. 83,636 units
Answer:
Total equivalent unit 86,688
Explanation:
We will use the weighted average method of valuation.
Under the weighted average method of valuation, to account for completed units, it is assumed that the entire degree of work required is done in the period under consideration. So there is no separation of the completed units into opening inventory and fully worked.
Equivalent units = Degree of completion (%) × Number of units
Item Tons Working Equivalent units
Completed unit 82,400 82,400× 100% 82,400
Closing inventory 7,416 7,416 × 60% 7,416
Total equivalent unit 86,687.6
1. What do you call the basic unit of storage for computers?
A. "A file"
B. "A folder"
C. "A subfolder"
D. "An application”
2. What is computer software designed to help a person perform useful tasks
called?
A. "A PowerPoint"
B. "A browser"
C. "An application"
1 cuiten
Answer:
I believe 1 would be A. "A file" and 2 would be C. "An application" Hoped this helped, if I'm wrong please let me know!
The basic unit of storage for computers is called as the “A file”, and the computer software designed to help a person perform useful tasks called “An application”.
What is Computer?A computer is defined as a digital electrical device that can be created mentally to execute arithmetical or logical transactions in a predetermined sequence.
Computer program are generic aggregations of dealings that modern computers can do. These programs countenance computers to conduct out a mixture of projects.
The “A file” is the untold elementary unit of computer storage, and “An application” is computer software planned to assist a individual in executing useful tasks.
Therefore, option A is correct for 1, and C is correct for C.
Learn more about the computer, refer to:
https://brainly.com/question/13805692
#SPJ2
The understatement of the beginning inventory balance causes:__________.
A) Cost of goods sold to be understated and net income to be understated
B) Cost of goods sold to be overstated and net income to be understated
C) Cost of goods sold to be overstated and net income to be correct
D) Cost of goods sold to be understated and net income to be overstated
E) Cost of goods sold to be overstated and net income to be overstated
Answer:
D) Cost of goods sold to be understated and net income to be overstated
Explanation:
At the time when the beginning balance of the inventory is understated so there is a decrement in the cost of goods sold due to which there is a rise in the net income
Therefore in the given case at the time when there is an understatement of beginning inventory so there is a understated of cost of goods sold and the overstated of the net income
Hence, the option D is correct
When the market for product Y includes a positive externality:__________.
A. marginal private benefit exceeds marginal social benefit.
B. marginal private cost exceeds marginal social cost.
C. marginal social cost exceeds marginal private cost.
D. marginal social benefit exceeds marginal private benefit.
Answer:
D
Explanation:
A good has positive externality if the benefits to third parties not involved in production is greater than the cost. an example of an activity that generates positive externality is research and development. Due to the high cost of R & D, they are usually under-produced. Government can encourage the production of activities that generate positive externality by granting subsidies.