Business High School
Answers
Answer 1
In the long run, the equilibrium industry price is $50, and the equilibrium quantity is 150 units of apples. The firm's long-run total cost of TC = 100q and a long-run marginal cost of mc = 5q, the firm will not exit the market because its average cost is lower than the market price of $50 per unit.
In a perfectly competitive market, the equilibrium is determined by the intersection of the industry demand and supply curves. In this case, the long-run market demand curve is given by D: P = 200 - Q, and the long-run market supply curve is given by S: P = 50.
Solving for equilibrium, we set the quantity demanded equal to the quantity supplied: 200 - Q = 50. Rearranging the equation, we find that the equilibrium quantity is Q = 150 units. Plugging this value into the supply curve, we can determine the equilibrium price as P = 50.
To assess whether the firm will exit the market, we compare its long-run average cost with the market price. The firm's long-run total cost (TC) is given as 100q, and its long-run marginal cost (mc) is 5q.
The long-run average cost (AC) is calculated as TC/q, which simplifies to AC = 100. Since the market price is $50, which is lower than the firm's average cost of $100, the firm is able to cover its costs and earn a profit. Therefore, the firm will not exit the market.
In summary, in the long run, the equilibrium industry price is $50, and the equilibrium quantity is 150 units of apples. Despite the firm's long-run total cost of $100q, the firm will not exit the market because its average cost is lower than the market price, allowing it to remain profitable.
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Related Questions
In a portfolio composed of two investments, which of the following is a possibility?
a. Beta of the portfolio less than the beta of at least one of the investments held alone.
b. Expected rate of return from the portfolio less than the expected rate of return from either investment held alone.
c. Standard deviation of the portfolio greater than the standard deviation of either investment held alone.
d. Expected rate of return from the portfolio greater than the expected rate of return from either investment held alone.
Answers
In a portfolio composed of two investments, the standard deviation of the portfolio can be greater than the standard deviation of either investment held alone is a possibility.The correct answer is option (c).
This is due to the concept of diversification in portfolio management. By combining investments with different risk profiles, it is possible to reduce the overall risk of the portfolio. Even if one investment has a lower standard deviation on its own, the combination of two investments with different risk characteristics can lead to a higher overall standard deviation. Options (a) and (b) are not possibilities in a well-diversified portfolio. The beta of the portfolio is always a weighted average of the betas of the individual investments, so it cannot be lower than the beta of at least one investment held alone (a).
Similarly, the expected rate of return of the portfolio is also a weighted average, and it cannot be lower than the expected rate of return of either investment (b). Option (d) is not always true either. The expected rate of return of a portfolio depends on the weights and expected returns of the individual investments. It is possible for the portfolio's expected rate of return to be higher than that of either investment held alone, but it is not always the case. Hence, option (c) is the correct answer.
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Marie received Preferred Stock as a Non-Taxable Common Stock Dividend in 2022 from Ella Corporation. The value of the Preferred Stock when recelved by Marie was $40,000 and the value of the Common Stock owned by Marie was $20,000. Marie acquired the Common Stock in 2020 for $90,000 and Elia Corporation's Earnings And Profits (E\&P) was $50,000 on the date of distribution of the Preferred Stock. Six (6) months after the receipt of the Preferred Stock Marie sold "all of her stock (Common and Preferred) to an unrelated third party for $100,000. As a result of the sale of the Preferred Stock, Marie has: Long- Tem Capital Gain of $100,000. Ordinary Income of $100,000 Ordinary Income of $10,000. Long-Term Capital Gain of \$10,000.
Answers
Based on the information provided, Marie received Preferred Stock as a non-taxable common stock dividend. When Marie received the Preferred Stock, its value was $40,000, and the value of the Common Stock she owned was $20,000. Marie acquired the Common Stock in 2020 for $90,000, and Ella Corporation's Earnings and Profits (E&P) was $50,000 on the date of distribution of the Preferred Stock.
When Marie sold all of her stock (Common and Preferred) to an unrelated third party for $100,000, the tax implications will depend on the holding period of the stocks.
If Marie held the Preferred Stock for more than one year before selling it, the resulting gain would be classified as a Long-Term Capital Gain. In this case, the Long-Term Capital Gain would be calculated as the selling price ($40,000) minus the adjusted basis (which would be the value when received) of the Preferred Stock ($40,000), resulting in a gain of $0.
If Marie held the Preferred Stock for less than one year before selling it, the resulting gain would be classified as Ordinary Income. In this case, since the selling price is $40,000 and the adjusted basis is also $40,000, there would be no gain or loss.
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3) A study in the Journal of Fake Research reported that individuals who earn higher incomes are more likely to be divorced than individuals who earn lower incomes. This finding was obtained using basic cross-sectional regression of individuals' divorce status on income, and included no other control/explanatory variables. The authors conclude that earning more money causes divorce. a. What is one alternative explanation for this finding? That is, why might this finding suffer from bias? Would the bias lead the researchers to over-estimate or under-estimate the causal relationship? b. Suppose you have data on a very large sample of individuals in the U.S. These track each individual over many years, including information such as occupation, employer, zip code of residence, zip code of employer, marital status (single, married, divorced, widowed, etc.), number of children, demographic characteristics, and more. How might you use these data, perhaps along with information on relevant policy changes, to credibly test the hypothesis that earning more money causes divorce?
Answers
A study could then compare people who have experienced a significant increase in income to people who have not and determine if the increase in income is causing the divorce or if other factors are contributing to it.
a. One possible alternative explanation for the study's findings, which might have bias, is that the higher income earners have higher demands on their time and are thus more likely to be divorced. It is likely that bias would lead researchers to overestimate the causal relationship. There may be other variables that the study did not consider that could explain the relationship between income and divorce.
b. A more accurate way to test the hypothesis that earning more money causes divorce would be to use longitudinal data to see if divorce rates increase after people start earning more money. The data collected over several years, including information such as occupation, employer, zip code of residence, zip code of employer, marital status (single, married, divorced, widowed, etc.), number of children, demographic characteristics, and more, can be used to test the hypothesis that earning more money causes divorce. A study could then compare people who have experienced a significant increase in income to people who have not and determine if the increase in income is causing the divorce or if other factors are contributing to it.
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Gaermont Mining Company owns two mines that produce a certain type of ore. These mines are located in different parts of the country and, consequently, have differences in their production capacities and in the quality of their ore. After being ground, the ore is classified into three classes depending on the quality: high, medium and low. Gaermont has been contracted to supply its parent company's smelter with 36 tonnes of its high grade, 20 tonnes of medium grade and 72 tonnes of low grade ore on a weekly basis. It costs Gaermont $20,000 a day to operate the first mine and $16,000 the second. However, in one day of operation, the first produces 6 tons of high quality ore, 2 tons of medium and 4 tons of low, while the second produces 2 tons of high quality ore, 3 of medium and 12 of low. Formulate a minimum cost LP to satisfy the supply of minerals to its parent company.
Answers
Minimize: 20000x1 + 16000x2
Subject to: 6x1 + 2x2 ≥ 36, 2x1 + 3x2 ≥ 20, 4x1 + 12x2 ≥ 72, x1 ≥ 0, x2 ≥ 0
Let's define the decision variables:
x1 = Number of days the first mine operates per week
x2 = Number of days the second mine operates per week
Objective function:
Minimize cost: 20000x1 + 16000x2
Subject to constraints:
Production constraints:
6x1 + 2x2 ≥ 36 (High-grade ore requirement)
2x1 + 3x2 ≥ 20 (Medium-grade ore requirement)
4x1 + 12x2 ≥ 72 (Low-grade ore requirement)
Non-negativity constraints:
x1 ≥ 0
x2 ≥ 0
The formulated linear programming (LP) problem to satisfy the supply of minerals to Gaermont's parent company can be summarized as follows:
Minimize 20000x1 + 16000x2
subject to:
6x1 + 2x2 ≥ 36
2x1 + 3x2 ≥ 20
4x1 + 12x2 ≥ 72
x1 ≥ 0
x2 ≥ 0
This LP model will determine the number of days each mine should operate to meet the required weekly supply of high, medium, and low-grade ore while minimizing the operating cost.
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21. Here is some price information on Fincorp stock. Suppose first that Fincorp trades in a dealer market. (■ LO 3-2) a. Suppose you have submitted an order to your broker to buy at market. At what price will your trade be executed? b. Suppose you have submitted an order to sell at market. At what price will your trade be executed? c. Suppose you have submitted a limit order to sell at $55.62. What will happen? d. Suppose you have submitted a limit order to buy at $55.37. What will happen?
Answers
a) Dealer market
is a financial market where securities are traded via dealers. It is a market where buyers and sellers are linked through intermediaries who serve as market makers.
b. The trade will be executed at the best available bid price, which is the highest price offered by any market maker.
c. The order will be executed only if the market price of the stock is at or above the limit price of $55.62.
d. The order will be executed only if the market price of the stock is at or below the limit price of $55.37. If the market price is higher than the limit price, the order will not be executed.
Here, they act as principal to their own account and not as an agent for a customer's account. In dealer markets,
brokers
buy and sell securities on behalf of their clients. An order to buy or sell in a dealer market is executed via a broker who deals with a
market
maker.
The price of securities in a dealer market is determined by supply and demand. Orders to buy and sell securities are filled based on the best available prices. Therefore, in the case of Fincorp stock trading in a dealer market:a. The trade will be executed at the best available asking
price
, which is the lowest price offered by any market maker. If the market price is lower than the limit price, the order will not be executed.
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(b) Herman Products is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Herman would have 178,500 shares of stock outstanding. Under Plan II, there would be 71,400 shares of stock outstanding and $1.79 million in debt outstanding. The interest rate on the debt is 10 percent and there are no taxes. What is the breakeven EBIT?
Answers
The breakeven EBIT for Herman Products is $1,351,111.11.
To calculate the breakeven EBIT (Earnings Before Interest and Taxes), we need to find the level of EBIT at which the earnings for both capital structures are equal. Here are the steps:
1. Calculate the interest expense for Plan II:
Interest Expense = Debt * Interest Rate = $1.79 million * 0.10 = $179,000
2. Set up the equation for breakeven EBIT:
Earnings for Plan I = Earnings for Plan II
EBIT - Earnings for Plan I = EBIT - Earnings for Plan II
EBIT - 0 = EBIT - (EBIT - Interest Expense)
3. Simplify the equation:
EBIT = EBIT - EBIT + Interest Expense
EBIT = Interest Expense
4. Substitute the values:
EBIT = $179,000
Therefore, the breakeven EBIT for Herman Products is $1,351,111.11 (rounded to the nearest cent). At this EBIT level, the earnings for both capital structures are equal.
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On March 31, 2019, Yunlong Company retired $11,020,000 of bonds, which have an unamortized premium of $670,000, by paying bondholders $10,785,000. What is the amount of Yunlong's gain or loss on the retirement of the bonds?
Multiple Choice
$235,000 loss.
$235,000 gain.
$905,000 gain.
$435,000 loss.
Answers
The amount of Yunlong Company's gain or loss on the retirement of the bonds is $235,000 loss.
To determine the gain or loss on the retirement of the bonds, we need to compare the carrying value of the bonds with the cash paid to retire them. The carrying value of the bonds is the sum of their face value and any unamortized premium or minus any unamortized discount. In this case, the unamortized premium is given as $670,000.
To calculate the face value of the bonds, we need to subtract the unamortized premium from the retired amount. The retired amount is provided as $11,020,000. Therefore, the face value of the bonds is $11,020,000 - $670,000 = $10,350,000.
Next, we compare the cash paid to retire the bonds, which is $10,785,000, with the face value of the bonds. If the cash paid is less than the face value, it indicates a gain, and if it is more, it indicates a loss. In this case, the cash paid is greater than the face value, resulting in a loss.
The amount of the loss is the difference between the cash paid and the face value of the bonds: $10,785,000 - $10,350,000 = $435,000. Therefore, Yunlong Company incurred a loss of $435,000 on the retirement of the bonds, corresponding to option (d) $435,000 loss.
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Jeffrey Enterprises has budgeted the following amounts for its next fiscal year: Total fixed expenses $46,000
Selling price per unit$65
Variable expemses per unit$45
If Jeffrey Enterprises can reduce fixed expenses by $4,440, how will breakeven sales in units be affected? A. Decrease by 40 units B. Decrease by 222 units C. Increase by 222 units D. Increase by 40 units
Answers
The reduction in fixed expenses will decrease the breakeven sales in units by 222 units. Option B.
To determine how the reduction in fixed expenses will affect the breakeven sales in units, we need to calculate the breakeven point before and after the reduction.
The breakeven point is the level of sales at which total revenue equals total expenses, resulting in zero profit or loss.
Breakeven sales in units can be calculated using the following formula:
Breakeven sales (in units) = Total fixed expenses / Contribution margin per unit
The contribution margin per unit is the difference between the selling price per unit and the variable expenses per unit.
Before the reduction in fixed expenses:
Contribution margin per unit = Selling price per unit - Variable expenses per unit
Contribution margin per unit = $65 - $45 = $20
Breakeven sales (in units) = $46,000 / $20
Breakeven sales (in units) = 2,300 units
After the reduction in fixed expenses:
New total fixed expenses = Total fixed expenses - Reduction in fixed expenses
New total fixed expenses = $46,000 - $4,440 = $41,560
Breakeven sales (in units) with reduced fixed expenses = $41,560 / $20
Breakeven sales (in units) with reduced fixed expenses = 2,078 units
The difference in breakeven sales in units:
Decrease in breakeven sales = Breakeven sales before reduction - Breakeven sales with reduced fixed expenses
Decrease in breakeven sales = 2,300 units - 2,078 units
Decrease in breakeven sales = 222 units
Therefore, the breakeven sales in units will decrease by 222 units as a result of reducing fixed expenses by $4,440. So Option B is correct.
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You are managing a mutual fund with the following stocks:
Stock
A : $1,945 (Investment), 1.0 (Beta)
B : $2.743 (Investment), -0.7 (Beta)
What is the beta for this mutual fund (ie. what is the portfolio beta)?
answer format: show your answer to 1 decimal place.
Your Answer:__________
Answers
The beta for this mutual fund (portfolio beta) is 0.4147.
Beta is the portfolio’s volatility level relative to the market or some other standard index. A portfolio beta is the beta of an investment portfolio, which is typically composed of a variety of assets. The beta of the portfolio can be determined using the following equation.
Portfolio beta = (WeightA * BetaA) + (WeightB * BetaB)
The following are the steps for determining the portfolio beta:
Step 1: Calculate the portfolio's total investment.
Step 2: Calculate the weight of each stock in the portfolio. To do so, divide each stock's investment by the portfolio's total investment.
WeightA = InvestmentA/Total Investment
WeightB = InvestmentB/Total Investment
Step 3: Calculate the portfolio beta using the equation stated earlier.
Portfolio beta = (WeightA * BetaA) + (WeightB * BetaB)
Substituting the given values in the equation,
Portfolio beta = [(1.945/4.688) * 1.0] + [(2.743/4.688) * (-0.7)]
Portfolio beta = 0.4147
Therefore, the beta for this mutual fund (portfolio beta) is 0.4147.
In essence, a portfolio beta is used to evaluate the overall level of risk associated with a portfolio. A portfolio's beta may indicate the investment's expected volatility in the future. This method is frequently utilized to compare the riskiness of one portfolio to another or to determine the risk of the overall market. A high portfolio beta indicates that the portfolio is more volatile than the market, while a low beta indicates that the portfolio is less volatile than the market.
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The following selected transactions were taken from the records of Shipway Company for the first year of its operations ending December 31:
Apr. 13 Wrote off account of Dean Sheppard, $8,300.
May 15 Received $590 as partial payment on the $7,270 account of Dan Pyle. Wrote off the remaining balance as uncollectible.
July 27 Received $8,300 from Dean Sheppard, whose account had been written off on
April 13. Reinstated the account and recorded the cash receipt.
Dec. 31 Wrote off the following accounts as uncollectible (record as one journal entry): Paul Chapman $2,120 Duane DeRosa 3,590 Teresa Galloway 4,640 Ernie Klatt 1,310 Marty Richey 1,715
31 If necessary, record the year-end adjusting entry for uncollectible accounts.
Required:
A. Journalize the transactions under the direct write-off method. If no entry is required, simply skip to the next transaction. Refer to the Chart of Accounts for exact wording of account titles.
A fits into 15 boxes that go date - descrpition - debit - credit
B. Journalize the transactions under the allowance method. Shipway Company uses the percent of credit sales method of estimating uncollectible accounts expense. Based on past history and industry averages, 0.80% of credit sales are expected to be uncollectible. Shipway Company recorded $3,828,000 of credit sales during the year. If no entry is required, simply skip to the next transaction. Refer to the Chart of Accounts for exact wording of account titles.
B fits into 17 boxes that fight into date - description - debit - credit
C. How much higher (lower) would Shipway Company’s net income have been under the direct write-off method than under the allowance method?
Answers
A. In the direct write-off method, the company writes off specific uncollectible accounts when they are uncollectible. B. Under the allowance method, Shipway Company estimates uncollectible accounts based on a percentage of credit sales. C. The allowance method estimates bad debts, and lower net income.
A. In the direct write-off method, the company writes off specific uncollectible accounts when they are deemed uncollectible. On April 13, the account of Dean Sheppard was written off for $8,300. On May 15, Shipway Company received a partial payment of $590 on Dan Pyle's $7,270 account and wrote off the remaining balance. However, on July 27, Dean Sheppard paid the full amount, so the company reinstated the account and recorded the cash receipt.
B. Under the allowance method, Shipway Company estimates uncollectible accounts based on a percentage of credit sales. They recorded $3,828,000 of credit sales during the year, and based on historical data and industry averages, 0.80% of credit sales are expected to be uncollectible. The company needs to journalize the transactions accordingly.
C. Under the direct write-off method, bad debts are recognized and recorded when specific accounts are deemed uncollectible. In this case, Shipway Company wrote off the account of Dean Sheppard on April 13 and recorded a loss of $8,300. They also wrote off the remaining balance on Dan Pyle's account on May 15, resulting in a loss of $7,270.
However, on July 27, Shipway Company received $8,300 from Dean Sheppard and reinstated the account, recording the cash receipt. This transaction offsets the previous loss recorded in April. On December 31, Shipway Company wrote off several accounts as uncollectible, totaling $13,375. This amount is recorded as a loss for the year-end adjusting entry.
Under the allowance method, an estimated amount for bad debts is recorded as an allowance for doubtful accounts. This amount is based on historical data and is used to offset the accounts receivable balance. The exact amounts of specific accounts are not considered. Since the direct write-off method records actual specific bad debts, the net income is directly impacted by these losses.
In contrast, the allowance method estimates bad debts and creates a reserve, resulting in a more conservative approach and lower net income.In this case, Shipway Company's net income would have been higher under the direct write-off method because it recognized the actual losses incurred on specific accounts.
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A process design meets K = 3 sigma levels. The process was originally centered. If the mean of the process shifts up towards the upper specification limit by 0.11 standard deviations. What is the expected dropout per 1,000 opportunities on the upper end? Round your answer to the nearest whole unit, if applicable
Answers
If a process design with a 3 sigma level shifts up towards the upper specification limit by 0.11 standard deviations, the expected dropout per 1,000 opportunities on the upper end is 482 units
To calculate the expected dropout per 1,000 opportunities on the upper end, we need to determine the proportion of the process that falls beyond the upper specification limit.
Given that the process design meets K = 3 sigma levels, we can assume that the process follows a normal distribution, where 3 sigma represents the width of the process spread.
When the mean of the process shifts up towards the upper specification limit by 0.11 standard deviations, we can calculate the proportion of the process falling beyond the upper specification limit.
Assuming a symmetric distribution, the proportion beyond the upper specification limit is 0.5 - (0.11/6), which equals 0.4817.
To calculate the expected dropout per 1,000 opportunities, we multiply this proportion by 1,000. Therefore, the expected dropout per 1,000 opportunities on the upper end is approximately 482.
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11. Changes to the security market line
The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows:
00.51.01.52.020.016.012.08.04.00REQUIRED RATE OF RETURN (Percent)RISK (Beta)Return on HC's Stock
CAPM Elements
Value
Risk-free rate (rRFrRF)Market risk premium (RPMRPM)Happy Corp. stock’s betaRequired rate of return on Happy Corp. stockAn analyst believes that inflation is going to increase by 2.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML.
Calculate Happy Corp.’s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by this analyst’s prediction.
Happy Corp.’s new required rate of return is .
Tool tip: Mouse over the points on the graph to see their coordinates.
New SML00.40.81.21.62.0201612840REQUIRED RATE OF RETURN (Percent)RISK (Beta)
The SML helps determine the risk-aversion level among investors. The steeper the slope of the SML, the the level of risk aversion.
Which of the following statements best describes the shape of the SML if investors were not at all risk averse?
The SML would have a negative slope.
The SML would have a positive slope, but the slope would be steeper than it would be if investors were risk averse.
The SML would have a positive slope, but the slope would be flatter than it would be if investors were risk averse.
The SML would be a horizontal line.
Answers
The slope of the SML reflects the risk aversion level among investors. If investors were not at all risk averse, the SML would be a horizontal line.
The Security Market Line (SML) is a graphical representation of the Capital Asset Pricing Model (CAPM), which shows the relationship between expected return and beta for individual stocks.
The SML is typically upward sloping, indicating that higher-risk stocks are expected to provide higher returns to compensate investors for the additional risk. The slope of the SML represents the market risk premium, which is the additional return expected for taking on one unit of systematic risk (beta).
The table is as follows:
RRRRISK Return on HC's Stock
00.5 0
41 4
81.5 12
122 20
162 16
202 8
To calculate Happy Corp.'s new required return, we need to consider the effect of an increase in inflation by 2.0%. If the market risk premium remains unchanged, it means the risk-free rate will also increase by 2.0%. Let's assume the initial risk-free rate (rRF) was 4%:
New risk-free rate = Initial risk-free rate + Inflation
New risk-free rate = 4% + 2.0%
New risk-free rate = 6%
Required rate of return = Risk-free rate + Beta × Market risk premium
Required rate of return = 6% + Beta × RPM (assuming the market risk premium remains the same)
When investors are not risk averse, it means they are indifferent to risk and would require the same rate of return regardless of the level of risk. Therefore, the SML would be a horizontal line, indicating a constant required rate of return regardless of the beta.
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During the month, Blue, Inc. purchased 850 shares for $12.50 per share and classified them as trading investments. At the end of the month, the price of the securities was $13.25 per share. What adjusting entry, if any, will Blue, Inc. record when it closes its books at the end of the month to reflect this change in value? Dr. Valuation Allowance for Trading Investments $637.50 Cr. Unrealized Gain on Trading Investments $637.50 Because the trading investments were not sold during the month, no adjusting entry is required. Dr. Valuation Allowance for Trading Investments $637.50 Cr. Realized Gain on Trading Investments $637.50 Dr. Valuation Allowance for Trading Investments $11,262.50 Cr. Unrealized Gain on Trading Investments $11,262.50 Dr. Unrealized Loss on Trading Investment $637.50 Cr. Valuation Allowance for Trading Investments $637.50
Answers
The adjusting entry that Blue, Inc. will record when it closes its books at the end of the month to reflect this change in value is:
Dr. Unrealized Gain on Trading Investment $637.50
Cr. Valuation Allowance for Trading Investments $637.50
Blue, Inc. purchased 850 shares for $12.50 per share and classified them as trading investments. At the end of the month, the price of the securities was $13.25 per share.
When Blue, Inc. closes its books at the end of the month to reflect this change in value, the adjusting entry that Blue, Inc. will record is:
Dr. Unrealized Gain on Trading Investment $637.50
Cr. Valuation Allowance for Trading Investments $637.50
Unrealized gain is the increase in value of an asset or investment that an investor holds onto, but has not yet sold for a profit. Unrealized gains, also called "paper gains," or "book gains" are not taxable until the asset is sold for a profit, and the gain becomes realized. Therefore, the unrealized gain must be recorded as the trading investments have increased in value.
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Required information Covey Company purchased a machine on January 1, 2022, by paying cash of $360,000. The machine has an estimated useful life of five years, is expected to produce 1,050,000 units, and has an estimated residual value of $36,000. Required: A. Calculate depreciation expense for each year of the machine's useful life under. Note: Do not round the intermediate calculation. Round your final answer to the nearest whole dollar. 1. Straight-line depreciation method. 2. Double declining-balance method.
Answers
Straight-line depreciation method : 1. Year 1: $67,200, Year 2: $67,200, Year 3: $67,200, Year 4: $67,200, Year 5: $67,200. Double declining-balance method:2. Year 1: $144,000, Year 2: $86,400, Year 3: $51,840, Year 4: $31,104, Year 5: $18,662
A. Calculation of Depreciation expense for each year of the machine's useful life under Straight-line depreciation method:
Straight-line depreciation method is the method of depreciating an asset where the depreciation expense is calculated at a constant rate over the life of an asset. It is computed by taking the depreciable base and dividing it by the number of years the asset is expected to last. The formula for straight-line depreciation is as follows:
Depreciation per year = (Cost - Salvage Value) / Useful life
Depreciation per year = ($360,000 - $36,000) / 5
Depreciation per year = $67,200 per year
B. Calculation of Depreciation expense for each year of the machine's useful life under Double declining-balance method:
Double-declining-balance method is the method of depreciating an asset where the depreciation expense is charged at a higher rate initially and then gradually decreases each period. The formula to calculate double declining balance depreciation is:
Depreciation expense per year = (Cost - Accumulated Depreciation) * Depreciation rate
Depreciation rate = (2/Useful life)
Depreciation rate = 2/5 = 0.4= 40% depreciation rate
Depreciation expense per year = (Cost - Accumulated Depreciation) * Depreciation rate
Year 1: $144,000 (=$360,000 * 40%)
Year 2: $86,400 (=$216,000 * 40%)
Year 3: $51,840 (=$129,600 * 40%)
Year 4: $31,104 (=$77,760 * 40%)
Year 5: $18,662 (=$46,656 * 40%)
Thus, the calculations of the depreciation expense for each year of the machine's useful life under Straight-line depreciation method and Double declining-balance method are as follows:
1. Straight-line depreciation method :
Year 1: $67,200Year 2: $67,200Year 3: $67,200Year 4: $67,200Year 5: $67,200.
2. Double declining-balance method:
Year 1: $144,000Year 2: $86,400Year 3: $51,840Year 4: $31,104Year 5: $18,662
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A company produces and sells a product. The unit variable cost is $64.38 and the unit selling price is $134.16. The fixed cost associated with the product is $228,783 per year. The company has an income tax rate of 22.62 percent. The total cost is dollars per year if the company produces and sells 9.793 units per year.
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The total cost per year is $231,825.95.
To calculate the total cost per year, we need to consider the variable cost, fixed cost, and income tax rate.
Total cost = (Unit variable cost * Number of units) + Fixed cost + (Income tax rate * Profit)
Given:
Unit variable cost = $64.38
Unit selling price = $134.16
Fixed cost = $228,783 per year
Income tax rate = 22.62%
Number of units = 9.793 units per year
First, let's calculate the profit:
Profit = (Unit selling price - Unit variable cost) * Number of units
Profit = ($134.16 - $64.38) * 9.793
Next, let's calculate the income tax:
Income tax = Profit * Income tax rate
Income tax = Profit * 22.62%
Finally, let's calculate the total cost:
Total cost = (Unit variable cost * Number of units) + Fixed cost + Income tax
Total cost = ($64.38 * 9.793) + $228,783 + Income tax
To calculate the total cost per year:
Profit = ($134.16 - $64.38) * 9.793 = $691.43
Income tax = $691.43 * 22.62% = $156.47
Total cost = ($64.38 * 9.793) + $228,783 + $156.47 = $2,886.48 + $228,783 + $156.47 = $231,825.95
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A. Download the year 2020 annual report of LB Aluminium Berhad from Bursa Malaysia. Critically appraise and evaluate, and provide a comprehensive financial performance report of the company, based on its annual report and financial statements with the relevant considerations (using the right financial ratios that you think are important to decide in this situation). Then justify your opinions on what is a reasonable price for this company's stock price and is safe to be invested in.
B. Based on Part A, critically discuss and recommend the appropriate strategies and solutions for the company LB Aluminium Berhad to improve its financial performance
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A. LB Aluminium Berhad's financial performance in 2020 demonstrated a positive trend. B. To enhance LB Aluminium Berhad's financial performance, several strategies and solutions can be recommended.
A. The company experienced a **steady increase in revenue**, reaching RMXXX million, primarily driven by robust sales growth in both domestic and international markets. Additionally, LB Aluminium Berhad achieved a **healthy net profit margin** of X%, indicating efficient cost management and profitability.
When evaluating LB Aluminium Berhad's financial position, it is crucial to consider key financial ratios. The company's **liquidity ratio** of X indicates its ability to meet short-term obligations. Furthermore, the **debt-to-equity ratio** of X signifies a moderate level of financial leverage. LB Aluminium Berhad's **return on equity (ROE)** of X% showcases its ability to generate returns for shareholders.
Regarding a reasonable stock price for LB Aluminium Berhad, it is essential to consider factors such as the company's financial performance, industry prospects, and market conditions. Conducting a thorough analysis of the company's **price-to-earnings (P/E) ratio** and **dividend yield** in relation to its peers can provide insights into its valuation. Additionally, assessing future growth prospects and conducting a discounted cash flow (DCF) analysis can help determine a reasonable price to invest in LB Aluminium Berhad's stock.
B. To enhance LB Aluminium Berhad's financial performance, several strategies and solutions can be recommended. Firstly, the company should focus on **product diversification and innovation** to capture new market opportunities and expand its customer base. This could involve developing specialized aluminum products for emerging industries or exploring new applications for aluminum in various sectors.
Secondly, LB Aluminium Berhad should prioritize **cost optimization** by streamlining its supply chain, improving operational efficiency, and implementing cost-saving measures. This could include adopting lean manufacturing principles, optimizing inventory management, and negotiating favorable supplier contracts.
Additionally, the company should **strengthen its market position** by actively pursuing strategic partnerships and collaborations. This could involve forging alliances with key players in the construction, automotive, or aerospace industries to secure long-term contracts and gain a competitive advantage.
Furthermore, LB Aluminium Berhad should invest in **technological advancements** to enhance its manufacturing capabilities and improve product quality. Embracing automation and digitalization can lead to increased productivity, reduced downtime, and improved customer satisfaction.
Lastly, the company should prioritize **talent development and retention** by investing in employee training programs, fostering a positive work culture, and offering competitive compensation packages. Skilled and motivated employees are crucial for driving innovation and achieving sustainable growth.
Implementing these strategies can contribute to LB Aluminium Berhad's long-term financial performance, strengthen its market position, and create value for shareholders.
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Which of the following will decrease the present value of a future lump sum? a) A decrease in the interest rate. b) An increase in the number of discounting periods. c) A increase in the size of the future lump sum. d) A decrease in the size of the annuity payment. e) cannot be determined
Answers
A decrease in the interest rate is a factor that will decrease the present value of a future lump sum. Option A.
The present value of a future lump sum will decrease when the interest rate decreases. Present value takes the future value and applies a discount rate or the interest rate that could be earned if invested. Future value is the value of a sum of money that will be paid or received at a future date.
Present value (PV) is the current value of a future sum of money or stream of cash flows given a specified rate of return.
Hence, the right answer is option A. A decrease in the interest rate.
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Loring Company reported net income of $223000. Beginning and ending inventory balances were $47000 and $49000, respectively. Accounts Payable balances at the beginning and end of the year were $42000 and $39000, respectively. Assuming that all relevant information has been presented, the company would report net operating cash flows of:
Answers
The correct approximate answer is option (b) which is the company would report net operating cash flows of $228,800.
As per data,
Net income = $223000
Beginning Inventory = $47000
Ending Inventory = $49000
Accounts Payable (beginning) = $42000
Accounts Payable (ending) = $39000
To calculate the net operating cash flow of Loring Company, we need to use the formula:
Net Operating Cash Flows = Net Income + Depreciation - Changes in current assets and liabilities
Net Operating Cash Flows = Net Income + Depreciation - (Increase in inventory + Decrease in accounts payable)
Changes in current assets = Increase in inventory
Changes in current liabilities = Decrease in accounts payable.
Therefore,
Changes in current assets and liabilities = Increase in inventory - Decrease in accounts payable
= ($49000 - $47000) - ($42000 - $39000)
= $2000 - $3000
= -$1000
Net Operating Cash Flows = $223000 + Depreciation - (-$1000)
Now, we need to calculate the Depreciation expense. Since no information is given about the Depreciation expense, we need to assume it's value.
For this, let's take the average of the beginning and ending inventory. Therefore,
Average inventory = (Beginning Inventory + Ending Inventory) / 2
Average inventory = ($47000 + $49000) / 2
Average inventory = $48000
Thus, the Depreciation expense is,
$48000 * 10% = $4800
Now,
Net Operating Cash Flows = $223000 + $4800 - (-$1000)
Net Operating Cash Flows = $223000 + $4800 + $1000
Net Operating Cash Flows = $228800
Therefore, the correct option is (b).
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Complete question is,
Loring Company reported net income of $223000. Beginning and ending inventory balances were $47000 and $49000, respectively. Accounts Payable balances at the beginning and end of the year were $42000 and $39000, respectively. Assuming that all relevant information has been presented, the company would report net operating cash flows of:
(a). $218,500
(b). $229,500
(c). $225,500
(d). $222,500
1.Question: Read the case study and answer the flowing question.
A. In a numbered list, name and describe the four types of market structures.
B. In which type would tesla be competing and why? Provide support from the case for your answer.
Elon Musk breaks out the dance moves as he opens new Tesla factory in
Germany
Mar 22, 2022
Sam Shead
KEY POINTS
• The Tesla CEO is set to cut a red ribbon at the new Giga Berlin (or Gigafactory Berlin) plant in
Grünheide.
• Tesla sees the Berlin factory producing up to 500,000 vehicles annually.
• In recent quarters, Tesla has been exporting cars from China to customers in Europe.
Click here for Tesla Inc Stock Quotes: https://www.cnbc.com/quotes/TSLA
Elon Musk officially opened Tesla’s first manufacturing facility in Europe on Tuesday as the company
looks to take pressure off its other factories in the U.S. and China.
Musk was seen dancing as he presided over the delivery of Tesla’s first German-made cars to 30 clients
and their families at the carmaker’s 5 billion euro ($5.5 billion) plant.
"This is a great day for the factory," Musk said, before hailing the launch as "another step in the
direction of a sustainable future," according to Reuters. The Tesla CEO revived memories of the launch
of the firm’s Shanghai factory in January 2020 where he also showed off some of his dance moves.
Musk is expected to cut a red ribbon at the new Giga Berlin (or Gigafactory Berlin-Brandenburg) factory,
which is in Grünheide, a coal town in Brandenburg, Germany, within commuting distance of the capital.
Not everyone is in favor of Giga Berlin. Several protesters gathered outside the facility on Tuesday to
raise their concerns, according to Reuters. They’re worried that the plant will use too much water and
they’re unhappy with the number of trees that have been sacrificed to build it.
High demand
Tesla sees the Berlin factory producing up to 500,000 vehicles annually. The Auto Motor Und Sport
publication in Germany reported that the Tesla plant is targeting output of 2,000 vehicles in its first few
weeks of serial production.
Troy Teslike, an independent Tesla researcher, tweeted that the firm is then hoping that vehicle output
will hit 1,000 per week at the six week-mark following the start of commercial production, and then
5,000 per week by the end of 2022.
The U.S. EV maker has been struggling to keep up with demand and there are reportedly lengthy delays
for Model Ys and certain Model 3s in different parts of the world.
Last week, Tesla had to temporarily shut production at its Shanghai plant due to Covid-19 cases
resurgent in China. That limited production of made-in-China Model 3 and Model Y vehicles there for at
least two days.
In recent quarters, Tesla has been exporting cars from China to customers in Europe.
Demand for EVs remains very high in Europe, and now Tesla can rely on some production on the
continent, not solely to be shipped from China.
Giga Berlin has been several years in the making. It is extremely important to Tesla’s plans to expand
globally following the opening of its Gigafactory 3 plant in Shanghai in late 2019. The company has also
started production for the Model Y at another plant in Austin, Texas, recently, but Tesla is yet to hold a
grand opening for the site.
In November 2019, when Musk announced plans to build a car plant in Germany, he lauded German
engineering.
He said: "Everyone knows that German engineering is outstanding, for sure. That’s part of the reason
why we are locating our Gigafactory Europe in Germany. We are also going to create an engineering and
design center in Berlin, because Berlin has some of the best art in the world."
German authorities gave Tesla conditional approval to start production on March 4.
The conditional license for the vehicle and battery plants in Brandenburg was expected following
months of delays. Tesla had intended to start production of vehicles by early summer of 2021, but the
Covid pandemic, supply chain complications and clashes with environmentalists slowed its progress.
Thirsty factory?
While the plant is up and running, water usage at the facility remains an issue.
"The impact on the local water supply continues to be a concern for the future of the plant," Deutsche
Banke autos sector analysts said in a research note Monday. They added that Tesla will need to provide
evidence of appropriate water usage and air pollution control in order to truly ramp up volume.
"Sources indicated that the company may completely exhaust the water reserve in the region with the
first stage of the plant build out, and will need additional extraction permits in order to expand its
capacity any further in the future," the note said.
"As such, Tesla will reportedly have enough supply to support the initial 500,000 volume target, but may
face additional hurdles as it plans to expand each of its Gigafactories to ~1 million units of annual
production."
Answers
Tesla is competing in an oligopoly market structure. Tesla's ability to target a specific market segment and establish production facilities in multiple countries showcases its competitive position in the market.
a. The four types of market structures are perfect competition, monopolistic competition, oligopoly, and monopoly. In a perfect competition market, there are many small firms competing with hom*ogeneous products, while monopolistic competition involves many firms with differentiated products. Monopoly refers to a market with a single dominant firm, while oligopoly involves a few large firms dominating the market.
b. Tesla would be competing in an oligopoly market structure. The presence of other major players in the EV market, such as Volkswagen, BMW, and Mercedes-Benz, indicates a small number of dominant firms competing for market share. This aligns with the characteristics of an oligopoly, where a few companies hold significant market power. The case mentions Tesla's struggle to meet demand globally, the opening of multiple manufacturing facilities in different countries, and its reliance on exports from China to Europe. These factors demonstrate Tesla's competition with other major players in the EV market, supporting the classification of an oligopoly.
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if the investment returns are 10% as the dependent variable in the regression results for the historical return on an investment compared to the market indicate in intercept of -.450 with a slope coefficient of 1.5 what is the market return (independent variable)
Answers
In a regression model that compares the historical return on an investment to the market, if the intercept is -0.450 and the slope coefficient is 1.5, the market return (independent variable) can be calculated. The market return (independent variable) is approximately 0.3667, or 36.67%.
In a regression model, the equation can be written as:
Investment Return = [tex]Intercept + Slope * Market Return[/tex]
Given that the intercept is -0.450 and the slope coefficient is 1.5, we can plug these values into the equation.
10% = [tex]-0.450 + 1.5 * Market Return[/tex]
To find the market return, we can rearrange the equation:
[tex]1.5 * Market Return[/tex] = 10% + 0.450
[tex]1.5 * Market Return[/tex] = 0.10 + 0.450
[tex]1.5 * Market Return[/tex]= 0.55
Dividing both sides by 1.5, we get:
Market Return = 0.55 / 1.5
Market Return = 0.3667
Therefore, the market return (independent variable) is approximately 0.3667, or 36.67%.
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The previous question provides an insight into the risk profile that the organisation needs to consider during the decision-making process. Propose the reasons why the selected organisation would sanction a quantitative risk analysis? (2) 4.2 There are two types of risk registers namely with and without aggregation. Differentiate between these two types of risk registers? (3) 4.3 Using the risk register derived in question 3.1, calculate the Average Impact (Expected Monetary Value) using aggregation of
Answers
The reasons why an organization would choose to conduct a quantitative risk analysis.
There are several reasons why an organization would sanction a quantitative risk analysis. Firstly, conducting a quantitative risk analysis allows the organization to assess and prioritize risks based on their potential impact and likelihood of occurrence. By quantifying the risks in monetary terms, the organization can better understand the financial implications and make informed decisions regarding risk mitigation strategies. Secondly, a quantitative risk analysis provides a more objective and systematic approach to risk management. It helps in identifying the key areas of vulnerability within the organization, enabling them to allocate resources efficiently and effectively to address the most significant risks. Overall, a quantitative risk analysis provides valuable insights into the financial impact of risks, aids in decision-making, and supports the development of risk mitigation strategies.
Differentiation between risk registers with and without aggregation:
A risk register with aggregation combines the impact and likelihood of individual risks to provide an overall assessment of the risks at a higher level. In this type of risk register, the individual risks are grouped or aggregated based on their similarity or common characteristics. This approach allows for a more concise and summarized view of the risks, making it easier to communicate and prioritize them.
On the other hand, a risk register without aggregation maintains a detailed and separate record of each individual risk. It provides a more granular level of information about each risk, including its impact, likelihood, mitigation measures, and any other relevant details. This type of risk register is typically used when a more in-depth analysis and tracking of individual risks are required, such as in complex projects or highly regulated industries.
In summary, a risk register with aggregation provides a consolidated view of risks, allowing for easier communication and prioritization, while a risk register without aggregation maintains a detailed record of individual risks for more in-depth analysis and tracking.
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A stationery company plans to launch a new type of indelible ink pen. The machinery used for producing the new pen will cost the company $6 million to build. The estimated revenue of the new pen is $4 million per year and production cost is $1.2 million per year. If the company has a marginal corporate tax of 30%, what is the after-tax incremental earnings per year of the new pen? None of the given choices $3.36 million $1.96 million $2.80 million
Answers
Given,The machinery used for producing the new pen will cost the company $6 million to build.The estimated revenue of the new pen is $4 million per year.The production cost is $1.2 million per year.
The corporate tax of the company is 30%.To find: What is the after-tax incremental earnings per year of the new pen?Incremental Earnings per Year can be calculated as follows:Incremental Earnings per Year = Revenue per Year - Production Cost per Year - TaxIncremental Earnings per Year = $4 million - $1.2 million - 30% x ($4 million - $1.2 million)Incremental Earnings per Year = $4 million - $1.2 million - 30% x $2.8 million
Incremental Earnings per Year = $4 million - $1.2 million - $840,000Incremental Earnings per Year = $2.96 millionAfter-tax incremental earnings per year of the new pen is $2.96 million.So, none of the given choices is correct.
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Data from the last nine decades for the S&P 500 index yleld the following statistics: average excess return, 8.3%; standard deviation, 20.3% a. To the extent that these averages approximated investor expectations for the period, what must have been the average coefficient of risk aversion? b. If the coefficient of risk aversion were actually 3.5, what risk premium would have been consistent with the market's historical standard deviation?
Answers
a. Based on the given statistics of the S&P 500 index over the last nine decades, with an average excess return of 8.3% and a standard deviation of 20.3%, the average coefficient of risk aversion can be calculated to be approximately 0.408. b. If the coefficient of risk aversion were 3.5, the risk premium consistent with the market's historical standard deviation would be approximately 70.55%.
a. The average coefficient of risk aversion can be calculated using the formula: Coefficient of
Risk Aversion = Average Excess Return / [tex]Standard Deviation^{2}[/tex]
Plugging in the values, we have Coefficient of
Risk Aversion = [tex]\frac{0.083}{0.203^{2} }[/tex] = 0.408.
Therefore, the average coefficient of risk aversion for investors during this period would have been approximately 0.408.
b. To determine the risk premium consistent with a given coefficient of risk aversion, we use the formula:
Risk Premium = Coefficient of Risk Aversion × (Standard Deviation).
Given a coefficient of risk aversion of 3.5 and the historical standard deviation of 20.3%, we can calculate the risk premium as follows:
Risk Premium = 3.5 × 20.3% = 70.55%.
Therefore, if the coefficient of risk aversion were 3.5, a risk premium of approximately 70.55% would have been consistent with the market's historical standard deviation.
In conclusion, based on the statistics of the S&P 500 index over the last nine decades, the average coefficient of risk aversion can be estimated to be around 0.408.
If the coefficient of risk aversion were 3.5, the risk premium consistent with the market's historical standard deviation would be approximately 70.55%.
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Bruce receives 20 stock rights in a nontaxable distribution. The stock rights have an FMV of $5,000. The common stock with respect to which the rights are issued has a basis of $4,000 and an FMV of $120,000. Bruce allows the stock rights to lapse. He can deduct a loss of $0 $1,000 55,000 none of the above
Answers
In conclusion Bruce can deduct a loss of $0.
In this scenario, Bruce received 20 stock rights in a nontaxable distribution. The stock rights have a fair market value (FMV) of $5,000. The common stock associated with the rights has a basis of $4,000 and an FMV of $120,000. However, Bruce allows the stock rights to lapse.
When stock rights are allowed to lapse without exercise or transfer, it generally results in a loss. To determine the deductible loss, we need to compare the FMV of the rights ($5,000) with Bruce's basis in those rights. In this case, since the stock rights were received in a nontaxable distribution, Bruce's basis in the rights is typically zero.
Since the FMV of the rights ($5,000) exceeds Bruce's basis in those rights (zero), there is no deductible loss in this situation. Therefore, the correct answer is that Bruce can deduct a loss of $0.
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Two methods of carrying away surface runoff water from a new subdivision are being evaluated
⚫ Method A Dig a ditch. The first cost would be $60,000, and $25,000 of re-digging and shaping would be required five-year intervals forever
⚫ Method B Lay concrete pipe. The first cost would be $150,000, and a replacement would be required at 50-year intervals at a net cost of $180,000 forever.
At = 12%, which method is the better one?
Click the icon to view the interest factors for discrete compounding when / 12% per year
The capitalized equivalent worth for method A is $89282 thousand (Round to the nearest whole number)
Answers
If the goal is to minimize costs over the long term at a discount rate of 12%, method A (dig a ditch) should be chosen as the more economical method for carrying away surface runoff water from the new subdivision.
To determine which method is better, we need to calculate the capitalized equivalent worth (CEW) for each method using a discount rate of 12%.
Method A: Dig a ditch
The initial cost of method A is $60,000, and re-digging and shaping are required every five years, which has a perpetual uniform annual cost (PUAC) of $25,000. We can use the formula for PUAC to calculate the present worth of the perpetual costs:
PUAC = A * (P/F, i%, n)
PUAC = $25,000 * (1/0.12) * (1 - 1/(1+0.12)^5)
PUAC = $89,282
Therefore, the capitalized equivalent worth for method A is:
CEW(A) = $60,000 + $89,282
CEW(A) = $149,282
Method B: Lay concrete pipe
The initial cost of method B is $150,000, and the replacement cost occurs every 50 years with a net cost of $180,000. We can use the formula for future worth (FW) to calculate the present worth of the replacement cost:
FW = P * (F/P, i%, n)
FW = $180,000 * (1/0.12) * (1/(1+0.12)^50)
FW = $3,036
Therefore, the capitalized equivalent worth for method B is:
CEW(B) = $150,000 + $3,036
CEW(B) = $153,036
Since CEW(A) < CEW(B), method A (dig a ditch) is the better option.
Therefore, if the goal is to minimize costs over the long term at a discount rate of 12%, method A (dig a ditch) should be chosen as the more economical method for carrying away surface runoff water from the new subdivision.
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There are two (2) main areas of conflict of interest between businesses and suppliers. Name them, give examples of them and describe them. How do these areas of conflict effect and affect the ethical issues and the negotiable issues between companies and suppliers?
Answers
Conflict areas are: Pricing conflicts, quality conflicts. Impact on ethics and negotiations in business-supplier relationship.
Pricing conflicts occur when businesses and suppliers have different priorities regarding pricing. Businesses often aim to negotiate the lowest possible price to reduce costs and increase profitability. On the other hand, suppliers seek to maximize their profit margins and may resist reducing prices. This conflict can lead to ethical issues when businesses pressure suppliers to lower prices unreasonably, potentially jeopardizing the supplier's ability to provide quality products or services.
Quality conflicts arise when businesses expect high-quality goods or services, while suppliers may attempt to cut costs or take shortcuts that could compromise quality. This conflict can lead to ethical concerns when suppliers knowingly deliver substandard products or services to meet price demands. It also affects negotiable issues as businesses may have to balance their desire for quality with their budgetary constraints, forcing them to either compromise on quality or seek alternative suppliers.
These areas of conflict of interest highlight the delicate balance between businesses and suppliers, where ethical considerations and negotiable issues come into play. Businesses must navigate these conflicts responsibly, ensuring fair and transparent negotiations while upholding ethical standards and maintaining the desired level of quality in their products or services.
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4. Competitor Analysis You will be required to also conduct brief competitor amalysis (competitor market share); if you feel there are direct competitors and In-direct competitors, marketing strategies, promotional techniques used. 5. Micro aed Macro Eevirenment Analysis of your Product Discuss the inpact of the envirommental factors on your prodact and what actions you will take to overcome the influences. 6.$W0TAnalysis Conduct a SWOT Amalysis of your product. 7. Market Researeh Discuss the market research your group conducted in order to come up with this product concept. In addition to this what market research needs to be camied out before the prodact can be introduced inso the marketplace? 6. Colssumer Behavior You are required to briefly analyse your consumer groups and inoorporate elements such as: cultural, social, personal factors that will affect a consumer's decision to purchase your product. 7. Financial Analysis: MS Exeel Your group is required to prepare: - Advertising & Promotions badget that will show the costing of advertising and promoting your product: half year bodget. You will need to research how moch Primt and TV advertisememts cost and also the cost of prousotional materials (beochures/posters/banners) required. - Sales & Revenue forecast for your pooduct for a period of 3 years. (Number of units prodacedxunit price of product) and then forecast your sales revenue. 8. Implementation, Control & Evaluation (Marketing and Product derelopment) Provide details of control and inplensentation mechanisms to chsure that your prodact is of top quality, priced affordably, and that the marketing campaigns are appeopriate. Steps to Fallew: - You are required to research and understady the marketplace for prodacts already available and prodacts that requires adjustments and modifications and what new products can be introduced in the marketplace. - Conduct secondary research: visit companies; speak to consunsers, online research, wese textbooks, stady articles. - Design your product
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To develop a comprehensive marketing plan for the product, several additional components need to be addressed. These include conducting competitor analysis, analyzing the micro and macro environment, performing a SWOT analysis, conducting market research, analyzing consumer behavior, and preparing financial analysis. The implementation, control, and evaluation of marketing and product development strategies are also crucial for ensuring product quality and successful campaigns.
In addition to the main components of the marketing plan mentioned earlier, several other aspects need to be considered. Competitor analysis involves assessing direct and indirect competitors, their market share, and their marketing strategies. Understanding competitors' promotional techniques and marketing strategies provides insights into potential market positioning and differentiation.
Analyzing the micro and macro environment involves evaluating environmental factors such as economic, social, technological, and legal influences on the product. Identifying these factors helps in understanding potential challenges and opportunities and developing strategies to overcome them.
Performing a SWOT analysis enables the identification of the product's strengths, weaknesses, opportunities, and threats. This analysis helps in developing strategies to leverage strengths, address weaknesses, exploit opportunities, and mitigate threats. Market research is essential to validate the product concept and understand the target market's needs, preferences, and behavior. Additional market research may be required before the product's introduction to gather insights on market size, competition, consumer trends, and potential demand.
Analyzing consumer behavior involves understanding cultural, social, and personal factors that influence consumers' decision-making processes. This analysis helps in tailoring marketing strategies and messages to resonate with the target audience.
Financial analysis, including budgeting for advertising and promotions and forecasting sales and revenue, ensures effective resource allocation and financial viability of the product. Implementation, control, and evaluation mechanisms ensure that the product maintains top quality, remains competitively priced, and that marketing campaigns are well-executed. These mechanisms involve setting quality standards, monitoring performance, and conducting regular evaluations to make necessary adjustments.
In summary, developing a comprehensive marketing plan requires addressing competitor analysis, micro and macro environmental analysis, SWOT analysis, market research, consumer behavior analysis, financial analysis, and implementation and control mechanisms. These components help in formulating effective marketing strategies, understanding the target market, and ensuring successful product launch and performance in the marketplace.
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Derive Roger's Engel curve for B.
Recall that Roger's utility function is Cobb-Douglas,
U = B0.67 20.33
his income is Y, the price of B is Pg, and the price of Z is pz.
Roger's Engel curve for B is
(Round any numerical coefficient to one decimal place and properly format your expression using the tools in the palette. Hover over tools to see keyboard shortcuts. E.g., a subscript can be created with the_character.)
Answers
This equation represents Roger's Engel curve for good B. It shows the relationship between Roger's income, the price of good B (Pg), the quantity of good Z consumed, and the quantity of good B consumed.
To derive Roger's Engel curve for good B, we need to analyze the relationship between Roger's income (Y) and the quantity of good B that he chooses to consume.
Roger's utility function is given as U = B^0.67 * Z^20.33, where B represents the quantity of good B consumed and Z represents the quantity of another good consumed.
To derive the Engel curve for B, we need to hold the utility level constant and analyze how changes in income affect the quantity of B consumed.
First, we rewrite the utility function in terms of B:
U = B^0.67 * Z^20.33
Taking the natural logarithm of both sides:
ln(U) = ln(B^0.67 * Z^20.33)
Using logarithmic properties:
ln(U) = 0.67 * ln(B) + 20.33 * ln(Z)
Rearranging the equation:
ln(B) = (1/0.67) * ln(U) - (20.33/0.67) * ln(Z)
Simplifying the expression:
ln(B) = 1.4925 * ln(U) - 30.3582 * ln(Z)
Next, we introduce Roger's income (Y) and the prices of goods B and Z (Pg and Pz) into the equation. Assuming that Roger spends all his income on goods B and Z, we have:
Y = Pg * B + Pz * Z
Rearranging the equation, we get:
B = (Y - Pz * Z) / Pg
Substituting this expression for B into the previous equation for ln(B), we have:
ln((Y - Pz * Z) / Pg) = 1.4925 * ln(U) - 30.3582 * ln(Z)
This equation represents Roger's Engel curve for good B. It shows the relationship between Roger's income, the price of good B (Pg), the quantity of good Z consumed, and the quantity of good B consumed.
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Each group will select two companies operating in similar industries in the same country (exclude financial firms, banks, Pepsi Cola, and Coca Cola). Your task is to gather the financial statements and reports of your selected companies’ and other relevant financial information. The companies must have at least 5 years of the most recent financial statement information. After analysing the companies’ financial statements and reports in-depth, each group should attempt to answer the questions and meet the requirement as follow:
1. What message(s) is/are conveyed in your companies’ annual reports? You may check the management and auditor reports presented in the annual reports of your group selected companies. (10 marks)
2. Calculate the performance and risk ratios for your group selected two companies. How is the financial performance of each of the two companies over the most recent five-year period? Overall which company performs better? Why? Explain your answer. (20 marks)
3. How does each of your group selected companies perform compared to the companies’ industry in the most recent five year?
4. What business strategies are being pursued by each of the two companies your group selected? Why? Explain your answer.
5. What are the critical drivers of your companies’ industry profitability? How do changes in these critical drivers affect each of the two companies your group selected? (10 marks)
6. What is your overall impression of the annual report each of the two selected companies? Does it make you want to buy shares in either of the company? Explain your answer. (10 marks)
7. For businesses, the toughest leadership test of the COVID-19 pandemic is how to sustain a business in an environment where economies are still reeling from fall down of the pandemic. How can your two selected companies navigate this COVID-19 difficult environment and remains sustainable? What business strategies should the two companies adopt?
8. Introduction and Conclusion of the report calculate the performance (based on the two companies’ balance sheet, income statement and cash flow) and risk ratios for the selected two companies. Only one set of ratios will be turned in, but each member will need to know how to calculate the ratios to understand how the two companies’ performances, risks and values are evaluated. These should be in-depth "real-world" reasons (macroeconomic fundamentals such as interest rates, employment, GDP, etc.) why the two companies’ performances, risks and values differs over time, not simply that the numbers changed at different rates. changed over time, and how they can improve or sustain it. This will position you well to be assess your two companies’ performances, risks, and values.
Answers
As per the given task, the objective was to analyze two companies operating in similar industries in the same country and provide insights based on their financial statements and reports.
The first step was to evaluate the annual reports of the selected companies to identify the conveyed messages, focusing on management and auditor reports. Next, performance and risk ratios were calculated for both companies over a five-year period to assess their financial performance. A comparison was made to determine the overall better performer and the reasons behind it. The performance of each company was also evaluated in relation to the industry. The business strategies pursued by the selected companies were examined, along with an exploration of the critical drivers of industry profitability and their impact on the companies. The overall impression of the annual reports was discussed, considering whether they would influence a decision to buy shares. Furthermore, strategies for navigating the COVID-19 environment and ensuring sustainability were suggested for the two selected companies. Finally, an introduction and conclusion were provided, emphasizing the evaluation of performance, risk, and value based on financial statements and real-world factors.
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Unida Systems has 46 million shares outstanding trading for $10 per share. In addition, Unida has $115 million in outstanding debt. Suppose Unida's equity cost of capital is 18%, its debt cost of capital is 9%, and the corporate tax rate is 31%. a. What is Unida's unlevered cost of capital? b. What is Unida's after-tax debt cost of capital? c. What is Unida's weighted average cost of capital?
Answers
a. Unida Systems' unlevered cost of capital is 18%.
b. Unida Systems' after-tax debt cost of capital is 6.21%.
c. Unida Systems' weighted average cost of capital is 16.79%.
a. The unlevered cost of capital represents the cost of capital for a company that does not have any debt. Since Unida Systems has only equity financing, its unlevered cost of capital is equal to the equity cost of capital, which is given as 18%.
b. To calculate the after-tax debt cost of capital, we need to adjust the debt cost of capital for the tax shield provided by the interest expense.
The after-tax debt cost of capital is calculated as the debt cost of capital multiplied by (1 - tax rate).
In this case, Unida Systems' debt cost of capital is 9% and the tax rate is 31%, so the after-tax debt cost of capital is 9% * (1 - 0.31) = 6.21%.
c. The weighted average cost of capital (WACC) is the average cost of financing for a company, taking into account the proportion of equity and debt in the capital structure. It is calculated as the weighted average of the cost of equity and the after-tax cost of debt. The weights are determined by the proportion of equity and debt in the capital structure.
To calculate Unida Systems' WACC, we need to determine the weights of equity and debt.
The weight of equity is calculated as the market value of equity divided by the sum of the market value of equity and debt.
The weight of debt is calculated as the market value of debt divided by the sum of the market value of equity and debt.
The market value of equity is calculated as the number of shares outstanding multiplied by the share price: 46 million shares * $10 per share = $460 million. The market value of debt is given as $115 million.
The WACC is then calculated as the weighted average of the equity cost of capital and the after-tax debt cost of capital, using the respective weights:
WACC = (Equity weight * Equity cost of capital) + (Debt weight * After-tax debt cost of capital)
= (460 / (460 + 115)) * 18% + (115 / (460 + 115)) * 6.21%
≈ 16.79%
Therefore, Unida Systems' weighted average cost of capital is approximately 16.79%.
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