An adverse supply shock is caused by a sudden increase in the global price of oil and a terrorist attack that destroys a domestic industry.An adverse supply shock is a negative event that results in a reduction of supply that pushes up prices of goods and services in the economy. The correct answer is option b and d.
These shocks can occur due to various reasons like weather patterns, natural disasters, government policy, and many others. Some of the main causes of adverse supply shocks are as follows :A sudden increase in the global price of oil: When the price of oil increases suddenly, it creates an adverse supply shock by increasing production costs across several industries.
This can lead to a reduction in supply, which then results in an increase in the prices of goods and services.A terrorist attack that destroys a domestic industry: Terrorist attacks can cause a significant disruption in the economy. When an attack destroys a significant part of the industry, the supply chain can be disrupted, which causes a reduction in supply.
This results in an increase in prices of goods and services. Other factors that can also cause adverse supply shocks include sudden increase in the inflow of immigrants and a poor season for growing agricultural products. The correct answer is option b and d.
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E25-18 Making outsourcing decisions Cool Systems manufactures an optical switch that it uses in its final product. The switch has the following manufacturing costs per unit: $ 5.00 3.00 Direct materials Direct labor Variable overhead Fixed overhead Manufacturing product cost 6.00 7.00 $ 21.00 Another company has offered to sell Cool Systems the switch for $15.00 per unit. If Cool Systems buys the switch from the outside supplier, the idle manufacturing facili- ties cannot be used for any other purpose, yet none of the fixed costs are avoidable. Prepare an outsourcing analysis to determine whether Cool Systems should make or buy the switch.
Based on the cost analysis, Cool Systems should consider buying the switch from the outside supplier rather than manufacturing it in-house.
To perform an outsourcing analysis and determine whether Cool Systems should make or buy the switch, we need to compare the costs of manufacturing the switch in-house with the cost of buying it from the outside supplier.
Calculate the total cost of manufacturing the switch in-house:
Total manufacturing cost per unit = Direct materials + Direct labor + Variable overhead + Fixed overhead
Total manufacturing cost per unit = $5.00 + $3.00 + $6.00 + $7.00 = $21.00
Compare the in-house manufacturing cost with the cost of buying the switch from the outside supplier:
Cost per unit from the outside supplier = $15.00
Analyze the costs;
If the in-house manufacturing cost is lower than the cost of buying from the outside supplier, it is more cost-effective to make the switch in-house. However, if the cost of buying from the outside supplier is lower than the in-house manufacturing cost, it is more cost-effective to buy the switch.
In this case, comparing the in-house manufacturing cost of $21.00 per unit with the cost of buying from the outside supplier at $15.00 per unit, we can see that it is more cost-effective to buy the switch from the outside supplier.
Therefore, based on the cost analysis, Cool Systems should consider buying the switch from the outside supplier rather than manufacturing it in-house.
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Section B: Scenario Based Question Use the IRAC method to answer the following legal problem. 1. Vin wants to sell his house which is situated in a high-demand area for RM 1.8 million. In February 2022 he made the offer to several people stating that the offer will remain open until 31st March 2022. An interested buyer must sign an acceptance letter and pay a deposit of RM200.000 at the same time to show his/ her serious intention. Both the acceptance letter and the deposit money must be handed to Vin's lawyer on or before 31st March. Diesel wishes to buy the house. On March 2nd, he went to the lawyer's office, signed the letter, and told them that he will bank the money in three days' time. On March 3rd, Vin's lawyer contacted Diesel telling him that vin has decided to revoke the offer. Diesel who is really looking forward to owning the house wishes to sue Vin for breach of contract. Discuss whether a valid contract has been formed between Vin and Diesel. (7 Marks) • Issue Rules . Application conclusion Y 5 G B H N U M K O V L Alt Gr foru P V .. P Sym -- 14 Te Lah Break 2
Issue: Whether a valid contract has been formed between Vin and Diesel. Rules:An agreement arises when the offer is accepted by the offeree. The offeror is entitled to withdraw the offer at any time before it is accepted, and revocation of an offer may be communicated directly or indirectly.
Application: Vin is interested in selling his house situated in an area with high demand for RM 1.8 million. In February 2022, he made an offer to many people, stating that the offer will remain open until March 31, 2022. An interested buyer must sign an acceptance letter and pay a deposit of RM200,000 to Vin's lawyer on or before March 31. Diesel wants to purchase the house. He went to the lawyer's office on March 2nd and signed the letter, informing them that he would deposit the money in three days.
On March 3rd, Vin's lawyer informed Diesel that Vin has decided to revoke the offer. Diesel, who is looking forward to owning the house, wishes to sue Vin for breach of contract. Diesel can sue Vin for breach of contract because a valid contract was created between them.The essential elements of a contract are agreement, consideration, intention to create legal relations, capacity, and legality. Vin, as the offeror, made a valid offer by stating that it would remain open until March 31st. The offer was accepted by Diesel, the offeree, by signing the acceptance letter and paying the deposit fee. Both parties were therefore bound by the contract's terms and conditions until March 31st when the offer was supposed to be withdrawn.
Even if Diesel had not paid the deposit, the acceptance of the offer by Diesel was adequate to create a binding agreement. Vin's lawyer, on the other hand, communicated the revocation of the offer to Diesel on March 3rd. However, this was too late since the acceptance of the offer had already been completed by Diesel on March 2nd. Vin had no right to revoke the offer after it had been accepted by Diesel. Vin's revocation of the offer was therefore ineffective, and he breached the contract's terms and conditions.Conclusion:Therefore, Diesel can sue Vin for breach of contract.
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please fast
The following comparative balance sheet is given for Estern
Co.: Assets Dec 31, 2021 Dec.31, 2020 $58,500 $351,000 Cash 72,000
63,000 Notes Receivable 81,000 121,500 Supplies & Invento
The following comparative balance sheet is given for Estern Co. Assets Dec 31, 2021 Dec 31, 2020 Canl $58,500 $351,000 72,000 Notes Receivable 63,000 81,000 121,500 Supplies & Inventory Prepaid expens
There are three asset accounts in the comparative balance sheet given for Estern Co: cash, notes receivable, and supplies & inventory.
The cash account's balance is $58,500 at the end of December 31, 2021, compared to $351,000 at the end of December 31, 2020. The notes receivable balance is $72,000 at the end of December 31, 2021, compared to $63,000 at the end of December 31, 2020. The supplies & inventory balance is $81,000 at the end of December 31, 2021, compared to $121,500 at the end of December 31, 2020.
A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It presents the company's assets, liabilities, and shareholders' equity. The balance sheet provides insights into a company's liquidity, solvency, and financial health. It is often used by investors, creditors, and other stakeholders to assess a company's financial position and make informed decisions.
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william is a member of an llc. his schedule k-1 reported a $1,200 share of capital loss and a $3,000 share of section 1231 gain. william recognized a $4,500 capital gain on the sale of marketable securities and a $15,000 section 1231 loss on the sale of business equipment. what is the net effect of these gains and losses on william's taxable income?
The net effect of these gains and losses on William's taxable income is a net loss of $6,300
William is a member of an LLC and his schedule K-1 reported a $1,200 share of capital loss and a $3,000 share of section 1231 gain. William recognized a $4,500 capital gain on the sale of marketable securities and a $15,000 section 1231 loss on the sale of business equipment.
To find out the net effect of these gains and losses on William's taxable income, we need to calculate them separately and then calculate the total gain or loss, as follows:
Capital gains = $4,500 - $1,200 = $3,300
Section 1231 gains = $3,000 - $15,000 = -$12,000
Total net loss = $3,300 + (-$12,000) = -$8,700
Therefore, the net effect of these gains and losses on William's taxable income is a net loss of $6,300.
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There are essentially two approaches to predict the fatigue life of components and structures. One is based on so called S-N (or Stress versus Number of cycles) diagrams and the other is based on Crack Propagation Rate versus Stress Intensity Factor Range diagrams. Give a brief description for each approach and comment on how you would decide which approach to use for a particular application in metallic materials? (5 marks) (b) Explain why the surface condition may have a profound effect on fatigue life of a component. Give one example of a surface treatment for improving fatigue life of components. (4 marks) (c) Figure 3 shows a fracture surface of a test sample made of aluminium alloy. It represents aircraft wing skin with a countersunk fastener (rivet) hole, which was subjected to a cold-expansion process. The test sample has failed due to fatigue after being cyclically loaded in tension in the direction of the arrow. The two distinct regions on the fracture surface are labelled as A and B. Account for both these regions and identify any particular feature that is associated with each region. Suggest where the point of initiation of the fatigue crack is located.
(a) The S-N (Stress versus Number of Cycles) approach is commonly used to predict fatigue life. It involves plotting the stress amplitude (S) applied to a component against the number of cycles to failure (N).
This approach is based on the assumption that fatigue failure occurs when a critical stress level is reached, leading to crack initiation and subsequent propagation. The S-N curve provides information about the fatigue strength of a material and helps estimate the number of cycles a component can sustain before failure.
On the other hand, the Crack Propagation Rate versus Stress Intensity Factor Range (da/dN vs. ΔK) approach focuses on crack growth rather than crack initiation. It involves plotting the crack propagation rate (da/dN) against the stress intensity factor range (ΔK). This approach is more suitable for situations where the initial crack size is known or where crack growth is the dominant factor affecting fatigue life.
To decide which approach to use for a particular application in metallic materials, several factors need to be considered. These include the nature of the loading conditions, the presence of pre-existing cracks, the required accuracy of the prediction, and the available data and resources. If crack initiation is the primary concern, the S-N approach may be more appropriate. If crack growth is of greater significance, the Crack Propagation Rate versus Stress Intensity Factor Range approach would be more suitable.
(b) The surface condition of a component can have a significant effect on its fatigue life. Surface imperfections, such as scratches, notches, or corrosion, can act as stress concentrators, leading to localized stress intensification and accelerating crack initiation and propagation. Additionally, surface roughness can affect the distribution of stresses and introduce microstructural changes, further influencing fatigue behavior.
(c) Region A on the fracture surface represents the fastener hole, while region B corresponds to the surrounding material. Region A exhibits a distinct dimpled morphology, known as dimples or beach marks. These dimples indicate a ductile mode of fracture, suggesting that the crack propagated slowly under cyclic loading, resulting in plastic deformation and energy absorption. The dimples in region A are associated with the final stages of crack propagation.
The point of initiation of the fatigue crack is likely located at the edge of the fastener hole, where stress concentrations are typically high. The cyclic loading in tension, combined with the geometric stress concentration introduced by the countersunk fastener hole, would initiate a crack at this location. Over time, the crack would propagate through the material until reaching the final fracture surface, characterized by the dimples in region A.
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If the price elasticity of demand for used cars priced between AED 24,000 and AED 46,000 is -4, what will be the percent change in quantity demanded when the price of a used car falls from AED 46,000 to AED 24,000?
The percentage change in quantity demanded when the price of a used car falls from AED 46,000 to AED 24,000 is 95.65%.
The price elasticity of demand (Ed) is calculated as the percentage change in quantity demanded (ΔQd) divided by the percentage change in price (ΔP). We can use this information to find the percentage change in quantity demanded.
ΔQd / Qd = Ed × ΔP / P
Substituting the given values:
ΔQd / Qd = -4 × ((24,000 - 46,000) / 46,000)
Simplifying the equation:
ΔQd / Qd = -4 × (-22,000 / 46,000)
ΔQd / Qd ≈ 0.9565
Converting to percentage:
ΔQd / Qd ≈ 95.65%
Therefore, the percentage change in quantity demanded is 95.65%.
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briefly introduce the danger of 'complete' negotiation
strategies
Complete negotiation strategies may pose certain dangers to the parties involved.
What are Complete negotiation strategies?Complete negotiation strategies are commonly used in business to reach an agreement between two parties. It can be very effective and can benefit both parties, but it may not be the best way to negotiate in all circumstances.
A complete negotiation strategy involves a win-lose approach in which one party tries to take all of the available gains and the other loses.
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why negative current account balance is a warning for the stability of the economy? give answers and discuss. support your answer from different county experiences.
A negative current account balance can be a warning sign for the stability of an economy because it indicates that a country is importing more than it is exporting, which can lead to several potential issues. The first issue is that a negative current account balance means that a country is not producing enough to meet its domestic needs.
This can lead to inflation and a decrease in purchasing power for consumers, which can hurt economic growth and stability. Additionally, a negative current account balance means that a country is borrowing from foreign sources to pay for its imports, which can lead to a buildup of debt that can become unsustainable in the long run.
Countries with negative current account balances may also be vulnerable to sudden shifts in market sentiment or changes in interest rates that can lead to a loss of confidence among investors. This can lead to a further decline in the value of a country's currency and an increase in the cost of borrowing to finance its imports.
There are several examples of countries that have experienced negative current account balances and the consequences that have resulted. In the late 1990s, Thailand experienced a sudden drop in the value of its currency due to a negative current account balance, which led to a financial crisis that spread to other countries in the region.
More recently, Argentina has struggled with a negative current account balance and a buildup of debt, leading to a series of financial crises and instability in the country.
Overall, a negative current account balance is a warning sign for the stability of an economy because it can lead to inflation, a buildup of debt, and a loss of confidence among investors. Countries that are able to maintain a positive current account balance are generally better positioned to weather economic shocks and maintain long-term stability.
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Q1. For strengthening Indian IT-ITES sector, what are the initiatives do you think Indian IT-ITES industry should undertake from the success of Zoho Corporation and the opportunities thrown up by Japan?
Q2. Recently the central government has enacted The Industrial Relations Code, 2020 with the aim of reforming the Indian labour laws. Several states have also reformed their respective labour laws. According to you which of the measures introduced by the centre and states would be useful to improve the climate for industrial investment in India
Based on the achievements of Zoho Corporation and the possibilities with Japan, initiatives are being taken to strengthen the Indian IT-ITES sector:
Collaboration and Knowledge Exchange: To benefit from Zoho Corporation's success, Indian IT-ITES companies can develop collaboration and knowledge exchange with them.
The Indian IT-ITES sector should concentrate on improving the skill sets of its workers to match the changing demands of the market.
Innovation and diversification: The success of Zoho Corporation emphasises the value of innovation and diversification.
Government Support and Policy Reforms: To foster a favourable business environment, the Indian IT-ITES industry should work with the government.
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In preparing the statement of cash flows, determining the net increase or decrease in cash requires the use of:
a. the adjusted trial balance.
b. the current period's retained earnings statement.
c. a comparative balance sheet.
d. a comparative income statement.
c. a comparative balance sheet. In preparing the statement of cash flows, determining the net increase or decrease in cash requires the use of a comparative balance sheet.
The comparative balance sheet provides information about the changes in various balance sheet accounts from the beginning to the end of the accounting period. By comparing the balances of cash and cash equivalents between the two periods, one can calculate the net increase or decrease in cash.
This calculation involves analyzing the changes in other balance sheet items such as accounts receivable, accounts payable, inventory, and long-term assets and liabilities. These changes are used to determine the sources and uses of cash during the period, which are then summarized in the statement of cash flows.
The adjusted trial balance, the current period's retained earnings statement, and the comparative income statement provide important information for other financial statements but are not specifically used to determine the net increase or decrease in cash for the statement of cash flows.
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HR can contribute to the organization by recruiting and retaining employees who can work efficiently and productively and where the reward systems are based more on quantity of output if the organization pursues a cost leadership strategy... True False Question 2 (5 points) Listen This is the reason an organization or business exists. Question 3 (5 points) Listen This strategy outlines how an organization will compete in each market where it conducts business. Z Question 4 (5 points) EListen The attributes or traits that distinguish one person from another (personality) and what causes people to behave in certain ways (motivation) are key factors that HR professionals must determine, verify, and relate to job performance. True False Question 5 (5 points) Listen This is an organization's statement of how it intends to fulfill its purpos A
Mission statement.
HR can contribute to the organization by recruiting and retaining employees who can work efficiently and productively and where the reward systems are based more on quantity of output if the organization pursues a cost leadership strategy. True.Question 2:This is the reason an organization or business exists. Answer: Purpose.Question 3:This strategy outlines how an organization will compete in each market where it conducts business. Answer: Competitive strategy.Question 4:The attributes or traits that distinguish one person from another (personality) and what causes people to behave in certain ways (motivation) are key factors that HR professionals must determine, verify, and relate to job performance. True.Question 5:This is an organization's statement of how it intends to fulfill its purpose.
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A partnership does not pay income tax, however each partner pays tax on his/her income. a. True b. False
b. False. In a partnership, the partnership itself does not pay income tax at the entity level. Instead, the profits and losses of the partnership "flow through" to the individual partners, who are responsible for reporting their share of the partnership income or loss on their personal tax returns.
b. False. In a partnership, the partnership itself does not pay income tax at the entity level. Instead, the profits and losses of the partnership "flow through" to the individual partners, who are responsible for reporting their share of the partnership income or loss on their personal tax returns. Each partner pays tax on their distributive share of the partnership's income based on their individual tax situation. The partnership files an informational tax return called Form 1065 to report the partnership's income, deductions, and other relevant information. However, the partnership itself does not incur tax liability. It is the individual partners who are subject to taxation on their respective shares of the partnership income. Therefore, a partnership does not pay income tax, but rather the partners pay tax on their allocated share of partnership income based on their personal tax obligations.
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Demand for Corn Flakes is: P22- Q. Supply of Kellogg's Corn Flakes is: P = 2 + Q. Now a generic company enters the market, selling generic Corn Flakes for $8. Assume consumers are indifferent between generic and Kellogg's Corn Flakes. How many boxes of Kellogg's (brand) Corn Flakes will sell? Enter as a value
The quantity of Kellogg's Corn Flakes that will sell has to be determined after the entry of the generic cornflakes company, given the demand and supply function of corn flakes.
Hence, in order to determine the equilibrium quantity of Kellogg's Corn Flakes sold after the entry of generic Corn Flakes, we can start by determining the quantity of generic Corn Flakes demanded and supplied, which is given below: Demand for generic Corn Flakes = Q; Supply of generic Corn Flakes = 8;
Since consumers are indifferent between generic and Kellogg's Corn Flakes, the total quantity of cornflakes demanded at equilibrium is Q + Q, which can be simplified to 2Q. This equilibrium quantity is equivalent to the quantity supplied in the market, hence we can equate the quantities demanded and supplied in order to obtain the equilibrium quantity.
2Q = 2 + Q, by substituting the values of demand and supply, we get: Q = 2Kellogg's Corn Flakes demand at equilibrium is given by Q = 22 - P. Substituting the value of Q, we get: P = 22 - 2 = 20.So, Kellogg's Corn Flakes are being sold for $20, the number of boxes that will sell at that price is given by: Q = 22 - P = 22 - 20 = 2.
So, 2 boxes of Kellogg's Corn Flakes will be sold at $20 after the entry of the generic Corn Flakes company.
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2 The chart below is the prodution cost of US. and UK. U.S. U.K. 6 1 4 2 (2) what is the gain from trade if the two trade for 4 wheat for 4 cloth? Wheat (bushels/labor hour) Cloth (yards/labor hour) q
The gain from trade for the US is 10/3 yards of cloth, and for the UK, it is 4 bushels of wheat.
To calculate the gain from trade between the US and UK, we need to compare the opportunity costs of producing wheat and cloth in each country.
From the given data:
US:
- Wheat: 6 bushels/labor hour
- Cloth: 1 yard/labor hour
UK:
- Wheat: 4 bushels/labor hour
- Cloth: 2 yards/labor hour
The opportunity cost of producing wheat in the US is 1/6 yard of cloth per bushel of wheat (1/6 yard/bushel), while in the UK, it is 1/2 yard of cloth per bushel of wheat (1/2 yard/bushel).
The opportunity cost of producing cloth in the US is 6 bushels of wheat per yard of cloth (6 bushels/yard), while in the UK, it is 2 bushels of wheat per yard of cloth (2 bushels/yard).
Now, let's consider the trade terms: 4 wheat for 4 cloth.
In the US, producing 4 wheat would require 4/6 yards of cloth (4/6 yard = 2/3 yard).
In the UK, producing 4 cloth would require 4 * 2 bushels of wheat (8 bushels).
If the US and UK trade at this exchange rate, the US can acquire 4 cloth for 4 wheat, which would have cost them 2/3 yard of cloth to produce domestically.
The gain from trade for the US would be the difference between the domestic production cost (2/3 yard) and the amount of cloth obtained through trade (4 yards). Therefore, the gain from trade for the US is 4 - 2/3 = 10/3 yards of cloth.
Similarly, the UK would gain 4 wheat (the equivalent of 8 bushels) through trade, which would have cost them 4 yards of cloth to produce domestically.
The gain from trade for the UK would be the difference between the domestic production cost (4 yards) and the amount of wheat obtained through trade (8 bushels). Therefore, the gain from trade for the UK is 8 - 4 = 4 bushels of wheat.
In summary, the gain from trade for the US is 10/3 yards of cloth, while the gain from trade for the UK is 4 bushels of wheat.
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aviation incorporated has 135,000 shares authorized, 125,000 shares issued and no treasury stock. determine the number of shares outstanding:
a. 240,000. b. 0 c. 10,000. d. 125,000. e. 115,000.
Aviation incorporated has 135,000 shares authorized, 125,000 shares issued and no treasury stock. The number of shares outstanding is 125000.
The number of shares outstanding represents the total number of shares that have been issued by the company and are held by investors. In this case, Aviation Incorporated has 125,000 shares issued, which means that these shares have been distributed to shareholders.
Since there is no mention of any shares being repurchased or held as treasury stock, we can assume that all the issued shares are still outstanding.
Therefore, the number of shares outstanding for Aviation Incorporated is 125,000, as stated in the given information.
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You are considering an investment opportunity that requires an initial investment of $95 million today. One year from now, it will pay $9 million, and the payments will grow by 5% every year after that forever (i.e. in perpetuity). The cost of capital is 14%. What is the IRR?
If you are considering an investment opportunity that requires an initial investment of $95 million today. The IRR is: 4.47%.
What is the IRR?Using this formula for the present value of a growing perpetuity:
PV = CF1 / (r - g)
Let plug in the formula
-$95 million = $9 million / (r - 0.05)
Solving for r
(r - 0.05) / $9 million = 1 / -$95 million
Cross-multiply:
-$95 million * (r - 0.05) = $9 million
Simplify
-$95 million * r + $4.75 million = $9 million
-$95 million * r = $9 million - $4.75 million
-$95 million * r = $4.25 million
Dividing both sides by -$95 million:
r = $4.25 million / -$95 million
r ≈ -0.0447
The negative IRR in this case implies that the investment opportunity does not meet the required rate of return (14%).
Therefore this investment opportunity would not be considered favorable based on the given assumptions.
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A __________ endorsement is most useful when depositing checks by mail.
a) Special
b) blank
c) restrictive
d) multiple"
A restrictive endorsement is most useful when depositing checks by mail. A restrictive endorsement is the best for depositing checks through mail. It helps to prevent the unauthorized deposit of the check.
A restrictive endorsement is a type of endorsement on a check that specifies the purpose for which the check can be used. When someone endorses a check restrictively, they limit the ways the check can be used. It helps to prevent the unauthorized deposit of the check, especially when using the mail service to deposit checks. Banks require this endorsement for situations like depositing money into a bank account or using a check to pay off a loan or credit. A restrictive endorsement ensures that the person for whom the check was intended can use it for the stated purpose. Additionally, restrictive endorsements also make it difficult for someone who has found or stolen a check to deposit it in their account.
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KLM company has 20,000 authorized ordinary shares, $3 par value. In its first year in business, KLM have issued 5000 shares at $5, and 2000 shares issued at $7. what is the net balance of Share Premium-Ordinary after the second share issuance?
The net balance of Share Premium-Ordinary after the second share issuance is $26,000.
In the question, the company has 20,000 authorized ordinary shares, $3 par value. In the first year of business, KLM has issued 5,000 shares at $5 and 2,000 shares issued at $7. We need to calculate the net balance of Share Premium-Ordinary after the second share issuance.
Here's how we can do it:
Step 1: Calculate the issue price of the shares issued in the first year
Total amount received for 5,000 shares = 5,000 x $5 = $25,000
Total amount received for 2,000 shares = 2,000 x $7 = $14,000
Issue price per share = Total amount received/Number of shares issued
Total amount received = $25,000 + $14,000 = $39,000
Issue price per share = $39,000/(5,000 + 2,000) = $39,000/7,000 = $5.57
Step 2: Calculate the par value of the shares issued in the first year
Par value per share = $3
Total par value of 5,000 shares = 5,000 x $3 = $15,000
Total par value of 2,000 shares = 2,000 x $3 = $6,000
Total par value = $15,000 + $6,000 = $21,000
Step 3: Calculate the share premium for the shares issued in the first year
Total share premium = Total amount received - Total par value= $39,000 - $21,000= $18,000
Step 4: Calculate the net balance of Share Premium-Ordinary after the second share issuance.
Number of shares issued in the second year = 2,000
Issue price per share = $7
Par value per share = $3
Total amount received = 2,000 x $7 = $14,000
Total par value = 2,000 x $3 = $6,000
Share premium for the second share issuance = Total amount received - Total par value
= $14,000 - $6,000= $8,000
Net balance of Share Premium-Ordinary after the second share issuance = Share premium for the first share issuance + Share premium for the second share issuance= $18,000 + $8,000= $26,000
Therefore, the net balance of Share Premium-Ordinary after the second share issuance is $26,000.
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Revenue per passenger-mile is often used by transportation companies to analyse: O A. Revenue O B. Liquidity OC. Capacity O D. Profitability
Revenue per passenger-mile is often used by transportation companies to analyze the profitability of their operations.
Revenue per passenger-mile (RPM) is a commonly used metric by transportation firms to determine the revenue generated from each mile of travel by a single passenger. It’s a revenue metric that’s used to assess the financial performance of a transportation firm. RPM is calculated by dividing total revenue by the total number of passenger miles traveled by all passengers. This is often used to determine how much money a transportation firm generates per unit of service, which is essential to determining the profitability of the operation. By calculating RPM, transportation firms can determine how much they should charge for each passenger in order to cover their expenses and make a profit. It is often used in conjunction with other financial metrics to evaluate the firm's financial performance.
Conclusion:
Revenue per passenger-mile is a crucial measure for transportation firms because it provides an understanding of how much money is generated per unit of service, which is critical for determining the profitability of their operations. It's an important metric for transportation firms to evaluate their financial performance and to determine how much they should charge for each passenger to cover their costs and make a profit. Therefore, the correct answer is D. Profitability.
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Your friend is looking to launch a new hotel chain, Roxy Inc., designed to serve the traveling needs of the budget-minded millennial traveler. To launch Roxy Inc., she is expected to invest $500 million this year (year=0). The hotel chain is expected to generate free cash flows of $27 million per year, starting in year 1. Thereafter, these free cash-flows are expected to grow at 3 percent per year in perpetuity. For simplicity, assume these cash-flows are received at the end of each year. Your friend knows you've been taking this class, so she asked you to assess the potential value of the new hotel chain. To help you, she gives you the following reports for a handful of publicly-traded firms, as well as the expected returns on the government bond (Treasury), and the risk premium on the value-weighted market portfolio: Market Market Value of Value of Equity Company Equity Debt Beta Dropbox 900 150 2 Ikea 1,000 100 2.3 Intercontinental Hotels Group 7,500 2,500 1.6 10-year Treasury rate Expected Market Risk Premium 2.0% 5.0% Assume throughout that the CAPM holds for all assets, and that the debt of Dropbox, Ikea, and Intercontinental Hotel Group is risk-free. None of these firms hold (excess) cash assets. (a) If Roxy Inc. were to be 100% equity financed, what would be a reasonable estimate of the expected return on Roxy's equity? What is Roxy's WACC? [10 marks] The expected return on equity is: Roxy's WACC is: [SHOW YOUR WORKING] (b) What is the value of Roxy Inc.? Is the project worth pursuing? [10 marks] The estimated value of Roxy Inc. is: The estimated gain to your friend from investing in Roxy's Inc. is: Is the investment worth pursuing (Yes/No). [SHOW YOUR WORKING] (c) Assume now that the new hotel chain is financed instead with a debt-to-value ratio of 25%, and that this leverage ratio is not expected to change over time. What is Roxy's WACC? What is its cost of equity? What is the value of Roxy? In this part, assume that the debt issued is risk-free and that there are no frictions in financial markets (no taxes, bankruptcy costs, etc). [10 marks] Roxy's WACC with leverage is: Roxy's return on equity: The value of Roxy Inc. is now: Is the investment worth pursuing (Yes/No). [SHOW YOUR WORKING] (d) After you complete your analysis in part (C), you learn that Roxy does actually pay a corporate tax of 35%. Describe the effect of corporate taxes on (i) Roxy's WACC and (ii) Roxy's expected value. [10 marks] Roxy's WACC is: Roxy's value is:
If Roxy Inc. were to be 100% equity financed, the reasonable estimate of the expected return on Roxy's equity will be calculated using CAPM.
Roxy Inc. has no debt. Therefore, the weight of equity is 100%.
Given that Roxy Inc.'s beta is not given, it will be calculated first using the levered beta formula, which is:
β = βU[1+(1-T)D/E]
Given the information that Dropbox, Ikea, and Intercontinental Hotel Group have no cash, their debt is risk-free. Therefore, their levered betas are equal to their unlevered betas.
The average unlevered beta of these companies is calculated as:
βU = (2 + 2.3 + 1.6)/3 = 1.9667
The corporate tax rate (T) is 0%.
Therefore, Roxy Inc.'s beta (β) will be:
β = 1.9667[1+(1-0)(0/100)] = 1.9667
The risk-free rate is 2%.
The expected market risk premium is 5%.
Therefore, the expected return on the market portfolio (Rm) will be:
Rm = Risk-free rate + Market risk premium = 2% + 5% = 7%
Roxy Inc.'s cost of equity (ke) will now be calculated using CAPM, which is:
ke = Risk-free rate + β(Rm - Risk-free rate)
ke = 2% + 1.9667(7% - 2%)
ke = 2% + 1.9667(5%)
ke = 12.83%
Roxy's WACC is:
WACC = E/V * keWACC = 1 * 12.83%
WACC = 12.83%
The value of Roxy Inc. will be calculated using the free cash flows of Roxy Inc. and the WACC of Roxy Inc., which is calculated as 12.83%.
The estimated value of Roxy Inc. is:
Estimate of value = FCFF/(WACC - g)
FCFF in year 1 is $27 million.
The growth rate of free cash flows (g) is 3%.
Estimate of value = $27 million/(12.83% - 3%)
= $300.33 million
The estimated gain to your friend from investing in Roxy's Inc. is:
Estimated gain = Value - Investment
Estimated gain = $300.33 million - $500 million
= -$199.67 million
The investment is not worth pursuing because the estimated gain is negative.
With 25% debt financing, Roxy Inc.'s WACC will be calculated as follows:
After-tax cost of debt (kd) = Before-tax cost of debt (k0)(1 - T)
Given that the debt issued is risk-free, the before-tax cost of debt (k0) will be equal to the risk-free rate of 2%.
The corporate tax rate (T) is 35%.
Therefore, Roxy Inc.'s after-tax cost of debt (kd) will be:
kd = 2%(1 - 35%) = 1.3%
Roxy Inc.'s weight of equity is 75%.
Roxy Inc.'s weight of debt is 25%.
Given the information that Dropbox, Ikea, and Intercontinental Hotel Group have no cash, their debt is risk-free. Therefore, their levered betas are equal to their unlevered betas. The average unlevered beta of these companies is calculated as:
βU = (2 + 2.3 + 1.6)/3 = 1.9667
The corporate tax rate (T) is 35%.
Therefore, Roxy Inc.'s beta (β) will be:
β = 1.9667[1+(1-35%)(0.25/0.75)]
= 1.7004
The expected return on the market portfolio (Rm) is 7%.
The risk-free rate is 2%.
Roxy Inc.'s cost of equity (ke) will now be calculated using CAPM, which is:
ke = Risk-free rate + β(Rm - Risk-free rate)
ke = 2% + 1.7004(7% - 2%)
ke = 11.51%
Roxy's WACC is:
WACC = E/V * ke + D/V * kdWACC
= 0.75 * 11.51% + 0.25 * 1.3%
WACC = 8.965%
Roxy's return on equity:
Return on equity = Cost of equity
Return on equity = 11.51%
The value of Roxy Inc. is now:
Estimate of value = FCFF/(WACC - g)
FCFF in year 1 is $27 million.
The growth rate of free cash flows (g) is 3%.
Estimate of value = $27 million/(8.965% - 3%)
= $405.94 million
The estimated gain to your friend from investing in Roxy's Inc. is:
Estimated gain = Value - Investment
Estimated gain = $405.94 million - $500 million
= -$94.06 million
The investment is not worth pursuing because the estimated gain is negative.
When there are corporate taxes, the after-tax cost of debt (kd) is lower than the before-tax cost of debt (k0). Therefore, the weighted average cost of capital (WACC) is lower when there are corporate taxes than when there are no corporate taxes.The effect of corporate taxes on Roxy's WACC is to lower it.The effect of corporate taxes on Roxy's expected value is to increase it.
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Ken Young and Kim Sherwood organized Reader Direct as a corporation; each contributed $69,825 cash to start the business and received 5,700 shares. The store completed its first year of operations on December 31, 2020. On that date, the following financial items for the year were determined: cash on hand and in the bank, $56,850; amounts due from customers from sales of books, $37,950; property and equipment, $86,250; amounts owed to publishers for books purchased, $13,100; one-year note payable to a local bank for $10,500. No dividends were declared or paid to the shareholders during the year.
Required:
1. Complete the balance sheet at December 31, 2020:
2. Using the retained earnings equation and an opening balance of $0, work backward to compute the amount of net income for the year that ended December 31, 2020.
3. As of December 31, 2020, did most of the financing for assets come from creditors or shareholders?
multiple choice
a. Creditors
b. Shareholders
4. Assuming that Reader Direct generates net income of $5,975 and pays dividends of $2,850 in 2021, what would be the company’s ending Retained Earnings balance at December 31, 2021?
The company's ending Retained Earnings balance at December 31, 2021, would be $3,125.
Balance Sheet at December 31, 2020
Assets Amount
Cash on hand and in the bank $56,850
Amounts due from customers $37,950
Property and equipment $86,250
Total assets $181,050
Shareholders' Equity
Liabilities and Shareholders' Equity Amount
Notes payable $10,500
Total liabilities $10,500
Common stock ($69,825 x 2) $139,650
Retained earnings
Total shareholders' equity $139,650
Total liabilities and $181,050
shareholders' equity
Using the retained earnings equation and an opening balance of $0, we can calculate the net income for the year:
Retained Earnings (December 31, 2020) = Retained Earnings (Opening balance) + Net Income - Dividends
0 = 0 + Net Income - 0
Net Income = 0
Therefore, the net income for the year that ended December 31, 2020, is $0.
As of December 31, 2020, most of the financing for assets came from shareholders. This is because the total shareholders' equity ($139,650) is greater than the total liabilities ($10,500). The financing from shareholders is represented by the common stock contributed by Ken Young and Kim Sherwood.
To calculate the ending Retained Earnings balance at December 31, 2021, we need to consider the net income and dividends for the year:
Retained Earnings (December 31, 2021) = Retained Earnings (Opening balance) + Net Income - Dividends
Retained Earnings (December 31, 2021) = $0 + $5,975 - $2,850
Retained Earnings (December 31, 2021) = $3,125
Therefore, the company's ending Retained Earnings balance at December 31, 2021, would be $3,125.
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if a company implements the 4/5ths rule provided under uniform guidelines, they are able to test for ______.
If a company implements the 4/5ths rule provided under the Uniform Guidelines, they are able to test for adverse impact.
The 4/5ths rule is a statistical test used in employment practices to determine if there is a potential adverse impact on protected groups based on race, gender, or ethnicity. Under the 4/5ths rule, the selection rate of the protected group is compared to the selection rate of the group with the highest selection rate. If the selection rate for the protected group is less than 80% (or 4/5ths) of the selection rate for the group with the highest rate, it is considered evidence of potential adverse impact. This indicates that the employment practice may be discriminatory.
By implementing the 4/5ths rule, companies can assess and identify potential disparities in selection rates and evaluate if further investigation or corrective actions are necessary to ensure fair and unbiased employment practices.
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A European outdoor clothing company that produces winter
clothing, hiking gear, outdoor sporting wear and footwear is
expanding its business into China. Explain 3 factors that can
influence a firm's d
When a firm decides to expand its business into a foreign country like China, it needs to consider various factors that can influence its decision and success in the new market. Below are the 3 factors that can influence a firm's decision to expand its business in China Economic Factors
One of the most important factors that firms consider before expanding into a foreign market is the economic environment of the host country. Factors such as the GDP of the host country, inflation rate, interest rates, taxes, and exchange rates can greatly impact a firm's decision to expand its business. In the case of China, the country's rapid economic growth, large population, and increasing middle class make it an attractive market for foreign firms to expand.2. Cultural Factors: A firm also needs to consider the cultural environment of the host country before expanding its business. Factors such as language, social norms, beliefs, values, and attitudes can impact the success of a firm's
the importance of relationships and guanxi can greatly influence a firm's success. It is important for a foreign firm to understand the Chinese culture and adapt its products and services accordingly.3. Legal and Regulatory Factors: Finally, a firm needs to consider the legal and regulatory environment of the host country. Factors such as intellectual property laws, labor laws, environmental regulations, and trade policies can impact a firm's decision to expand. In China, for example, there are many regulations that foreign firms need to comply with in order to operate in the country. It is important for a foreign firm to understand these regulations and ensure that it is in compliance with them in order to avoid any legal issues in the future. To conclude, the 3 factors that can influence a firm's decision to are expand its business into China are the economic environment, the cultural environment, and the legal and regulatory environment. It is important for a firm to consider these factors before making any decisions regarding expansion in order to ensure success in the new market.
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show work please
2. A 10-year bond with a face value of $1,000 sells for $900. If the bond pays interest semi-annually and has a yield to maturity (i.e., market interest rate) of 14%, what is the coupon rate in annual
The coupon rate for the 10-year bond is 16% per year. The price of a 10-year bond with a face value of $1,000 that sells for $900 and pays interest semi-annually is calculated as follows:PV = C / (1 + r / 2) + C / (1 + r / 2)2 + ... + C / (1 + r / 2)20 + 1,000 / (1 + r / 2)20
wherePV is the bond's present valueC is the coupon payment is the semi-annual yield to maturityPV = $900, C = 1000 * 8% / 2 = $40, and n = 20Because the bond pays interest semi-annually, the coupon payment is $40 per six months. As a result, the bond's total annual coupon payment is $80 (i.e., $40 * 2).Thus,$900 = $40 / (1 + 0.14 / 2) + $40 / (1 + 0.14 / 2)2 + ... + $40 / (1 + 0.14 / 2)20 + $1,000 / (1 + 0.14 / 2)20At the coupon rate of 16%, the yield to maturity is 14%.
The formula for calculating a bond's present value is as follows:PV = C / (1 + r / 2) + C / (1 + r / 2)2 + ... + C / (1 + r / 2)20 + 1,000 / (1 + r / 2)20wherePV is the bond's present valueC is the coupon paymentr is the semi-annual yield to maturityPV = $900, C = 1000 * 8% / 2 = $40, and n = 20As a result, the bond's total annual coupon payment is $80 (i.e., $40 * 2).Thus,$900 = $40 / (1 + 0.14 / 2) + $40 / (1 + 0.14 / 2)2 + ... + $40 / (1 + 0.14 / 2)20 + $1,000 / (1 + 0.14 / 2)20At the coupon rate of 16%, the yield to maturity is 14%.
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as a consumer electronics retailer, how would you appeal to "up and comers"?
We would appeal to "up and comers" by offering a curated selection of cutting-edge and affordable products, providing personalized recommendations, and hosting educational workshops and events.
As a consumer electronics retailer targeting "up and comers," we would focus on a few key strategies. Firstly, we would curate our product selection to include the latest and most innovative gadgets and devices at affordable prices, catering to the budget-conscious nature of this demographic. Secondly, we would invest in a personalized recommendation system that takes into account individual preferences, allowing us to suggest products tailored to each customer's unique needs and interests.
Lastly, we would host educational workshops and events to empower and engage with our customers, offering opportunities to learn new skills, explore emerging technologies, and foster a sense of community. By combining these approaches, we aim to provide a compelling and tailored shopping experience for "up and comers."
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asset+a+has+an+expected+return+of+16%+and+a+standard+deviation+of+24%.+the+risk-free+rate+is+10%.+what+is+the+reward-to-variability+ratio?\
The reward-to-variability ratio for asset A: The reward-to-variability ratio for asset A is 4. This means that for every unit of risk (as measured by the standard deviation), the asset generates 4 units of excess return above the risk-free rate. A higher Sharpe ratio indicates a better risk-adjusted performance.
The reward-to-variability ratio is calculated by dividing the excess return of an asset by its standard deviation. The excess return is the difference between the asset's expected return and the risk-free rate. The standard deviation is a measure of the asset's volatility.
In this case, the asset's expected return is 16%, the risk-free rate is 10%, and the standard deviation is 24%. This means that the reward-to-variability ratio is 4.
A higher reward-to-variability ratio indicates a better risk-adjusted performance. This means that the asset is generating more excess return for every unit of risk. Investors typically prefer assets with higher reward-to-variability ratios. Here is a more detailed explanation of the calculation of the reward-to-variability ratio:
Reward-to-variability ratio = Excess return / Standard deviation
= (16% - 10%) / 24%
= 4
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CASE STUDY PEFORMING ROR ANALYSIS FOR 3D PRINTER AND IIOT TECHNOLOGY Background Software used in 3D printer systems manufactured by Spectrum LASER Corp. is currently able to automatically develop hollows, shells, and "tree supports" to save development time. Network printing for use on multiple machines and at different locations globally is available. New software, called JIT II, is being beta tested that will allow IIoT-type (Industrial Internet of Things) connections between machines at distant locations. When onboard monitoring sensors detect that a part is about to fail, or it is time to replace one of several high-profile parts, the JIT II software will automatically queue the part's manufacturing code onto a 3D printer that is detected to be locally idle or ready. The company believes it can design and produce the JIT II software, the 3D printers, and the accompanying computer equipment necessary to place this technology in a wide variety of harsh environments-chemically toxic to humans, in flight, underground in mines, on the ocean floor, in war-torn areas, etc. Information For this case, we will analyze the available computers that can provide the server function necessary to make this interlinking available and successful. The first cost and other parameter estimates, including expected contribution to annual net cash flow, are summarized below. Server 1 Server 2 First cost, $ 101,694 200,000 50,000 year 1, plus 5000 per year for years 2, 3, and 4 (gradient Net cash flow, $/ye 35,000 70,000 maximum for years 5 on, even if the server is replaced Life, years 3 or 4 5 Case Study Exercises Use spreadsheet analysis to determine the following: 1. If the MARR = 12%, which server should be selected? Use the PW or AW method to make the selection. For server 1 use 3 and 4 and for server 2 use 5 years. Note that you have to use LCM. 2. Use incremental ROR analysis to decide between the servers at MARR = 12%.
Hence, the results obtained through both the methods are contradictory. The difference is due to the difference in assumptions between the two methods. In the PW method, it is assumed that cash flows are reinvested at MARR, while in the ROR method, it is assumed that cash flows are reinvested at the internal rate of return (IRR) of the investment. So, the company needs to consider all factors and select a suitable server.
CASE STUDY PEFORMING ROR ANALYSIS FOR 3D PRINTER AND IIOT TECHNOLOGY
In the given case study, the company is considering the installation of JIT II software, the 3D printers, and the accompanying computer equipment necessary to place this technology in a wide variety of harsh environments.
For this case, we will analyze the available computers that can provide the server function necessary to make this interlinking available and successful.
The first cost and other parameter estimates, including expected contribution to annual net cash flow, are summarized below:
Server 1 Server 2First cost, $ 101,694 200,00050,000 year 1, plus 5000 per year for years 2, 3, and 4 (gradient)Net cash flow,
$/ye 35,000 70,000 maximum for years 5 on, even if the server is replaced
Life, years 3 or 4 5 The following analysis is done for MARR = 12%.1.
If the MARR = 12%, which server should be selected?
Use the PW or AW method to make the selection. For server 1 use 3 and 4 and for server 2 use 5 years.
Note that you have to use LCM.
The formula used for the calculation is:
PW = F / (1 + r) n
where,
F = Future worth value of the cash flow, which is the sum of the present worth of the net cash flow (NCF) for all years,
r = Rate of interest,
n = Number of years
For server 1, Present worth of Net cash flow (PWNCF) at the end of year 4, gradient for year 2, 3, and 4 = 35000
[(P/A, 12%, 3) + 0.23(P/G, 12%, 3)]
PWNCF at end of year 4 = 35000 [(P/A, 12%, 3) + 0.23(P/G, 12%, 3)]
= 35000 [(2.4018) + 0.23 (8.2069)]
= $132,321.86
Present worth of first cost (PWFC) of server 1 = $101,694.
Present worth of PWFC and PWNCF of server 1 (PW1) = $101,694 + $132,321.86
= $234,015.86.
For server 2, PWNCF for year 5 to infinity = 70000 / 0.12
= $583,333.33 (approx.)
PWFC of server 2 = $200,000.
PWNCF for year 1 to 4, gradient = 50,000 + 5000 (P/G, 12%, 5-4) + 5000 (P/G, 12%, 5-3) + 5000 (P/G, 12%, 5-2)
= 50,000 + 9,322.03 + 7,483.22 + 6,022.98
= $72,828.23
Present worth of PWFC and PWNCF of server 2 (PW2) = $200,000 + $72,828.23 + $583,333.33
= $856,161.56.
Since PW1 < PW2, Server 1 should be selected.2.
Use incremental ROR analysis to decide between the servers at MARR = 12%.
The formula for ROR is:
ROR = LWRR + (H – L) (IRRH – LWRR) / (IRRH – IRRL)
where, L = Lower investment amount,
H = Higher investment amount,
LWRR = Lower worth-rate-of-return,
IRRH = Internal rate of return of higher investment amount,
IRRL = Internal rate of return of lower investment amount,
ROR for incremental analysis = 12% + [($200,000 - $101,694) x (IRR2 - 12%) / (IRR2 - IRR1)]
ROR for incremental analysis = 12% + [($200,000 - $101,694) x (25.69% - 12%) / (25.69% - 16.11%)]
= 18.02%
Since ROR for incremental analysis > MARR, Server 2 should be selected.
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Calculate the monthly payment for a $2,500 loan at 10% annual interest for two years.
Use the formula, M = Pm(1+m)^na/(1+m)^na-1
A.
$85.15
B.
$115.40
C.
$125.72
D.
$138.48
The correct answer is: B. $115.40
To calculate the monthly payment for a loan, we can use the formula:
M = P * [m * (1 + m)^(na)] / [(1 + m)^(na) - 1]
Where:
M = Monthly payment
P = Principal loan amount
m = Monthly interest rate (annual interest rate divided by 12)
n = Number of payments per year
a = Number of years
In this case:
P = $2,500
Annual interest rate = 10%
n = 12 (since we're calculating monthly payments)
a = 2 years
First, let's calculate the monthly interest rate (m):
m = 10% / 12 = 0.00833
Now, let's substitute the values into the formula and calculate the monthly payment (M):
M = 2500 * [0.00833 * (1 + 0.00833)^(122)] / [(1 + 0.00833)^(122) - 1]
After performing the calculation, the monthly payment (rounded to two decimal places) is approximately $115.40.
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QUESTIONS 28 Explain three negative effects of money-laundering [6 marks]
Money laundering, the process of concealing the origins of illegally obtained funds, has several negative effects on individuals, economies, and society as a whole.
1. Erosion of Financial Systems: Money laundering weakens the integrity of financial systems by introducing illicit funds into legitimate channels. This undermines trust and confidence in financial institutions, making them vulnerable to exploitation.
It distorts economic activities, artificially inflates asset prices, and can lead to market instability. Money laundering also enables the financing of other criminal activities, such as drug trafficking and terrorism, further exacerbating social harm.
2. Economic Consequences: Money laundering negatively impacts economies in various ways. First, it distorts competition by allowing criminals to gain unfair advantages over legitimate businesses. Second, it diverts resources from productive sectors into illicit activities, hindering economic growth and development
. Third, money laundering can lead to capital flight as individuals seek to move their illicitly acquired wealth to other jurisdictions, draining resources from the local economy and impeding investment.
3. Social Consequences: Money laundering has profound social consequences. The proceeds of criminal activities laundered through legitimate channels can perpetuate corruption, inequality, and social injustice.
It can foster a culture of impunity, as criminals exploit weaknesses in the system and escape legal repercussions. Money laundering also perpetuates organized crime, as criminal organizations are able to reinvest their profits and expand their illicit operations, leading to increased violence, insecurity, and social harm.
In conclusion, money laundering erodes financial systems, has adverse economic consequences, and perpetuates social harm. Combating money laundering is crucial to safeguarding economies, ensuring fair competition, and fostering a just and secure society.
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You are investigating a savings account that is offered by 2 different banks.
Bank A is offering 0.464% interest per month, compounded monthly.
Bank B is offering an effective annual interest rate of 6.50%
In the given case, Bank B must be chosen as it offers a higher interest rate, with higher returns on the savings account.
It is required to determine Bank A's effective yearly interest rate in order to compare the two savings accounts that Bank A and Bank B provide.
For Bank A:
Monthly interest rate -
= 0.464%
= 0.464/100
= 0.00464
Calculating the effective annual interest rate for Bank A -
Effective annual interest rate = (1 + Monthly interest rate)^Number of compounding periods - 1
[tex]= (1 + 0.00464)^12 - 1[/tex]
= 0.0568 or 5.68%
Comparing the effective annual interest rates -
Bank A: Effective annual interest rate = 5.68%
Bank B: Effective annual interest rate = 6.50% ( Already given)
Comparing the two banks' effective annual interest rates, Bank B provides a higher rate of 6.50%, while Bank A offers 5.68%. Because Bank B provides a greater interest rate and the possibility for bigger earnings on the savings account, it must be picked.
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Complete Question:
You are investigating a savings account that is offered by 2 different banks.
Bank A is offering 0.464% interest per month, compounded monthly.
Bank B is offering an effective annual interest rate of 6.50%
Which bank must be chosen ?