Which of these statements about corporate bonds is correct?

Answer:

Pelican Paper, Inc., and Timberland Forest, Inc.

Financial leverage and profitability Ratio Analysis

A. Computation of debt and coverage ratios:

1. debt ratio  = Total debt to Total assets x 100

Pelican = $1,000,000/$10,000,000 x 100

= 10%

Timberland =v$5,000,000/$10,000,000 x 100

= 50%

2. times interest earned ratio = EBIT/Interests

Pelican = $6,250,000/$100,000

= 62.5 times

Timberland = $6,250,000/$500,000

= 12.5 times

A discussion of their financial risk and ability to cover the costs:

Pelican Paper's financial leverage is 10% compared to Timberland's 50%, showing that debt creditors finance and lay claim to half of the company's assets.  This is very high and not attractive to potential investors and creditors.  Timberland has already hampered its ability to borrow more as it is highly leveraged.  Whereas Pelican Paper can meet its debt obligations and pay its interest expenses 62.5 times from current earnings, these pale in comparison with Timberland's 12.5 times, further jeopardizing its opportunities for more debt financing.

B. Calculation of the profitability ratios:

1. Operating profit margin  = EBIT/Sales x 100

Pelican Paper = $6,250,000/$25,000,000 x 100 = 25%

Timberland = $6,250,000/$25,000,000 x 100 = 25%

2. Net profit margin  = (EBIT less Interest)/Sales x 100

Pelican Paper = ($6,250,000 - $100,000)/$25,000,000 x 100

= $6,150,000/$25,000,000 x 100 = 24.6%

Timberland = ($6,250,000 - $500,000)/$25,000,000 x 100

= $5,750,000/$25,000,000 x 100 = 23%

3. Return on total assets  = EBIT/Total Assets x 100

Pelican Paper = $6,250,000/$10,000,000 x 100

= 62.5%

Timberland = $6,250,000/$10,000,000 x 100

= 62.5%

4. Return on common equity = Earnings available to Common Stockholders/Equity x 100

Pelican = $3,690,000/$9,000,000 x 100

= 41%

Timberland = $3,450,000/$5,000,000 x 100

= 69%

A discussion of their profitability relative to one another:

The two companies make the same level of operating profit margin at 25%, but Pelican's net profit margin of 24.6% is better than Timberland's 23%.  They show that Pelican's management has better ability to control expenses than Timberland's.

The returns on assets are similar for both companies, but Timberland performed better than Pelican Paper in terms of the return on equity.  This shows that Timberland with ROE of 69% is making larger returns for its common stockholders than Pelican because it is leveraging debts, whose interests are tax-deductible, and also using less equity in generating the returns.

C. The larger debt of Timberland has made it more profitable than Pelican Paper because the debt interests are deductible from EBIT before tax expense is computed and it reduces the tax burden for the company, thus making it to pay less tax and saving more profits for distribution to its stockholders.

However, this higher return to the investors in Timberland also comes with higher risks, as the investors are exposed to debt risks, higher pressure to satisfy debt creditors, heightened interference and oversight from creditors since they own half of the assets of the company, and an increased threat of business takeover in case of debt default.

Explanation:

a) Data:

Items                        Pelican Paper, INC    Timberland Forest, INC

Total assets              $10,000,000               $10,000,000

Total equity                  9,000,000                   5,000,000

Total Debt                     1,000,000                   5,000,000

Annual Interest                100,000                      500,000

Total Sales                 25,000,000                25,000,000

EBIT                              6,250,000                  6,250,000

Earnings available for  common

stockholders               3,690,000                   3,450,000

b) Ratio computation and analysis help companies to compare their performances and positions with competitors.  They can spot risks facing a company and even point out ways to address such business risks.

Answer: real time processing

Explanation:

Real time processing is when transactions are processed as each transaction occurs. In real time processing, the transactions are processed in a little period of time.

Good examples of real-time processing systems are traffic control systems. Real time processing is different from the batch processing which involves when transactions are processed all together for a defined time window.

Answer:

The required reserve ratio is $17500 million.

Explanation:

The given deposit with the banks = $500 million

Required reserves = $35 million

We already have the deposits with the bank and the required reserves.  Now we have to calculate the required reserve ratio and it can be calculated by multiplying the bank deposit with required reserves.

Required reserve ratio = Bank deposits × Required reserve

= 500  × 35

= $17500 million

Answer:

D. Debt holders get $0 mil. under the unlevered plan vs. 0.6075 mil. under the levered plan

Explanation:

interests paid to debt holders = $13,500,000 x 10% = $1,350,000

generally, interest revenue is taxed as ordinary revenue = corporate income tax rate (if debt holder is a business) or personal income tax (if debt holder is an individual).

under the first plan, debt holders get nothing because there is no outstanding debt since the company is an all equity firm.

under the second plan, if the personal tax rate on interest income is 55%, which is really high, the debt holders will earn $1,350,000 x (1 - 55%) = $607,500

Answer:

Mechanization

Explanation:

When a ware house is being setup, the aim is to get an efficient one that can service demand in a timely manner.

In order to minimise cost and maximise efficiency there is need to space, labour, and mechanisation that will be used on the production process.

Various analysis like capacity analysis and equipment analysis are carried out to ensure fast and cheap operation of the warehouse.

Inefficient warehouse designs leads to delay in service delivery and extra cost to the business.

Answer:

Rainbow Paints Inc., Pakistan Vs XingPe Chemicals, China

1. Win-Lose Approach:  Rainbow Paints Inc. was under an immense pressure to deliver on "production targets for the 2020."  However, it approached the negotiation aggressively and assertively, blaming the Chinese company for its failure to deliver the required chemicals for its production.  It did not care about the Coronavirus pandemic that is ravaging the world.  It should not be confrontational in its approach.  Business relationships are not maintained in such atmospheres.  It must think long-term and not short-term.  It should have tried to reduce its losses by minimizing its costs, using all possible means.  Rainbow Paints, in its blindness, is even seeking for not only a compensation but the return of their payments, to ensure that the Chinese company bears the losses wholly.  Such a negotiating strategy lacks common sense, fairness, and friendly business relationships.

2. Win-Win Approach:  XingPe Chemicals approached the negotiation, seeking understanding.  It cannot be blamed for the pandemic, unless it should have supplied before the outbreak.  Its approach contrasts with the confrontational, aggressive, and assertive method being followed by the Pakistani company.  Its approach is integrative and accommodating.  It is even willing to share the losses of Rainbow Paints while Rainbow Paints was trying to push all of the losses to it.

Explanation:

There are many approaches to negotiation.  Some prefer the Win-Lose, Lose-Lose, Compromise, or Win-Win approaches.  The best for long-standing business relationships is the Win-Win approach, because it integrates and accommodates the interests of both parties.  However, different situations call for the approach or combination of approaches to adopt.

Answer:

Explanation:

Please note that this question we have to do by hit and trail method. Every annual payment has 2 components,

Interest and Principal repayment

Interest is higher at the beginning and principal repayment is lower. We have not been given the time for the loan.

So i will tell you how to calculate the Total annual installment by hand

and then we will make table of payments to see if we are getting 450 principal repayment in month 4

We will do 3-4 iterations to get the answer

Loan Amount = 20,000

Rate = 4%

Principal repayment in year 4 = 450

Let say time = n years

Annual installment = Loan amount * ( rate * ( 1+rate ) ^n ) / ( ( 1 + rate ) ^n -1 )

assume n = 25 years

Annual installment = 20,000 * ( 0.04* ( 1.04 ) ^ 25 ) / ( ( 1.04 ) ^25 -1 ) = 1280.24

Answer:

a. The expected cost of digitizing a form is $2.50

b. The expected digitization cost per form of the forms sent by the client is $3.75, without a mix of forms.

c. This leads to an expected loss of $1.25 per form for BPO.

Explanation:

1. Data:

Form Type    Mix of Forms        Form Cost

A                       0.5                     $3.75

B                        0.5                     $1.25

b. Calculation of Expected Cost of digitizing a form:

Form Type    Mix of Forms        Form Cost    Expected Cost

A                       0.5                     $3.75             $1.875 (0.5 * $3.75)

B                        0.5                     $1.25             $0.625 (0.5 * $1.25)

Total expected costs                                        $2.50

c. Calculation of Expected cost of Form actually sent by Client without a mix of forms:

A                       01                     $3.75             $3.75 (1 * $3.75)

Total expected costs                                      $3.75

d. Calculation of Expected Loss:

Expected Price = $2.50

Expected cost =   $3.75

Expected loss =  $1.25

e. The expected value (cost, price, or gain or loss) from the form digitization is the sum of all possible values from the mix of forms, each multiplied by the probability of its occurrence.

Answer:

C. some factors that are not measured or observed may affect the curve.

Explanation:

a lot of unforeseen circumstances might occur. these occurrences would not be measured in the estimated demand curve. this would lead to the estimated demand curve not matching the actual demand curve.

for example, the factors affecting the demand for bread are ; price, income, price of a substitutes. these are included in estimating the demand curve for bread. Assume that a study comes out stating that bread is harmful to the health.this reduces the demand for bread. this study wasn't anticipated and included in estimating the demand curve. as a result, the actual data would differ from the estimated data  

Answer:

True of financial account auditors.

Explanation:

A financial account auditor often act as skeptics (having suspicion and lack of trust) when reviewing financial transactions.

Thus financial accounts adjustments that increase or decrease earnings are usually investigated with more skepticism by auditors. Such increased skepticism is important because it enables the auditor undo errors and better position the business for success.

Answer:

1. Increasing

2. A. The elasticity of private saving with respect to the after-tax real interest rate

B. The response of private saving to changes in the government budget deficit

C. The elasticity of investment with respect to the interest rate

Explanation:

1. It is difficult to implement both of these policies at the same time because reducing taxes on private spending has the effect of Increasing the government budget deficit.

A Government budget deficit is acquired when the government spends more than it earns. The Government earns money from taxes and if it spends more than it receives in taxes, that will lead to a deficit. If taxes on Private spending are reduced, this will lead to less tax revenue for the government thereby increasing the Deficit.

2. All of the listed options are useful in determining which policy would be a more effective way to raise investment.

The elasticity of private saving with respect to the after-tax real interest rate refers to how much private saving changes in reaction to a change in the tax rates. This can enable one decide how much investment will be expected if the Government reduces or increases taxes.

The response of private saving to changes in the government budget deficit is also a useful factor to look at because private savings reduce when government deficits reduce.

Also how much does investment change by due to interest rates. This will be important to note in terms of Private Investment to see if it will be beneficial to use it over reducing the government budget deficit given a certain interest rate.

Answer:

False

Explanation:

Adverse Selection is a situation where seller have better information than the buyer. The information can relate to anything about the product. The information can be related to product features, quality, price, availability, warranty and so on. Adverse situation occurs when asymmetric information is exploited. Here in this scenario the customer is also aware of the value of the product. There is no asymmetry information.  

Answer:

$31,886.09

Explanation:

years until retirement = 65 - 40 = 25 years

interest earned 7%

retirement age 65

expected life span after retiring = 95 - 65 = 30 years

financial needs during retirement $250,000 per year

current account balance $200,000

we must first determine how much money you will need when you are 65:

present value = $250,000 x 12.409 (PV annuity, 30 years, 7%) = $3,102,250

your $200,000 will be worth $200,000 x (1 + 7%)²⁵ = $1,085,486.53 in 25 years

so you need $3,102,250 - $1,085,486.53 = $2,016,763.47 extra

using the FV formula for an annuity:

$2,016,763.47  = payment x 63.249 (FV annuity, 25 years, 7%)

payment = $2,016,763.47 / 63.249 = $31,886.09

Answer: Airbus Employees have a Higher Marginal Product than Boeing

Explanation:

Marginal Product of Labor refers to the extra unit produced by adding an extra unit of labor. For firms to maximise their profits, they produce at a mix of labor and Capital where [tex]\frac{MPK}{r} = \frac{MPL}{w}[/tex] with MPK being Marginal Product of capital and r being cost of capital and w being cost of labor.

Assuming both Boeing and Airbus are producing at the maximising expression. It is said that Airbus has the same [tex]\frac{MPK}{r}[/tex] as Boeing. They however has a higher w than Boeing which means that for it to equal the Capital side of the expression, the w must be dividing a higher Marginal Product of labor which shows that Airbus has a higher Marginal Product of labor.

For example,

Boeing MPK = 12

Boeing r = 4

Boeing MPL = 9

Boeing w = 3

Maximising level = 3

Airbus MPK = 12

Airbus r = 4

Airbus w = 6

Airbus MPL = ??

With a labor cost of 6, Airbus MPL will have to be 18 to be able to get to the equilibrium maximising level of 3.

Answer & Explanation: Traditional discipline refers to correctional strategies. Often times, this form of discipline is punitive in nature hence the use of alternatives.

Some alternatives to traditional discipline include the use of MEDIATION, FACILITATION, COUNSELLING.

The use of alternatives to traditional discipline is important to organizational justice when it is complied with across board all employees so that they have a perception of fairness. Also such alternatives are seen to be ethically right, leads to employees being committed, reduces employee turnover and prevents avoidable litigation.

Answer:

perfectly price discriminating.

Explanation:

here are the options to this question :

not maximizing its profit.

imperfectly price discriminating.

not price discriminating.

perfectly price discriminating.

perfect price discrimination also known as first-degree discrimination is when a seller sells his product at the maximum possible price for each unit consumed. Due to the price variance, the seller captures all available consumer surplus.

A monopoly is when there is only one firm operating in an industry.

Answer: Earnings are reported by the investee in its financial statements

Explanation:

Equity method is when investments are being treated in associate companies and it is usually applied in cases whereby an investor entity holds about twenty to fifty percent of the associate company's voting stock. Due to this reason, it has a strong say in the associate company's management.

Under the equity method of accounting for investments, an investor recognizes its share of the earning in the period in which the earnings are reported by the investee in its financial statements.

Answer:

Direct labor= $62,650

Explanation:

Giving the following information:

In May direct labor was 35% of conversion cost.

The manufacturing overhead for the month was $116,350.

The conversion costs are the sum of the direct labor and the manufacturing overhead:

Overhead= 65%= 116,350

Direct labor= 35%= ?

First, we need to determine the total amount of conversion costs:

Conversion costs= 116,350/0.65= 179,000

Now, the direct labor cost:

Direct labor= 179,000*0.35

Direct labor= $62,650

Answer:

Suppose an American buys stock issued by an Argentinian corporation. The Argentinian firm uses the proceeds from the sale to build a new office complex. This is an example of foreign PORTFOLIO INVESTMENT in Argentina.

1. Which of the following policies are consistent with the goal of increasing productivity and growth in developing countries?

Both A and B are essential for increasing economic growth. E.g. if Coke was not able to keep its formula secret in certain country, it will not engage in business there. Investment in R&D is essential for future economic growth.

2. In less developed countries, what does the brain drain refer to?

Brain drain refers to the immigration of highly skilled workers from poor countries into rich countries. E.g. a doctor moves from mexico to the US because he/she can earn a much higher salary. But at the same time, all the money and time spent educating the doctor is lost by Mexico and its economy.

Answer:

B. False.

Explanation:

This statement is false, due to the fact that a good oral presentation must be prepared before the presentation in accordance with all the procedures to be covered in the presentation. Therefore, the ideal is to know your audience before the presentation, so that there is a preparation aligned with their values ​​and behaviors, in order to retain the attention and interaction of the participants, which makes the presentation more interesting and effective.

Scripting the presentation also avoids possible unforeseen events, in addition to being ideal to also be open to interactions, to provide important and impactful information, to prepare supporting material such as slides, and to always practice before the presentation, to be prepared and interacted on the subject addressed.

Answer:

$2,645,700

Explanation:

realized amount = cash received + assumed mortgage - points paid by seller - broker's commission = $1,763,800 + $1,058,280 - $105,828 - $70,552 = $2,645,700

The amount realized includes all the money received and any debts assumed by the buyer, minus any expenses paid by the seller that are related to the transaction.

Answer:

The expected amount is $34154.83

Explanation:

Lena invested the amount = $7200  

$7200 invested for time period = 6 years  

Second amount invested = $7500

$7500 invested for the time period = 5 years.

The expected interest rate = 15.6 %

Total amount = A=P(1+r/400)^4n

A=future value

P=present value

r=rate of interest

n=time period.

Hence

A=7200(1+15.6/400)^(4*6) + 7500(1+15.6/400)^(4*5)

= 18034.5636 + 16120.2664

= $34154.83

You have $200,000 of cash. The riskless interest rate is 3%. The market index fund has an expected return of 10% and a standard deviation of 20%

You decide to borrow $100,000 at the riskless interest rate, and you then invest all $300,000 ($200,000 of your own cash and the $100,000 borrowed cash) in the market index fund. Calculate the expected return and standard deviation of this investment portfolio

Answer:

 The expected return of this portfolio = 13.50%

standard deviation of this portfolio  = 30.00%

Explanation:

From the information given:

The percentage of riskless = -100000/200000

The percentage of riskless = -0.50%

Now; the investment in market index = 1.50%

The expected return of this portfolio = 1.50 × 10%  + ( - 0.5 ×3 %)  

The expected return of this portfolio = 1.50 × 0.1 - 0.5 × 0.03

 The expected return of this portfolio =  0.15 - 0.015

 The expected return of this portfolio =  0.135

 The expected return of this portfolio = 13.50%

standard deviation of this portfolio =  the investment in market index × market index  standard deviation

standard deviation of this portfolio = 1.50 × 20%

standard deviation of this portfolio  = 30.00%

Answer:

Trade secret

Explanation:

A trade secret refers to things like a process, formula or design that a company owns that have an economic value and provide a competitive advantage and that are known only by certain people inside the organization. According to this, the answer is that in the business world, a trade secret is recognized as a legally acceptable way for any business to keep knowledge of its particular methods of production from being known by competing firms because trade secrets refer to intellectual property that allows the organization to have a competitive advantage and they are maintained as a secret to avoid competing firms to copy its methods.

Answer:

Sheffield Company

Inventory Turnover Ratio = Cost of goods sold/Average Inventory

= $1,145,400/$138,000

= 8.3 times

Explanation:

a) Data and Calculations:

Beginning inventory = $145,000

Ending inventory = $131,000

Average inventory = (Beginning inventory + Ending inventory)/2

= ($145,000 + 131,000)/2

= $138,000

Sales revenue = $1,972,800

Cost of goods sold = $1,145,400

Net income = $248,400

b) The inventory turnover ratio for Sheffield Company  is an efficiency ratio that shows how inventory is managed and the number of times Sheffield sells or consumes the inventory during an accounting period.   This is why Sheffield Company takes the average of the inventories in order to smoothen seasonal fluctuations in the inventory level during the year.  When this ratio divides the number of days in the accounting period, Sheffield will get the days it takes for inventory to be purchased or produced, and then sold or consumed.

Answer:

$8,736

Explanation:

initial investment = capital expenditures (machine's purchase cost + installation costs) + any increase in working capital - disposal of old machine

capital expenditures  = $10,000 + $1,000 = $11,000

after tax salvage value = market value + taxes on disposal

the current book value of the old machine = $6,000 - $1,200 - $1,920 = $2,880

taxes on salvage value = (book value - market value) x tax rate = ($2,880 - $3,000) x 30% = -$36

after tax salvage value = $3,000 - $36 = $2,964

net working capital = current liabilities - current assets

change in working capital = $800 + $600 - $700 = $700

initial investment = $11,000 + $700 - $2,964 = $8,736

Answer:

1.Incremental loss $300

2.Alternative II Replacing the Old Machine is beneficial because we have Incremental Profit of $300

2b.$250,000

Explanation:

1. Preparation of the differential analysis dated May 29

Differential Analysis

Continue with old machine (Alternative I ) or Replace old machine (Alternative II )

Continue with Replace the Differential effect

Old Machine Old Machine

Alternative 1 Alternative 2 Alternative 2

Revenue:

Revenue from Sale of Old Machine

$0 $62,600 $62,600

Cost:

Purchase Cost

$0 $484,500 $484,500

Variable Production (8 Years)

$1,240,000 $818,400 -$422,400

Profit / (Loss) ($1,240,000) ($1,240,300) -$300

Incremental loss = $300

2. Calculation to Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.

Alternative II Replacing the Old Machine is not beneficial because we have Incremental loss of $300

2b. Calculation for the sunk cost in this situation

The Sunk Cost will be the Book Value of Old Machine = $600,700-$350,700

= $250,000

Variable production workings

($155,100×8=1,240,800)

($102,300×8= 818,400)

Answer:

C

Explanation:

A price floor is when the government or an agency of the government sets the minimum price of a product. A price floor is binding if it is set above equilibrium price.

the price per pound of sugar is above equilibrium price, as a result the supply of sugar would increase while the demand for sugar would decrease. this would lead to a surplus. because at $1, supply would exceed demand, there would be an increase in inefficiency

Answer:

A surplus of sugar will occur, increasing inefficiency.

Explanation:

When the price of sugar is set above the market equilibrium price, the quantity supplied will be greater than the quantity demanded by consumers. Therefore, a surplus of sugar occurs that increases the level of inefficiency.

Answer: Raise

Explanation:

The options for the question are:

a. Raise

b. Create

c. Reduce

d. Eliminate

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Answer:

Nissan's all-electric car, the Leaf

PV cost of Leaf Purchase =   $16,529

PV cost of Leasing =             $12,944.78

The company should lease the car.

Explanation:

a) Costs incurred to purchase the Leaf:

Base price                    $32,780

less Federal tax credit ($7,500)

Charging station             2,200

less 50% tax credit         (1,100)

Cash paid                  $26,380

Sales value after 3 yrs (9,851) ( $26,380 - 40% of base discounted to PV)

Net PV Investment    $16,529

b) Calculation of Discounted Present Values of Payments under Leasing, using online financial calculator:

PV (Present Value) $12,944.78

N (Number of Periods) 3.000

I/Y (Interest Rate) 10.000%

PMT (Periodic Payment)   $4,200.00

Starting Investment $2,500.00

Total Principal $15,100.00

Total Interest $2,129.50

c) The purchase of the Leaf would involve a present value cost of $26,380 after deducting all the savings from tax.  The 40% sales value of the car at the end of 3 years = $13,112 ($32,780 x 40%).  When this sales value is discounted to PV of $9,851, the PV of the car investments becomes $16,529 ($26,380 - $9,851).  On the other hand, leasing will cost in PV the sum of $12,944.78

.