Answer: Wages are flexible if the economy is self-regulating.
Explanation:
Classical economists believe that the economy is self-regulating. This means that if the economy is not at equilibrium, it will return to equilibrium if it is left without interference.
For this to happen, inputs such as wages have to flexible to enable them to adjust to market conditions and thus take the Economy back to equilibrium.
For instance, if there is a recession, wages will reduce so that the prices that the producers can charge will reduce as well which will enable supply to match demand and bring the economy back to equilibrium.
The June 1 work in process inventory consisted of 5,300 units with $20,680 in materials cost and $17,320 in conversion cost. The June 1 work in process inventory was 100% complete with respect to materials and 60% complete with respect to conversion. During June, 37,800 units were started into production. The June 30 work in process inventory consisted of 8,600 units that were 100% complete with respect to materials and 50% complete with respect to conversion. 11. What is the cost of ending work in process inventory for conversion
Answer:
$22,145
Explanation:
First, calculate the equivalent units of production with respect to conversion costs.
Conversion Costs
Ending Work In Process (8,600 × 50%) = 4,300
Completed and Transferred (34,500 × 100%) = 34,500
Equivalent units of production with respect to conversion costs = 38,800
Then Calculate the total Conversion Costs as follows :
Conversion cost in beginning work in process $ 17,320
Add conversion costs added during the year :
Direct Labor $ 82,500
Overhead $100,000
Total Conversion Cost $199,820
Finally, calculate the cost per equivalent unit for conversion and cost of ending work in process inventory for conversion
Cost per equivalent unit = Total Cost ÷ Total Equivalent Units
Therefore,
Cost per equivalent unit = $199,820 ÷ 38,800
= $5.15
Therefore,
Cost of ending work in process inventory for conversion = 4,300 × $5.15
= $22,145
Assume that a Parent owns 80 percent of a Subsidiary that has 6 percent preferred stock outstanding with a reported par value of $720,000. Aside from the preferred dividends, no other dividends are paid (i.e., no dividends are paid to the common shareholders). The Parent owns none of the preferred stock. Assume that the Subsidiary reports net income of $117,000. During the year, the Parent company reported $261,000 of (pre-consolidation) income from its own operations (i.e., prior to any equity method adjustments by the Parent company). Compute the amount of consolidated net income attributable to the noncontrolling interest and the amount of net income attributable to the controlling interest.
Answer:
Consolidated net income attributable to the noncontrolling interest $14,760
Consolidated net income attributable to the controlling interest $320,040
Explanation:
Computation of the amount of consolidated net income attributable to the noncontrolling interest and the amount of net income attributable to the controlling interest.
CONSOLIDATED NET INCOME attributable to the noncontrolling interest
First step is to find the Divide amount
Dividend =6% x $720,000
Dividend= $43,200
Second Step is to find the Net Income from Subsidiary
Net Income from Subsidiary= $117,000-$43,200
Net Income from Subsidiary=$73,800
Last step is to calculate consolidated net income attributable to the noncontrolling interest
Noncontrolling interest =$73,800 x 20%
Noncontrolling interest = $14,760
NET INCOME attributable to the controlling interest
First step is to find the controlling interest amount
Controlling interest=80% x $73,800
Controlling interest= $59,040
Last step is to find the Parent company income
Parent company income= $261,000 + $59,040
Parent company income= $320,040
Therefore Consolidated net income attributable to the noncontrolling interest is $14,760 while the Consolidated net income attributable to the controlling interest is $320,040
Which of the following is correct? Group of answer choices Risk-averse people will not hold stock. Diversification cannot reduce firm-specific risk. The larger the percentage of stock in a portfolio, the greater the risk, but the greater the average return. Stock prices are determined by fundamental analysis rather than by supply and demand.
Answer: The larger the percentage of stock in a portfolio, the greater the risk, but the greater the average return.
Explanation:
Stock in general is more risky than most financial instruments but this risk is accompanied with greater returns. This is why it is generally advisable to diversify stock in a portfolio.
As already mentioned, stock is risky but rewarding. It therefore follows that the more stock is in a portfolio, the risker the portfolio but the greater the average return.
eorge and Weezy received $30,200 of Social Security benefits this year ($12,000 for George; $18,200 for Weezy). They also received $5,000 of interest from jointly owned City of Ranburne Bonds and dividend income. What amount of the Social Security benefits must George and Weezy include in their gross income under the following independent situations
Answer:
$0
Explanation:
George and Weezy will not get any amount as social security benefit if they file married joint. The sum of their modified AGI plus the 50% of their social security benefit is [$5,000 + $8,000 + $15,100]. This equals to $28,100 which is below the minimum amount of social security.
If we assume that there is no fixed manufacturing overhead and the variable manufacturing overhead is $6 per direct labor-hour, what is the estimated finished goods inventory balance at the end of July
Answer:
$247,000
Explanation:
The computation of the estimated finished goods inventory balance at the end of July is shown below:-
Unit product cost = 5 × 2.4 + 14 × 2 + 6 × 2
= 52
Now,
Ending finished goods inventory balance = Budgeted unit sales × Ending finished goods inventory percentage × Unit product cost
= 19,000 × 25% × 52
= $247,000
Therefore we have applied the above formula
Strong Metals Inc. purchased a new stamping machine at the beginning of the year at a cost of $1,567,500. The estimated residual value was $82,500. Assume that the estimated useful life was five years and the estimated productive life of the machine was 300,000 units. Actual annual production was as follows: Year Units 1 70,000 2 67,000 3 50,000 4 73,000 5 40,000 Required: 1. Complete a separate depreciation schedule for each of the alternative methods. a. Straight-line. b. Units-of-production. c. Double-declining-balance.
Answer:
See answer below.
Explanation:
The depreciable amount of the machine is computed as follows.
cost - residual value = 1,567,500 - 82,500 = $1,485,000.
Estimated usefule life = 5 years
Question 1
Using the straight line depreciation method, the asset will be depreciated equally every year by [tex]\frac{Total Depreciation}{UsefulLife} =\frac{1,485,000}{5} =297,000[/tex]
Year 1 Depreciation = $297,000
Year 2 Depreciation = $297,000
Year 3 Depreciation = $297,000
Year 4 Depreciation = $297,000
Year 5 Depreciation = $297,000
Question 2
Using the unit of production method, the machine will be depreciated by the ratio of actual usage to estimated production life, until it is fully depreciated.
Year 1 Depreciation = [tex]\frac{Annual Usage}{Estimated Life} *Total Depreciation=\frac{170,000}{300,000} *1,485,000[/tex] = $841,500
Year 2 Depreciation = [tex]\frac{67,000}{300,000} *1,485,000[/tex] = $331,650
Year 3 Depreciation = [tex]\frac{50,000}{300,000} *1,485,000[/tex] = $247,500
Year 4 Depreciation = [tex]Total Depreciation - Accumulated Depreciation=1,485,000-(841,500+331,650+247,500)[/tex]= $64,350
Year 5 Depreciation = 0.
Year 4 computation arose because the computed depreciation using the unit of production method [tex]\frac{73,000}{300,000} *1,485,000=361,350[/tex] would push the computed accumulated depreciation beyond the total depreciation allowed. As such, the residual balance was adopted in year 4.
Question 3
Using the double declining balance method, the machine would be depreciated at twice the depreciation rate of the straight line balance on the reducing balance of the asset, until this method results in a depreciation figure lower than the straight line method.
Depreciation rate = [tex]2*StraightLineRate=2*(\frac{1}{5} )= 2* 0.20=0.40[/tex] = 40%
Year 1 depreciation = [tex]0.40*1,485,000[/tex] = $594,000
Year 2 depreciation = [tex]0.40*(1,485,000-594,000)[/tex] = $356,400
Year 3 depreciation = [tex]\frac{1,485,000-594,000-356,400}{3}[/tex]= $178,200
Year 4 depreciation = [tex]\frac{1,485,000-594,000-356,400}{3}[/tex]= $178,200
Year 5 depreciation = [tex]\frac{1,485,000-594,000-356,400}{3}[/tex]= $178,200.
Because year 3 depreciation using the usual double declining method [tex]0.40*(1,485,000-594,000-356,400)= 213,840[/tex] would result in a figure lower than the straight line depreciation rate (297,000), we used the straight line formula for the depreciation from years 3 to 5.
Kela Corporation reports net income of $550,000 that includes depreciation expense of $76,000. Also, cash of $53,000 was borrowed on a 4-year note payable. Based on this data, total cash inflows from operating activities are:a) $603,000b) $679,000c) $626,000d) $474,000
Answer:
$626,000
Explanation:
Kela corporation has a net income of $550,000
Depreciation expense is $76,000
Cash is $53,000
Therefore the total cash inflows from operating activities can be calculated as follows
=$550,000 + $76,000
$626,000
Hence the total cash inflow from operating activities is $626,000
A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: Selling price $ 117 Units in beginning inventory 0 Units produced 2,900 Units sold 2,500 Units in ending inventory 400 Variable costs per unit: Direct materials $ 32 Direct labor $ 45 Variable manufacturing overhead $ 2 Variable selling and administrative expense $ 9 Fixed costs: Fixed manufacturing overhead $43,500 Fixed selling and administrative expense $15,000 The total gross margin for the month under absorption costing is:
Answer:
The correct answer is "57,500 ".
Explanation:
Unit product cost
= [tex]32 + 45 + 2 + \frac{43500}{2900}[/tex]
= [tex]94[/tex]
Gross margin = Sales - Cost of Goods Sold
= [tex](2500\times 117) - (2500\times 94)[/tex]
= [tex]292,500-235,000[/tex]
= [tex]57,500[/tex]
$50 an hour is a
A salary
B commission
C wage
D pension
Answer: C.) Wage
Explanation: A salary is a set cost that is due to you over an agreed amount of time. A commission is a percentage that you get from the original cost. A wage is the income one makes daily, or per hour. A pension is the gradual amount of money being added up during the years one works. Therefore, $50 an hour is a wage.
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Researchers at Ohio State and Michigan put leader behavior into two broad categories; __________ and __________.
a. Task , Power
b. People , Task
c. Task , Organizational
Answer:
b. People , Task
Explanation:
Based on the Michigan Leadership Studies that was carried out around 1950s and 1960s which centered on behavioral approaches and identification of leader relationships and group processes. The outcome of the research showed that there are three significant traits of productive leaders which are mainly:
1. Task-oriented behavior
2. Relationship-oriented behavior: this focused on people interaction in and out of the work place.
3. Participative leadership.
Hence, in this case, it can be concluded that "Researchers at Ohio State and Michigan put leader behavior into two broad categories; PEOPLE and TASK.
Show how Cablevision can conduct an ROI analysis. Describe the information that the company should collect and how it should b collected.
Answer:
Explanation:
Cablevision can easily accomplish this by doing the following. First gather the number of sales of premium services and other products that non-trained individuals are accomplishing in a given time period (example, one month). Next, under the same conditions place the newly trained individuals and gather the same data from them (number of sales/subscribers gained, premium products, and other products). Finally, they would simply need to compare the difference in the number of sales to see if the training paid off. They would also need to calculate if the difference in sales surpasses the costs of training.
Sachs Brands's defined benefit pension plan specifies annual retirement benefits equal to 1.6% × service years × final year's salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 2007 and is expected to retire at the end of 2041 after 35 years' service. Her retirement is expected to span 18 years. Davenport's salary is $90,000 at the end of 2021 and the company's actuary projects her salary to be $240,000 at retirement. The actuary's discount rate is 7%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 2. Estimate by the projected benefits approach the amount of Davenport's annual retirement payments earned as of the end of 2021. 3. What is the company's projected benefit obligation at the end of 2021 with respect to Davenport? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar.) 4. If no estimates are changed in the meantime, what will be the company's projected benefit obligation at the end of 2024 (three years later) with respect to Davenport? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar.)
Answer:
Kindly check explanation
Explanation:
Given the following :
Annual retirement benefit plan: (1.6% * service years * final years' salary
Year of hire = beginning of 2007
Retiremet year = 2041
Years of service = 35
Required: 2. Estimate by the projected benefits approach the amount of Davenport's annual retirement payments earned as of the end of 2021.
1.6% * service years * final years' salary
Service years = 2021 - beginning of 2007 = 15 years on service
Salary at the end of 2021 = $90000
Hence,
1.6% * 15 * 90000 = $21,600
3. What is the company's projected benefit obligation at the end of 2021 with respect to Davenport?
Period (n) = Retiremet span = 18 years ; rate (r) = 7% ;
Present value of ordinary annuity $1 ; n = 18 ; r = 7% = 10.0591
$21,600 * 10.0591 = $217,276.56
= $217,277
Present value of retirement benefit at the end of 2041
PV factor $1 ; period (2041 - 2021) = 20 ; r = 7% = 0.258
$217,277 * 0.258 = $56,057.466
$56,057
4. If no estimates are changed in the meantime, what will be the company's projected benefit obligation at the end of 2024 (three years later) with respect to Davenport?
1.6% × 18 years × $90000 = $25920
Present value of ordinary annuity $1 ; n = 18 ; r = 7% = 10.0591
$25920 × 10.0591 = $260732
PV factor $1 ; period (2041 - 2021) = 20 - 3 = 17; n = 17 ; r = 7% = 0. 317
$260732 × 0.317 = $82652.044 = $82652
A business buys $5000 worth of resources to produce a good. The business makes 100 units of the good and each of them sells for $65. The value added by the business to these products is:
a. $5,000
b. $6,500
c. $1,500
d. $1,000
Answer:
$1,500
Explanation:
A business buys $5000 worth of resources resources to produce a good
The business makes 100 unit of of the good and sell each for $65
Therefore the value added by the business to the product can be calculated as follows
= $65×100
= $6500
$6,500-$5,000
= $1,500
Hence the value added by the business to the product is $1,500
A contractor builds two types of homes. The Carolina requires one lot, $160,000 capital, and 160 worker-days of labor, whereas the Savannah requires one lot, $240,000 capital, and 160 worker-days of labor. The contractor owns 300 lots and has $48,000,000 available capital and 43,200 worker-days of labor. The profit on the Carolina is $80,000 and the profit on the Savannah is $90,000. Find how many of each type of home should be built to maximize profit.
Answer:
the contractor should build 210 Carolina type homes and 60 Savannah type homes
Explanation:
you have to maximize the following equation: 80000C + 90000S
Where:
C = Carolina type homes
S = Savannah type homes
the constraints are:
160000C + 240000S ≤ 48000000
160C + 160S ≤ 43,200
C ≥ 0
S ≥ 0
using solver, the optimal solution is 210C + 60S = $22,200,000
ancy operates a business that uses the accrual method of accounting. In December, Nancy asked her brother, Hank, to provide her business with consulting advice. Hank billed Nancy for $8,700 of consulting services in year 0 (a reasonable amount), but Nancy was only able to pay $5,200 of the bill by the end of this year. However, Nancy paid the remainder of the bill in the following year. a. How much of the $8,700 consulting services will Hank include in his income this year if he uses the cash method of accounting
Answer: $5200
Explanation:
Cash accounting method occurs when transactions are recorded in an accounting book only when payment has been made for the goods sold or the goods received.
Out of the $8,700 consulting services, the amount that'll be included by Hank in his income this year if he uses the cash method of accounting will be $5200. This is because only $5200 was paid out of the $8700.
Lightfoot Company sells its product for $55 per unit and has variable costs of $30 per unit. Total fixed costs are $25,000. Suppose variable costs increase by 10% due to an increase in the cost of direct materials. What will be the effect on the breakeven point in units if variable costs increase by $5 due to an increase in the cost of directmaterials?
A. It will increase by 250 units.
B. It will decrease by 167 units.
C. It will decrease by 250 units.
D. It will increase by 167 units.
Answer:
The Break-even point in units will increase by 250 units.
Explanation:
Giving the following information:
Fixed costs= $25,000
Selling price= $55
Unitary varaible cost= $30
First, we need to calculate the current break-even point in units:
Break-even point in units= fixed costs/ contribution margin per unit
Break-even point in units= 25,000 / 25
Break-even point in units= 1,000
Now, the new Break-even point in units:
Break-even point in units= 25,000 / (55 - 35)
Break-even point in units= 1,250
The Break-even point in units will increase by 250 units.
Answer the following questions on the basis of the following three sets of data for the country of North Vaudeville: (A) (B) (C) Price Level Real GDP Price Level Real GDP Price Level Real GDP 110 235 110 285 100 210 100 235 100 260 100 235 95 235 95 235 100 260 90 235 90 210 100 285 a. Which set of data illustrates aggregate supply in the immediate short run in North Vaudeville? (Click to select) The short run? (Click to select) The long run? (Click to select) b. Assuming no change in hours of work, if real output per hour of work decreases by 5 percent, what will be the new levels of real GDP in the right column of B?
Question attached
Answer and Explanation:
1a. We can see immediate short run aggregate supply in North vaudeville in column A. This is because the price is fixed while output increases
1b. We can see short run aggregate supply in North vaudeville in column c. This is because output increases with price increase.
1c we can see long run aggregate supply in North vaudeville in column B. This is because output is constant with price increase.
Assuming output per hour of work decreases by 25% for column C then for each price, output is:
2A. Given price P= 110, output is 285(1-0.25) = 213.75
2B. Given price P = 100, output is 260(1-0.25) = 195
2C. Given price P = 95, output is 235(1-0.25) = 176.25
2D. Given price P = 90, output is 210(1-0.25) = 157.50
3. The new data from question 2 reflects a decrease in aggregate supply.
8.Kline and Salomon form the KS Partnership as 50/50 partners. Kline contributes equipment that has a fair market value of $60,000 and an adjusted basis of $45,000. In addition, the equipment is subject to a $10,000 loan that KS Partnership is assuming. What amount represents Kline's initial basis in the partnership
Answer: $40,000
Explanation:
Kline brings in equipment that is worth $60,000 but has a basis of $45,000.
The equipment however is subject to a loan of $10,000.
This loan will have to be deducted from the basis. The partnership however is assuming the loan and Kline is only 50% liable in the partnership so Kline's basis will only be affected by half of the loan.
Basis = 45,000 - 5,000
= $40,000
According to Nohria, Groysberg, and Lee, within an organization, the primary lever to address the drive to ____ is the reward system.
Answer:
Civillization
Explanation:
2. What's a good way to reduce food costs?
A buying items on sale
B making a shopping list and sticking to it
C making sure you go to the store on a full stomach
D all of the above
BE5-12 Keyser beverage company reported the following items in the most recent year
During 2021, WMC Corporation discovered that its ending inventories reported in its financial statements were misstated by the following material amounts: 2019 understated by $ 124,000 2020 overstated by 154,000 WMC uses a periodic inventory system and the FIFO cost method. Required: 1. Determine the effect of these errors on retained earnings at January 1, 2021, before any adjustments. (Ignore income taxes.) 2. Prepare a journal entry to correct the errors.
Answer:
WMC Corporation
Misstatement of Ending Inventories:
1. Effect of these errors on Retained Earnings at January 1, 2021:
a) The understated amount by $124,000 in 2019 has self-corrected in 2020 with the Beginning Inventory also understated. So, it has no effect on the Retained Earnings at January 1, 2021.
b) The overstated ending inventories by $154,000 will overstate the Retained Earnings at January 1, 2021 by the same amount. Since it has not self-corrected like (a), the correction will be to reduce the Retained Earnings and reduce the Beginning Inventories by $154,000.
2. Journal Entry:
Debit Retained Earnings $154,000
Credit Beginning Inventories $154,000
To reverse the overstated inventories.
Explanation:
a) Data:
2019 understated by $ 124,000
2020 overstated by 154,000
Inventory system = periodic
Inventory method = FIFO
Curtis invests $450,000 in a city of Athens bond that pays 6.50 percent interest. Alternatively, Curtis could have invested the $450,000 in a bond recently issued by Initech, Incorporated that pays 7.75 percent interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 24 percent. How much explicit tax would Curtis incur on interest earned on the Initech, Incorporated bond
Answer:
$8,370
Explanation:
Calculation for How much explicit tax would Curtis incur on interest earned on the Initech, Incorporated bond
Using this formula
Explicit tax = (Amount Invested× Interest percentage)×Marginal tax rate
Let plug in the formula
Explicit tax =($450,000×7.75%)×24%
Explicit tax =$34,875×24%
Explicit tax =$8,370
Therefore the amount of explicit tax that Curtis would incur on interest earned on the Initech, Incorporated bond will be $8,370
Roger owns some farmland that he rents to a tenant. The tenant lives in an old farmhouse on the property and raises crops on the land. Roger is concerned about legal liability if the tenant injures someone. Roger requires the tenant to have liability insurance and to add himself to the liability coverage through an endorsement. Under the tenant's liability insurance, Roger is a(n)
Answer:
additional insured
Explanation:
An additional insured endorsement refers to an amendment clause made to an exiting policy which adds someone else, and therefore, extends the coverage of the policy to include this recently added party.
In this case, Roger was included or added to his tenant's liability insurance policy, therefore, he will be covered by it.
what is acknowledgement
Answer: it means to accept something or recognition
Lincoln’s landlord has included a clause in the rental contract that makes it possible for him to increase Lincoln’s monthly rent if taxes on the property go up. Which clause was included in the contract?
a. tariffs clause.
b. variable costs clause.
c. escalator clause.
d. elastic demand clause.
e. elevator clause.
Answer:
The appropriate answer is Option c (Escalator clause).
Explanation:
The landlord of Lincoln also put a disclaimer throughout the rental lease which allows him to raise the mortgage payment of Lincoln if property wages increase. The deal had an escalator clause.An Escalator clause would be a clause inside a leasing contract as well as rent disclosure that ensures the improvement in rent sum regardless of the reasons which were not under influence of all the participants. Throughout this situation the taxation on land is raised by that of the government therefore adjustment in taxes wasn't in the jurisdiction of all entities.The other options given aren't connected to just the given case. In such a way that the response above is right.
At LK Corporation, budgeted sales in units for January, February, and March are 15,000, 20,000, and 18,000 units, respectively. If the selling price per unit is $5, what is expected sales revenue for March
Answer:
$90,000
Explanation:
The expected sales revenue for March is computed as
Expected sales revenue in March = budgeted sales in March × Selling price per unit
= 18,000 units × $5
= $90,000
Please note that the information given for January and February are not relevant since we are asked to compute expected sales revenue in March.
true or false. a factor that can come between the purchase intention and purchase decision is the attitude of others g
Answer:
True
Explanation:
Before a consumer makes a decision to buy a product, several factors can affect him. Two distinct factors are the attitude of others and unexpected situational factors. When the customer notices that a lot of people around him have a negative disposition or opinion about a product, they are likely to be discouraged from buying that product.
This is even more likely to happen if the consumer lacks enough motivation to buy that product. So the attitude of others can affect the buyer's intention which is his motivation and the final decision to purchase that product.
A lot of factors can come between purchase intensions. A factor that can come between the purchase intention and purchase decision is the attitude of others is a true statement.
The more positive a person's attitude toward the a product, the greater their purchase intentions.
Another factor consider is perceived playfulness that also affects purchase intention positively.
The factors that affect a consumer's purchase intention can be said to be product perception, shopping experience, customer service etc.
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Suppose that Congress passes legislation making it more difficult for firms to fire workers. One example might be a law requiring severance pay for fired workers. The goal of this legislation is to reduce the rate of job separation without affecting the rate of job finding. Use this information to answer the following three questions. (Assume the size of the labor force remains constant.) If this legislation reduces the rate of job separation (s) without affecting the rate of job finding (f), how would the natural rate of unemployment change
Answer:
If the new law reduces the rate of job separation without affecting the rate of job finding, then, the natural rate of unemployment will fall.
This is because of the formula
U / L = s / (s + f)
Where U is unemployment, L is labor force, s is rate of separation, and f is rate of job finding.
The reason why the rate of natural unemployment will fall is because if employees are harder to fire, companies will be more careful when hiring workers, since the cost of firing a worker is now higher.
A company forecasts growth of 6 percent for the next five years and 3 percent thereafter. Given last year's free cash flow was $100, what is its horizon value (PV looking forward from year 4) if the company cost of capital is 8 percent?
a. $0
b. $1,672
c. $2,000
d. $2,676
Answer:
d. $2,676
Explanation:
The computation of the horizontal value is shown below:
FCF1 = (100 × 1.06) = 106
FCF2 = (106 × 1.06) = 112.36
FCF3 = (112.36 × 1.06) = 119.1016
FCF4 = (119.1016 × 1.06) = 126.247696
FCF5 = (126.247696 × 1.06) = 133.8225578
Now
Horizon value is
= FCF5 ÷ (Cost of capital - Growth rate)
= 133.8225578 ÷ (0.08 - 0.03)
= $2,676
Hence, the correct option is d.
According to the question,
The computation of the horizontal value will be:
→ [tex]FCF_1 = 100\times 1.06[/tex]
[tex]= 106[/tex]
→ [tex]FCF_2 = 106\times 1.06[/tex]
[tex]= 112.36[/tex]
→ [tex]FCF_3 = 112.36\times 1.06[/tex]
[tex]= 119.1016[/tex]
→ [tex]FCF_4 = 119.1016\times 1.06[/tex]
[tex]= 126.25[/tex]
→ [tex]FCF_5 = 126.25\times 1.06[/tex]
[tex]= 133.8226[/tex]
hence,
The horizon value will be:
= [tex]\frac{FCF_5}{Cost \ of \ capital - Growth \ rate}[/tex]
By putting the values, we get
= [tex]\frac{133.8226}{0.08-0.03}[/tex]
= [tex]2,676[/tex] ($)
Thus the above approach i.e., "option d" is right.
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