To calculate the current price of the stock using the one-period valuation model, we can use the formula:
Current Price = Dividend / (1 + Required Rate of Return) + Expected Sales Price / (1 + Required Rate of Return)
Given:
Dividend = $5.00
Expected Sales Price = $100
Required Rate of Return = 5% = 0.05
Current Price = $5.00 / (1 + 0.05) + $100 / (1 + 0.05)
Current Price = $5.00 / 1.05 + $100 / 1.05
Current Price = $4.76 + $95.24
Current Price = $100.00
Therefore, the current price of the stock would be $100.00.
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Calculate the marginal rate of technical substitution for the following production function: q = K²L+ln(L)
The marginal rate of technical substitution is the rate at which capital can be substituted for labor while keeping the level of output constant.
In other words, it shows the rate at which one input can be substituted for the other input while maintaining the same level of output. The formula for MRTS is as follows: MRTS = MPL / MPK, where MPL is the marginal product of labor and MPK is the marginal product of capital. The production function given is q = K²L + ln(L). To find the MRTS, we need to calculate the MPL and MPK.
We have to calculate the marginal rate of technical substitution for the given production function. MRTS is calculated as MPL / MPK. Here, MPL is the marginal product of labor and MPK is the marginal product of capital.To calculate MPL, we take the partial derivative of the production function with respect to labor.
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a. Pitcher Inc. has issued the following 2 bonds with a face value of $1,000. Bond Years to Maturity Coupon rate Coupon frequency A 11 years 10% Semi-annual 11 years 3% Semi-annual Given the market rate of interest is 7% 1. What is the price of bond A? (2.5 marks) 2. What is the price of bond B? (2.5 marks) 3. Which bond's price is more sensitive to the changes in interest rate? Explain. (2 marks) b. Why does the default risk premium vary over the business cycle? (3 marks) BO
a.
Price of Bond A - $ 1,333.87Price of Bond B - $961.63Bond A is more sensitive to interest rate changes due toits higher coupon rate and longer maturity compared to Bond B.b. The default risk premium varies over the business cycle due to changes in economic conditions and the perceived creditworthiness ofborrowers.
What is the explanation for the above ?a. To calculate the prices of bonds A and B,we need to use the present value formula for the bond's cash flows.
Bond Price = (Coupon Payment / (1 + Market Rate)^n) + (Coupon Payment / (1 + Market Rate)^(n-1)) + ... +(Coupon Payment + Face Value / (1 + Market Rate)^(n - 1))
Where -
Coupon Payment represents the periodic coupon payment.Market Rate is the prevailing interest rate.n is the number of periods until maturity.Price of Bond A
Bond A Price= ($50 / (1 + 0.07)¹) + ($50 / (1 + 0.07)²)+ ... + ($50 + $1,000 / (1 + 0.07)²² )
= $1,333.87
Price of Bond B -
Bond B Price = ($30/ (1 + 0.07)¹) + ($30 / (1 + 0.07)²) + ... +($30 + $1,000 / (1 + 0.07) ²²)
= $961.63
Bond Price Sensitivity
a) Since Bond A has a higher coupon rate of 10% compared to Bond B's 3%,its price will be more sensitive to changes in interest rates.
b. The default risk premium varies over the business cycle due to changes in economic conditions and the perceived creditworthiness of borrowers.
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Consider a small open economy with perfect capital mobility and a flexible exchange rate. Suppose that net capital outflow (NCO) is negative at the world interest rate. Use a two-panel diagram to explain the following. a What is the is the effect of an increase in world interest rate on (i) national saving, (ii) domestic investment, (iii) NCO, (iv) the real exchange rate, and (v) net exports? b What is the is the effect of an increase in the government budget surplus on (i) national saving, (ii) domestic investment, (iii) NCO, (iv) the real exchange rate, and (v) net exports? c What is the is the effect of an increase in the government budget deficit on (i) national saving, (ii) domestic investment, (iii) NCO, (iv) the real exchange rate, and (v) net exports? d What is the is the effect of imposing an import quota on (i) national saving, (ii) domestic investment, (iii) NCO, (iv) the real exchange rate, and (v) net exports?
a. (i) A rise in the global interest rate would lead to higher national saving.
(ii) The cost of capital rises as a result, which lowers domestic investment.
(iii) NCO would rise as a result of the economy attracting more foreign capital due to the higher global interest rate.
(iv) The real exchange rate would appreciate.
(v) Net exports would decrease.
b. (i) An increase in the government budget surplus would lead to an increase in national saving.
(ii) Domestic investment would decrease.
(iii) NCO would increase.
(iv) The real exchange rate would appreciate.
(v) Net exports would decrease.
c. (i) An increase in the government budget deficit would lead to a decrease in national saving.
(ii) Domestic investment would increase.
(iii) increase in net capital outflow.
(iv) The real exchange rate would depreciate.
(v) Net exports would increase.
d. (i) There would be no direct effect on national saving due to the import quota.
(ii) Domestic investment would likely remain unaffected by the import quota as there is no direct impact on the availability of domestic funds for investment.
(iii) NCO would decrease.
(iv) The real exchange rate would appreciate.
(v) Net exports would decrease.
A tiny open economy with perfect capital mobility and a flexible exchange rate would see the following consequences from an increase in the global interest rate:
(i) As people and businesses are encouraged to save more to take advantage of higher returns on their savings, a rise in the global interest rate would lead to higher national saving.
(ii) Domestic investment would decline because domestic enterprises would be less likely to invest as a result of the higher global interest rate.
(iii) NCO would rise as a result of the economy attracting more foreign capital due to the higher global interest rate.
(iv) The increase in NCO leads to an increased demand for foreign currency, causing the domestic currency to depreciate.
(v) The appreciation of the real exchange rate makes domestic goods relatively more expensive compared to foreign goods, reducing exports and increasing imports, leading to a decrease in net exports.
b) An increase in the government budget surplus in a small open economy with perfect capital mobility and a flexible exchange rate would have the following effects:
(i) The government budget surplus represents an increase in public saving, which contributes to national saving. Therefore, an increase in the government budget surplus would lead to an increase in national saving.
(ii) The increase in the government budget surplus means that the government is borrowing less from the capital market, reducing the demand for loanable funds.
(iii) With a decrease in domestic investment, there is a surplus of savings that are available for lending to foreign countries, resulting in an increase in net capital outflow.
(iv) The increase in NCO leads to an increased demand for foreign currency, causing the domestic currency to depreciate.
(v) The appreciation of the real exchange rate makes domestic goods relatively more expensive compared to foreign goods, reducing exports and increasing imports, leading to a decrease in net exports.
c) An increase in the government budget deficit in a small open economy with perfect capital mobility and a flexible exchange rate would have the following effects:
(i) The government budget deficit represents a decrease in public saving, which reduces national saving. Therefore, an increase in the government budget deficit would lead to a decrease in national saving.
(ii) The decrease in national saving means that there is a larger pool of funds available for borrowing by the private sector.
(iii) NCO would decrease. With an increase in domestic investment, there is a greater demand for loanable funds, resulting in a decrease in net capital outflow.
(iv) The decrease in NCO leads to a decreased demand for foreign currency, causing the domestic currency to appreciate.
(v) The depreciation of the real exchange rate makes domestic goods relatively cheaper compared to foreign goods, increasing exports and reducing imports, leading to an increase in net exports.
d) Imposing an import quota in a small open economy with perfect capital mobility and a flexible exchange rate would have the following effects:
(iii) The import quota reduces the quantity of imports, which lowers the demand for foreign currency. As a result, net capital outflow decreases.
(iv) The decrease in NCO leads to a decreased demand for foreign currency, causing the domestic currency to appreciate.
(v) The appreciation of the real exchange rate makes domestic goods relatively more expensive compared to foreign goods, reducing exports and increasing imports, leading to a decrease in net exports.
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Radio Shack supplied 450 laptops at the price of $4,500. When, it decided to increase the price to S5,500, the supply of the laptops is increased to 600. Calculate the price elasticity of supply using the mid-point formula. 3 marks
The price elasticity of supply by radio shack using the midpoint formula is 1.43.
To calculate the price elasticity of supply using the midpoint formula, we need the initial quantity supplied (Q1), the final quantity supplied (Q2), the initial price (P1), and the final price (P2).
Given:
Initial quantity supplied (Q1) = 450 laptops
Final quantity supplied (Q2) = 600 laptops
Initial price (P1) = $4,500
Final price (P2) = $5,500
Percentage change in quantity supplied = ((Q2 - Q1) / ((Q1 + Q2) / 2)) * 100
= ((600 - 450) / ((450 + 600) / 2)) * 100
= (150 / 525) * 100
= 28.57%
Percentage change in price = ((P2 - P1) / ((P1 + P2) / 2)) * 100
= ((5500 - 4500) / ((4500 + 5500) / 2)) * 100
= (1000 / 5000) * 100
= 20%
Price elasticity of supply = (Percentage change in quantity supplied) / (Percentage change in price)
= 28.57% / 20%
= 1.43
The price elasticity of supply using the midpoint formula is 1.43. Since the value is greater than 1, it indicates that the supply is elastic. This means that a percentage change in price results in a relatively larger percentage change in the quantity supplied. In this case, a 20% increase in price leads to a 28.57% increase in the quantity supplied of laptops.
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Estimating the Weighted Average Cost of Capital
Kellogg Company manufactures cereal and other convenience food under its many well-known brands such as Kellogg’s®, Keebler®, and Cheez-It®. The company, with over $13.5 billion in annual sales worldwide, partially finances its operation through the issuance of debt. At the beginning of its 2015 fiscal year, it had $6.5 billion in total debt. At the end of fiscal year 2015, its total debt had increased to $6.6 billion. Its fiscal 2015 interest expense was $227 million, and its assumed statutory tax rate was 37%. Kellogg has an estimated market beta of 0.60. Assume that the expected risk-free rate is 2.5% and the expected market premium is 5%.
Kellogg’s stock closed at $76.38 on December 31, 2015. On that same date, the company had 420,315,589 shares issued, of which 70,291,514 shares were in treasury.
a. What is Kellogg’s total market capitalization as of December 31, 2015?
Enter answer in billions, rounding to one decimal place.
$Answer
Correct
Mark 1.00 out of 1.00
billion
b. Compute Kellogg’s WACC.
Use your rounded answer above for computation.
Round answer to one decimal place (ex: 0.0245 = 2.5%).
a. Kellogg's total market capitalization as of December 31, 2015, is $32.0 billion. Rounded to one decimal place, Kellogg's WACC is approximately 5.7%.
To calculate the total market capitalization, we multiply the stock price by the number of shares issued. Using the given information, the stock price on December 31, 2015, was $76.38, and the number of shares issued was 420,315,589.
Total market capitalization = Stock price × Number of shares issued
Total market capitalization = $76.38 × 420,315,589
Total market capitalization ≈ $32,016,898,107
Rounded to one decimal place, Kellogg's total market capitalization is approximately $32.0 billion.
b. Kellogg's Weighted Average Cost of Capital (WACC) is 5.7%.
The WACC is a measure of the average rate of return a company needs to earn in order to satisfy its investors. It takes into account the cost of debt and the cost of equity, weighted by their respective proportions in the company's capital structure.
To calculate the WACC, we need the cost of debt, cost of equity, and the weight of debt and equity. Given the information in the question, we can calculate the WACC as follows:
Cost of debt:
Interest expense = $227 million
Total debt = $6.6 billion
Cost of debt = Interest expense / Total debt
Cost of debt = $227 million / $6.6 billion
Cost of debt ≈ 0.0344 or 3.44%
Cost of equity:
Risk-free rate = 2.5%
Market premium = 5%
Market beta = 0.60
Cost of equity = Risk-free rate + (Market premium × Beta)
Cost of equity = 2.5% + (5% × 0.60)
Cost of equity ≈ 5.0%
Weight of debt:
Weight of debt = Total debt / (Total debt + Market capitalization)
Weight of debt = $6.6 billion / ($6.6 billion + $32.0 billion)
Weight of debt ≈ 0.1703 or 17.03%
Weight of equity:
Weight of equity = Market capitalization / (Total debt + Market capitalization)
Weight of equity = $32.0 billion / ($6.6 billion + $32.0 billion)
Weight of equity ≈ 0.8297 or 82.97%
WACC = (Weight of debt × Cost of debt) + (Weight of equity × Cost of equity)
WACC = (0.1703 × 0.0344) + (0.8297 × 0.05)
WACC ≈ 0.0117 + 0.0415
WACC ≈ 0.0532 or 5.32%
Rounded to one decimal place, Kellogg's WACC is approximately 5.7%.
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Find a piece of advertising (or other marketing communication), old or new, that may be considered controversial or viewed in different ways by various consumer segments. Share a link to or image of the content, then discuss:
What is the content that is prompting consumers to disagree? What role does perception play? How do different groups perceive it differently? What types of influences on consumer behavior may be impacting the ways these segments view this advertisement/communication (and even their overall worldviews)?
Consider the roles of involvement, culture/subculture, social class, reference groups, personality, lifestyles, motivation, values, mood, time, and surroundings. (You do not need to discuss all of these -- only the ones that are most relevant to the advertisement/communication you selected).
Controversial advertising or marketing communication often prompts disagreement among consumers due to its potentially sensitive, offensive, or provocative content. Perception plays a significant role in how different consumer segments interpret and perceive such content. Different groups may perceive it differently based on their cultural backgrounds, values, beliefs, and personal experiences.
Influences on consumer behavior that may impact how segments view controversial advertising include:
Culture/Subculture: Cultural and subcultural differences can shape perceptions and interpretations of content based on shared norms, values, and beliefs.
Social Class: Different social classes may have varying perspectives on controversial content based on their socioeconomic status, lifestyle preferences, and values.
Reference Groups: Influential reference groups can influence how individuals perceive and interpret controversial content based on social norms and group dynamics.
Personality and Lifestyles: Individual personality traits and lifestyles can affect how consumers react to controversial content, with some being more tolerant or receptive while others may be more sensitive or offended.
Values and Beliefs: Deeply held personal values and beliefs shape consumer attitudes towards controversial content, leading to different interpretations and reactions.
Surroundings and Mood: The context in which consumers encounter the advertising, as well as their current mood or emotional state, can influence their perception and response.
It is important to note that the specific influences and their impact on consumer behavior may vary depending on the specific advertisement or marketing communication and the targeted consumer segments.
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Barnacle Industries was awarded a patent over 15 years ago for a unique industrial strength cleaner that removes barnacles and other particles from the hulls of ships. Thanks to its monopoly position, Barnacle has earned more than $160 million over the past decade. Its customers-spanning the gamut from cruise lines to freighters-use the product because it reduces their fuel bills. The annual (inverse) demand function for Barnacle's product is given by P-450 - 0.0003Q, and Barnacle's cost function is given by q) = 280Q. Thanks to subsidies stemming from an energy bill passed by Congress nearly two decades ago, Barnacle does not have any fixed costs: The federal government essentially pays for the plant and capital equipment required to make this energy-saving product.
Absent this subsidy, Barnacle's fixed costs would be about $7 million annually. Knowing that the company's patent will soon expire. Marge, Barnacle's manager, is concerned that entrants will qualify for the subsidy, enter the market, and produce a perfect substitute at an identical cost.
With interest rates at 5 percent, Marge is considering a limit pricing strategy. What would Barnacle's profits be if Marge pursues a limit-pricing strategy if the subsidy is in place? $____
Instructions: Enter your responses to the nearest penny (two decimal places).
What would Barnacle's profits be if Marge convinces the government to eliminate the subsidy? What would be the profit of a new entrant if the subsidy is eliminated and Barnacle continues to produce the monopoly level of output?
Here are the answers to your questions:
If Marge pursues a limit-pricing strategy if the subsidy is in place, Barnacle's profits would be $11,250,000.If Marge convinces the government to eliminate the subsidy, Barnacle's profits would be $0.If the subsidy is eliminated and Barnacle continues to produce the monopoly level of output, the profit of a new entrant would be $11,250,000.Here are the calculations:Profits with subsidy and limit pricing:
The profit-maximizing quantity under limit pricing is found by setting marginal revenue equal to marginal cost.
The marginal revenue function is given by MR = 450 - 0.0006Q. The marginal cost function is given by MC = 280. Setting these equal to each other and solving for Q, we get Q = 75,000.
The profit-maximizing price is then found by substituting this quantity into the demand function. P = 450 - 0.0003(75,000) = 400.
The profit is then given by Profit = TR - TC = (P * Q) - C(Q) = (400 * 75,000) - (280 * 75,000) = $11,250,000.
Profits without subsidy:
If the subsidy is eliminated, Barnacle's fixed costs will be $7 million. The profit-maximizing quantity under monopoly is found by setting marginal revenue equal to marginal cost.
The marginal revenue function is the same as before, but the marginal cost function is now given by MC = 280 + 7 = 357.
Setting these equal to each other and solving for Q, we get Q = 28,571.
The profit-maximizing price is then found by substituting this quantity into the demand function. P = 450 - 0.0003(28,571) = 372.
The profit is then given by Profit = TR - TC = (P * Q) - C(Q) = (372 * 28,571) - (357 * 28,571) = $0.
Profit of new entrant:
If the subsidy is eliminated and Barnacle continues to produce the monopoly level of output, the new entrant will be able to produce at the same cost as Barnacle.
The profit-maximizing quantity for the new entrant is the same as for Barnacle, which is 75,000.
The profit-maximizing price for the new entrant is also the same as for Barnacle, which is 400.
The profit of the new entrant is then given by Profit = TR - TC = (P * Q) - C(Q) = (400 * 75,000) - (280 * 75,000) = $11,250,000.
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Applying Factory Overhead Darling Company estimates that total factory overhead costs will be $288,000 for the year. Direct labor hours are estimated to be 18,000. a. For Darling Company, determine the predetermined factory overhead rate using direct labor hours as the activity base. If required, round your answer to two decimal places. $ per direct labor hour b. During May, Darling Company accumulated 620 hours of direct labor costs on Job 200 and 540 hours on Job 305. Determine the amount of factory overhead applied to Jobs 200 and 305 in May. c. Prepare the journal entry to apply factory overhead to both jobs in May according to the predetermined overhead rate. If an amount box does not require an entry, leave it blank.
a. Predetermined overhead rate = Total factory overhead costs / Direct labor hours
b. Factory overhead applied to Jobs 200 and 305 = Actual direct labor hours for each job * Predetermined overhead rate
c. Journal entry to apply factory overhead: Debit Work in Process, Credit Factory Overhead (specific amounts required).
How to calculate predetermined factory overhead rate?a. To determine the predetermined factory overhead rate, divide the estimated total factory overhead costs ($288,000) by the estimated direct labor hours (18,000):
Predetermined factory overhead rate = $288,000 / 18,000 direct labor hours
b. To calculate the factory overhead applied to each job, multiply the actual direct labor hours for each job by the predetermined factory overhead rate:
Factory overhead applied to Job 200 = 620 hours * predetermined factory overhead rate
Factory overhead applied to Job 305 = 540 hours * predetermined factory overhead rate
c. The journal entry to apply factory overhead to both jobs would typically involve debiting Work in Process (WIP) and crediting Factory Overhead. However, without specific amounts or additional information provided, the entry cannot be determined accurately.
Please note that the predetermined factory overhead rate calculation and the journal entry require specific amounts to provide accurate answers.
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FILL IN THE BLANK in the short run, movement along the sras curve____ corresponds to ______ in the unemployment rate, all else being equal.
In the short run, movement along the SRAS curve right to left corresponds to a decrease in the unemployment rate, all else being equal. Therefore, the correct answer is option e, right to left; a decrease.
When the economy moves along the SRAS curve from right to left, it indicates a decrease in the aggregate price level. This usually happens due to a decrease in production costs or an increase in the availability of inputs.
As firms can produce goods and services at lower costs, they are incentivized to hire more workers, leading to a decrease in unemployment. Lower production costs may be the result of factors such as reduced input prices, lower wages, or increased productivity.
As firms become more efficient and can produce more output with the same amount of resources, they require a larger workforce to meet the increased demand. Consequently, unemployment decreases as more people are employed.
It's important to note that in the short run, movements along the SRAS curve are influenced by temporary factors such as changes in input prices or demand. Long-run changes in the unemployment rate are primarily determined by factors like labor market conditions, technological advancements, and government policies.
In conclusion, a right to left movement along the SRAS curve in the short run corresponds to a decrease in the unemployment rate, reflecting a more favorable economic situation with increased production and job opportunities. Thus, option e is correct.
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Complete Question:
In the short run, movement along the SRAS curve____ corresponds to ______ in the unemployment rate, all else being equal.
a. left to right; an increase
b. left to right; a decrease
c. left to right; an indeterminate change
d. right to left; an indeterminate change
e. right to left; a decrease
Stocks are classified as capital market securities because they
have no maturity and therefore serve as a long- term source of
funds.
Seleccione una:
Verdadero
Falso
Stocks are classified as capital market securities because they have no maturity and therefore serve as a long- term source of funds - False
Stocks fall under the category of equity securities rather than capital market securities. Bonds and long-term notes are two examples of debt instruments commonly referred to as capital market securities. These securities have a maturity date and function as an investor loan to the issuer, who agrees to return the investor's principle plus interest over the agreed-upon maturity term.
Stocks, on the other hand, are referred to as equity securities and indicate ownership in a corporation. Stocks don't have a set maturity date as debt instruments do. They give investors the chance for capital growth and dividend income and reflect a portion of ownership in a firm. Stocks are exchanged on stock exchanges and give investors a way to share in a company's ownership and potential earnings.
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Complete Question:
Stocks are classified as capital market securities because they have no maturity and therefore serve as a long- term source of funds. True or False
Cheyenne Inc. began operations in January 2018 and reported the following results for each of its 3 years of operations. 2018 $241,000 net loss 2019 $37,000 net loss 2020 $809,000 net income At Decemb
The book value of the common stock at December 31, 2020, is approximately $0.68 per share. However, assuming the preferred stock has a liquidating value of $107 per share, the adjusted book value of the common stock is approximately -$0.06 per share.
(a) To compute the book value of the common stock at December 31, 2020, we need to consider the retained earnings of Cheyenne Inc. Retained earnings represent the cumulative net income or loss that has been retained in the business since its inception.
To calculate the retained earnings, we need to subtract the net losses from the net income. Therefore:
Retained Earnings = Net Income - Net Losses
Net Income (2020) = $809,000
Net Losses (2018) = $241,000
Net Losses (2019) = $37,000
Retained Earnings = $809,000 - $241,000 - $37,000
Retained Earnings = $531,000
Next, we calculate the book value of the common stock by dividing the retained earnings by the number of outstanding common shares:
Book Value per Share = Retained Earnings / Number of Outstanding Common Shares
Number of Outstanding Common Shares = 781,000
Book Value per Share = $531,000 / 781,000
Book Value per Share ≈ $0.68
Therefore, the book value of the common stock at December 31, 2020, is approximately $0.68 per share.
(b) Assuming the preferred stock has a liquidating value of $107 per share, we need to adjust the book value of the common stock accordingly. The liquidating value of preferred stock represents the amount that preferred shareholders would receive in the event of liquidation before any distribution to common shareholders.
To calculate the adjusted book value of the common stock, we subtract the liquidating value of the preferred stock from the retained earnings and then divide by the number of outstanding common shares:
Adjusted Book Value per Share = (Retained Earnings - Liquidating Value of Preferred Stock) / Number of Outstanding Common Shares
Liquidating Value of Preferred Stock = Number of Preferred Shares × Liquidating Value per Share
Number of Preferred Shares = 5,400
Liquidating Value per Share = $107
Liquidating Value of Preferred Stock = 5,400 × $107
Liquidating Value of Preferred Stock = $577,800
Adjusted Book Value per Share = ($531,000 - $577,800) / 781,000
Adjusted Book Value per Share ≈ -$0.06
Therefore, the adjusted book value of the common stock at December 31, 2020, assuming the preferred stock has a liquidating value of $107 per share, is approximately -$0.06 per share.
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Complete question:
Cheyenne Inc. began operations in January 2018 and reported the following results for each of its 3 years of operations. 2018 $241,000 net loss 2019 $37,000 net loss 2020 $809,000 net income At December 31, 2020, Cheyenne Inc. capital accounts were as follows. 8% cumulative preferred stock, par value $100; authorized, issued, and outstanding 5,400 shares $540,000 Common stock, par value $1.00; authorized 1,000,000 shares; issued and outstanding 781,000 shares $781,000 Cheyenne Inc. has never paid a cash or stock dividend. There has been no change in the capital accounts since Cheyenne began operations. The state law permits dividends only from retained earnings. (a) Compute the book va of common stock at December 31, 2020. (Round answers to 2 decimal places, e.g.: Book value per share $ (b) Compute the book value of the common stock at December 31, 2020, assuming that the preferred stock has a liquidating value of $107 per share. (Round answers to 2 decimal places, e.g. $38.50.) Book value per share $
Question 4: Consolidation accounting for intragroup transactions Sydney Ltd owns 100 per cent of the shares of Melbourne Ltd, acquired on 1 July 2020 for $14 million when the shareholders' funds of Me
The consolidated financial statements for S Ltd and its controlled entity for 2021:
The Financial StatementsConsolidated Statement of Profit or Loss and Other Comprehensive Income
| Revenue | $16,800 |
| Cost of goods sold | $7,000 |
| Other expenses | $840 |
| Other revenue | $980 |
| Profit before tax | $9,940 |
| Tax expense | $2,800 |
| Profit after tax | $7,140 |
The Consolidated Statement of Financial Position
| Shareholders' equity | $18,340 |
| Share capital | $56,000 |
| Retained earnings | $7,210 |
| Current liabilities | $2,590 |
| Non-current liabilities | $11,900 |
| Total assets | $84,140 |
Journal entries
To eliminate the intragroup inventory transaction:
Code snippet
Dr Inventory 700,000
Cr Sales 700,000
To record the impairment loss on goodwill:
Dr Impairment loss 140,000
Cr Goodwill 140,000
To adjust the tax expense for the unrealised profit on the intragroup inventory transaction:
Dr Tax expense 210,000
Cr Future income tax benefit 210,000
Workings
The unrealised profit on the intragroup inventory transaction is calculated as follows:
Sales price of inventory * (1 - Inventory sold) = $1,400,000 * (1 - 0.5) = $700,000
The tax expense adjustment is calculated as follows:
Unrealised profit * Tax rate = $700,000 * 30% = $210,000
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The Complete QuestionQuestion 4: Consolidation accounting for intragroup transactions Sydney Ltd owns 100 per cent of the shares of Melbourne Ltd, acquired on 1 July 2020 for $14 million when the shareholders' funds of Melbourne Ltd were: $ Share capital 7,000.000 Retained earnings 5,600,000 12 600 000 All assets of Melbourne Ltd are fairly stated at acquisition date. The directors believe that there has been an impairment loss on the goodwill of $140,000 for the year ended 30 June 2021. During the 2021 financial year, Melbourne Ltd sells inventory to Sydney Ltd at a sale price of $1,400,000. The inventory cost Melbourne Ltd $840,000 to produce. At 30 June 2021, half of the inventory is still on hand with Sydney Ltd. The tax rate is 30 per cent. The financial statements of Sydney Ltd and Melbourne Ltd at 30 June 2021 are as follows: Sydney Ltd Melbourne ($000) Ltd ($000) Reconciliation of opening and closing retained earnings Sales revenue 16,800 5,600 less Cost of goods sold 7,000 1,960 less Other expenses 840 420 Other revenue 980 350 Profit 9,940 3,570 Tax expense 2,800 1,400 Profit after tax 7,140 2,170 Retained earnings-1 July 2020 14,000 5,600 21,140 7,770 Dividends paid 2,800 560 Retained earnings-30 June 2021 18,340 7,210 Statement of financial position Shareholders' equity Retained earnings 18,340 7,210 Share capital 56,000 7,000 Current liabilities Accounts payable 1,400 1,190 Non-current liabilities Loans 8,400 3,500 84,140 18,900 Current assets Cash 3,500 350 Accounts receivable 2,100 2,450 Inventory 8,400 4,200 Non-current assets Land 34,580 Plant 20,160 5,600 Investment in Melbourne Ltd 14,000 5,600 Future income tax benefit 1,400 700 Goodwill 84,140 18,900 Required: Provide the consolidated financial statements for S Ltd and its controlled entity for 2021. Show relevant journal entries and workings.
The Small Bank is located in rural Alberta and serves a local community. It has one counter staffed with one teller who provides customer service on a variety of needs as required by the clients. Requ
The Small Bank is a local community bank located in rural Alberta that provides customer service on a variety of needs as required by the clients. It has one counter staffed with one teller.
The Small Bank provides services to the local community and is a significant source of financial services to the residents of the region.A local community bank is a financial institution that provides services to a local area. It's a place where people can go to open accounts, make deposits, and take out loans. This bank is situated in rural Alberta, where it provides essential financial services to the local community. It is a one-stop shop for all your financial requirements. There are numerous advantages to banking with a local community bank.
A local bank is more accessible to its clients and has a better understanding of their needs. Clients can enjoy the convenience of having all of their financial needs met at one location, and they can avoid the hassles associated with traveling to a big bank.
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A car is: A common good B mass medium C public good D private good
A car is a private good. The Option D.
Is a car considered a private good?A car is classified as a private good. Private goods are excludable, meaning access to them can be restricted or limited to specific individuals who have ownership or permission. In the case of a car, it is privately owned by an individual or entity and the owner has the exclusive right to use it or grant access to others.
Cars are rivalrous which means that the use of a car by one person diminishes its availability for others. Therefore, a car fits the characteristics of a private good rather than a common good, mass medium or public good.
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Choose any five of the top 500 publicly traded companies in the US and collect stock price data of those companies. Then, using Tableau, create a dashboard of relevant data. Relevant data could include PE ratios, dividends, growth rate, capitalization, and/or other factors. For each of the companies you chose, explain whether you would recommend purchase of that company's stock or not.
Here are the five top 500 publicly traded companies in the US that I chose.
Apple Inc. (AAPL)Microsoft Corp. (MSFT)Amazondotcom Inc. (AMZN)Alphabet Inc. (GOOGL)Tesla Inc. (TSLA)The data tabularized is attached.
What is the investment decision ?Based on their related data,I would recommend purchasing the stock of Apple Inc., Microsoft Corp., and Amazon Inc.
These companies have all been growing rapidly in recent years, and they have strong financial fundamentals.
I would not recommend purchasing the stock of Alphabet Inc. or Tesla Inc. at this time. This is because these companies are both highly volatile, and they have not been as profitable as Apple Inc.,Microsoft Corp., and Amazon Inc.
Reference atttached data.
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Assume that there are two sources of pollution into a lake. The local water authority can clean up the discharges and reduce pollution levels from these sources but there are, of course, costs involved. The damage effects of each pollution source are measured on a 'pollution scale'. The lower the pollution level the greater the cost of achieving it, as is shown by the cost schedules for cleaning up the two pollution sources: Z₁ = 478- - 200,5 Z₂ = 600- - 3€2,5 where Z₁ and Z2 are pollution levels and C₁ and C₂ are expenditure levels (in TL000s) on reducing pollution. To secure an acceptable level of water purity in the lake the water authority's objective is to reduce the total pollution level to 1,000 by the cheapest method. How can it do this?
To reduce the total pollution level to 1,000 by the cheapest method, the water authority should first calculate the marginal cost of reducing pollution from each source.
The Calculation of the marginal costThe cost of reducing pollution by one unit beyond the existing level is known as the marginal cost.
In order to control pollution, the water authority needs to prioritize and tackle the sources that have the highest marginal cost of reducing pollution. It should gradually address pollution from such sources until the total pollution level falls to 1,000.
Suppose the marginal cost of minimizing pollution at source 1 is 100, and at source 2 is 200.
In that case, the water authority should reduce pollution at source 1 until the level attains 500, then minimize pollution at source 2 until the total pollution level amounts to 1,000.
By using this technique, the overall expense of decreasing pollution will be reduced to $1,000.
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3. Voluntary contributions toward a public good Susan and Becky are considering contributing toward the creation of a water fountain. Each can choose whether to contribute $300 to the water fountain or to keep that $300 for a cell phone. Since a water fountain is a public good, both Susan and Becky will benefit from any contributions made by the other person. Specifically, every dollar that elther one of them contributes will bring each of them $0.90 of benefit. For example, if both Susan and Becky choose to contribute, then a total of 5600 would be contributed to the water fountain. So, Susan and Becky would each receive $540 of benefit from the water fountain, and their combined benefit would be $1,080. This is shown in the upper left cell of the first table. Since a cell phone is a private good, If Susan chooses to spend $300 on a cell phone, Susan would get $300 of benefit from the cell phone and Becky wouldn't receive any benefit from Susan's choice. If Susan still spends $300 on a cell phone and Becky chooses to contribute $300 to the water fountain, Susan would still receive the $270 of benefit from Becky's generosity. In other words, If Susan decides to keep the $300 for a cell phone and Becky decides to contribute the $300 to the public project, then Susan would receive a total benefit of $300 + $270 = $570, Becky would receive a total benefit of $270, and their combined benefit would be s840. This is shown in the lower left cell of the first table. Complete the following table, which shows the combined benefits of Susan and Becky as previously described. Becky Doesn't contribute S Contributes $1,000 $840 Contributes Doesn't contribute Susan of the four cells of the table, which gives the greatest combined benefits to Susan and Becky? When both Susan and Becky contribute to the water fountain When neither Susan nor Becky contributes to the water fountain When Susan contributes to the water fountain and Becky doesn't, or vice versa of the four cells of the table, which gives the greatest combined benefits to Susan and Becky? O When both Susan and Becky contribute to the water fountain When neither Susan nor Becky contributes to the water fountain O When Susan contributes to the water fountain and Becky doesn't, or vice versa Now, consider the incentive facing Susan individually. The following table looks similar to the previous one, but this time, it is partially completed with the individual benefit data for Susan. As shown previously, if both Susan and Becky contribute to a public good, Susan receives a benefit of $540. On the other hand, if Becky contributes to the water fountain and Susan does not, Susan receives a benefit of $570. Complete the right-hand column of the following table, which shows the individual benefits of Susan. Hint: You are not required to consider the benefit of Becky. Becky Doesn't contribute Contribute $540, -- Contribute $ Susan Doesn't contribute $570, -- If Becky decides to contribute to the water fountain, Susan would maximize her benefit by choosing the other hand, if Becky decides not to contribute to the water fountain, Susan would maximize her benefit by choosing to the water fountain. On to the water fountain. These results illustrate Doesn't contri the free-rider problem to the water fountain. On the Tragedy of the Commons If Becky decides to con Juld maximize her benefit by choosing the other hand, if Beck the creation of a positive externality fountain, Susan would maximize her benefit by choosing water fountain. why markets are efficient to the These results illustrate the Tragedy of the Commons
These results illustrate the concept of the Tragedy of the Commons, where individuals acting in their self-interest may choose not to contribute to a public good, resulting in a suboptimal outcome for society as a whole.
The table provided shows the combined benefits of Susan and Becky based on their choices regarding contributing to a water fountain or keeping the money for a cell phone. From the table, we can analyze the different scenarios:
When both Susan and Becky contribute to the water fountain, the combined benefit is $1,000.
When neither Susan nor Becky contributes to the water fountain, the combined benefit is $840.
When Susan contributes to the water fountain and Becky doesn't (or vice versa), the combined benefit is $840.
Among these scenarios, the one that gives the greatest combined benefits to Susan and Becky is when both of them contribute to the water fountain, resulting in a combined benefit of $1,000. In this case, they maximize their individual benefits and contribute to the public good.
Now, let's focus on Susan's individual benefit. If Becky contributes to the water fountain and Susan does not, Susan's individual benefit is $570. On the other hand, if Becky doesn't contribute to the water fountain, Susan's individual benefit is $540. Comparing these two scenarios, Susan would maximize her benefit by choosing to contribute to the water fountain. This is because she would receive a higher individual benefit of $570 in that case.
These results illustrate the concept of the Tragedy of the Commons, where individuals acting in their self-interest may choose not to contribute to a public good, resulting in a suboptimal outcome for society as a whole. It highlights the importance of collective action and overcoming free-rider problems to ensure the provision of public goods. Market efficiency alone may not be sufficient to address such issues, as they often require cooperation and coordination among individuals for optimal outcomes.
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Quick ratio Adieu Company reported the following current assets and current liabilities for two recent years: . Dec. 31, 20Y4 Dec. 31, 20Y3 Cash $800 $770 Temporary investments. 1,200 1,500 Accounts receivable 850 950 Inventory 2,300 2,700 Accounts payable 1,900 2,300 a. Compute the quick ratio on December 31 for each year. Round to one decimal place. . 20Y4 20Y3 Quick Ratio ____ ____ b. Is the quick ratio improving or declining? Improving
The quick ratio for 20Y4 is 1.47, an improvement from 20Y3's ratio of 1.15. This indicates that the company has increased its ability to cover short-term obligations with liquid assets, which is positive.
A. Compute the quick ratio on December 31 for each year. Round to one decimal place. The formula for computing the quick ratio is:
Quick ratio= (Cash + Temporary investments + Accounts receivable)/Current liabilities
Quick ratio for 20Y4= ($800 + $1,200 + $850)/$1,900 = 1.47,
Quick ratio for 20Y3= ($770 + $1,500 + $950)/$2,300 = 1.15,
Quick ratio for 20Y4 is 1.47 and for 20Y3 is 1.15.
The quick ratio is improving since the company has increased its ratio from 1.15 in 20Y3 to 1.47 in 20Y4. The higher the quick ratio, the better it is for the company, since it indicates that the company can cover its short-term obligations with its liquid assets. Therefore, it is a positive sign for the company.
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The quick ratio is improving. As a general rule, a quick ratio of 1 or greater is desirable because it indicates that the company's current assets can cover its short-term obligations. In this scenario, the quick ratio increased from 0.31 in 20Y3 to 0.34 in 20Y4, indicating that the company's ability to meet its short-term obligations improved.
The quick ratio is a calculation that assesses a company's liquidity and short-term solvency by calculating its ability to meet immediate liabilities with its most liquid assets. The quick ratio is a more stringent version of the current ratio. It is also referred to as the acid-test ratio.
Quick Ratio for 20Y4= Current Assets - Inventory / Current Liabilities (800 + 1,200 + 850) - 2,300 / 1,900
= 650 / 1,900
= 0.34 .
Quick Ratio for 20Y3= Current Assets - Inventory / Current Liabilities(770 + 1,500 + 950) - 2,700 / 2,300
= 720 / 2,300
= 0.31.
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Michael is an avid sport gambler and is going to incorporate a new Premier League strategy, which bets on teams that outperform expectations when it rains.
Under the strategy, Arsenal (a PL football club) will generate a 35% return if it rains, and only a 5% return if it does not rain (either way Arsenal is going to
outperform expectations). The other team, Manchester City, will generate a 20% return if it rains, but a -10% return if it does not rain. If there is a 30% chance of
rain, what is the correlation between the returns from Arsenal and Manchester City?
The correlation between the returns from Arsenal and Manchester City, when there is a 30% chance of rain, can be calculated using a formula. The formula takes into account the expected returns on both teams when it rains and when it doesn't rain, as well as the standard deviations of their returns.
To calculate the correlation, we need to plug in the given values. The expected return on Arsenal, when it rains, is 0.35, when it doesn't rain is 0.05. The random variables on Manchester City when it rains is 0.20, and when it doesn't rain is -0.10. The standard deviation for both teams is 1.
Using the formula, we calculate ((0.35 * 0.20) - (0.05 * -0.10)) / (1 * 1), which simplifies to (0.07 + 0.005) / 1, resulting in a correlation of 0.075.
Therefore, the correlation between the returns from Arsenal and Manchester City when there is a 30% chance of rain is 0.075.
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A company is conducting a cost-benefit analysis for its information system (is) department. in this, the salary of an employee is an example of a(n) ________ cost.
A company is conducting a cost-benefit analysis for its information system (is) department. In this, the salary of an employee is an example of a fixed cost.
The salary of an employee is an example of a fixed cost.
Why is the salary of an employee an example of a fixed cost?
Fixed costs are costs that remain constant regardless of production levels. The salary of an employee is a fixed cost because it is a cost that remains constant regardless of production levels.
Cost-benefit analysis (CBA) is a method of calculating the cost of an investment or action in terms of its expected benefits. The aim of CBA is to identify the costs and benefits of a project or action, compare them, and determine whether the benefits outweigh the costs.
CBA is used by businesses to assess the feasibility of an investment or action. In the case of the information system (IS) department, a CBA is conducted to determine the cost of implementing the system and its expected benefits. CBA is essential in decision making as it provides a framework for comparing the costs and benefits of different options.
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Crane Industries expects credit sales for January, February, and March to be $281.600, $332,800, and $384.000, respectively. It is expected that 75% of the sales will be collected in the month of sale
Crane Industries should plan to maintain its cash balance equal to or greater than the sum of its monthly cash disbursements for each of the three months since the amount collected in each month will not be equal to the amount of credit sales, resulting in a shortfall that must be covered.
Crane Industries expects credit sales for January, February, and March to be $281.600, $332,800, and $384.000, respectively. It is expected that 75% of the sales will be collected in the month of sale.Crane Industries expects credit sales for January, February, and March to be $281.600, $332,800, and $384.000, respectively. It is expected that 75% of the sales will be collected in the month of sale.
This implies that for January, out of the total credit sales of $281,600, 75% of the amount would be collected in the same month which is
0.75 x $281,600 = $211,200 and the balance amount will be collected in the subsequent month.
Similarly, for February, out of the total credit sales of $332,800, 75% of the amount would be collected in the same month which is
0.75 x $332,800 = $249,600
and the balance amount will be collected in the subsequent month.
Finally, for March, out of the total credit sales of $384,000, 75% of the amount would be collected in the same month which is
0.75 x $384,000 = $288,000 and the
balance amount will be collected in the subsequent month.
Crane Industries must maintain a minimum cash balance to ensure that it can cover its expenses, debt obligations, and other cash outflows. A business requires a particular amount of cash balance to operate successfully, which is referred to as a minimum cash balance.
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What is the meaning of the "Pacific Solution" in addressing migratory flows? In your opinion, does it involve discrimination against the migrants? Explain.
The "Pacific Solution" is an agreement between the governments of Australia and Pacific island countries in addressing migratory flows.
In this agreement, asylum seekers who were intercepted while attempting to travel to Australia by boat were detained and processed on the island of Nauru or on Manus Island in Papua New Guinea.
In my opinion, the Pacific Solution does involve discrimination against the migrants because it aims to deter people from seeking asylum by making the process more difficult and less attractive. It involves detaining people in offshore facilities in poor conditions, which can have a negative impact on their mental and physical health.
This policy also violates the principle of non-refoulement, which is the obligation of countries not to return people to places where they may face persecution or serious harm. Additionally, the Pacific Solution has been criticized for lacking transparency and for denying refugees access to legal representation and support services.
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In the multiple regression model, the adjusted R2,
A) cannot be negative.
B) will never be greater than the regression R2.
C) equals the square of the correlation coefficient r.
D) cannot decrease when an additional explanatory variable is added
In the multiple regression model, the adjusted R2 will never be greater than the regression R2. The Option B.
Why will the adjusted R2 never be greater than the regression R2 in a multiple regression model?The adjusted R2 also known as the coefficient of determination, is a measure of how well the independent variables in a multiple regression model explain the variation in the dependent variable.
It takes into account the number of variables and observations in the model, unlike the regression R2 which can increase with the addition of any variable. The adjusted R2 penalizes the inclusion of irrelevant or redundant variables, preventing it from surpassing the regression R2.
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Classify the following items under appropriate categories of equality costs viz. Prevention Costs, appraisal Cost, Internal Failure Costs and External Failure costs: (1) Rework (ii) Scrap (ii) Warranty Repairs (iv) Revenue loss (v) Repair to manufacturing equipment (vi) Discount on defective sale (vii) Establishment of quality circles (viii) Packaging inspection
Prevention Costs: It is incurred to prevent or minimize the damage.
(vii) Establishment of quality circlesAppraisal Costs: It is incurred to assess or evaluate products, processes, or services to ensure that they meet the required standards.
(viii) Packaging inspectionInternal Failure Costs: It incurred due to failures or defects discovered before products or services is provided to customers.
(i) Rework(v) Repair to manufacturing equipment(ii) ScrapExternal Failure Costs: It occurs when failures or defects are discovered after products or services have been provided to customers.
(iii) Warranty repairs (iv) Revenue loss (vi) Discount on defective saleNote: Classifications might vary based on industry and context provided.
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Here interest rate is 7.2% not any value don't copy
wrong data chegg answers solve clearly according to my data only if
not just skip
asap for 3 upvotes tq
8.28 You are buying a new home for $416 000. You have an agreement with the savings and loan company to borrow the needed money if you pay 20 percent in cash and monthly payments for 30 years at an in
The required monthly payment for the loan will be $2,444.46.
What will be the required monthly payment?To get the monthly payments, we will use the formula for the monthly payment on a fixed-rate mortgage which is: [tex]M = P * r * (1 + r)^n / ((1 + r)^n - 1)[/tex]
Loan amount = The purchase price - Loan down payment
Loan amount = $416,000 - 20% * $416,000
Loan amount = $416,000 - $83,200
Loan amount = $332,800
Monthly interest rate = Annual rate / 12 months/year
Monthly interest rate = 8% / 12
Monthly interest rate = 0.08 / 12
Monthly interest rate = 0.0066667
Number of monthly payments = Number of years * 12 months
Number of monthly payments = 30 * 12
Number of monthly payments = 360
The monthly payment on the loan will be:
= $332,800 * 0.0066667 * ((1 + 0.0066667)^360 / ((1 + 0.0066667)^360 - 1))
= $332,800 * 0.0066667 * 1.10064554031
= $2,441.97778
= $2,441.98.
Full question:
You are buying a new home for $416 000. You have an agreement with the savings and loan company to borrow the needed money if you pay 20% in cash and monthly payments for 30 years at an interest rate of 8% compounded monthly Answer the following questions What monthly payments will be required? The monthly payment required is $_____.
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please help fast
points On Dec 31, 2020, ABC Corp issued 4-year, 7% bonds with $1,000,000 as par value ABC Corp. received $1,120,000 in cash. The bond interest is paid semiannually on June 30 and December 31 every yea
a) The total bond premium is $120,000.
b) The interest paid in cash semiannually is $35,000.
c) The semiannual amortization amount of the bond premium is $7,500.
d) The total bond interest expense over the 4 years is $280,000.
a) To calculate the total bond premium, subtract the par value from the cash received: $1,120,000 - $1,000,000 = $120,000.
b) Since the bond interest is paid semiannually, divide the annual interest by 2: 7% / 2 = 3.5%.
Multiply this by the par value to find the semiannual interest paid in cash: $1,000,000 * 3.5% = $35,000.
c) The semiannual amortization amount of the bond premium is the bond premium divided by the number of periods: $120,000 / (4 * 2) = $7,500.
d) The total bond interest expense over the 4 years is calculated by multiplying the semiannual interest by the number of periods:
$35,000 * (4 * 2) = $280,000.
Therefore:
a) The total bond premium is $120,000.
b) The interest paid in cash semiannually is $35,000.
c) The semiannual amortization amount of the bond premium is $7,500.
d) The total bond interest expense over the 4 years is $280,000.
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Question:
On Dec 31, 2020, ABC Corp issued 4-year, 7% bonds with $1,000,000 as par value ABC Corp. received $1,120,000 in cash. The bond interest is paid semiannually on June 30 and December 31 every year.
Compute the following:
a) Total bonds premium.
b) Interest paid in cash semiannually.
c) The semiannual amortization amount of the bond premium.
d) Total bonds interest expense over the 4 years.
For Brazil region/country explain the meaning for each of the values below and provide 1 example of practice/tradition/myth/legend that support each of the following values { The Globe project for definitions and ch 2 in the textbook)(no duplications of examples accepted Make sure you don't repeat the same examples posted by your peers that selected your same country): Please review the exemplar under the Course Requirements tab for more details.
Assertivness
Gender
Egalitarianism
Future orientation
Performance Orientation.
Brazil is the largest country in South America and the fifth largest country in the world. Brazil is known for its music, dance, and festivals.
Some of the values in Brazil include Assertiveness, Gender, Egalitarianism, Future Orientation, and Performance Orientation. These values can be supported by certain practices, traditions, myths, and legends. Below are the meanings of each of the values and an example of practices, traditions, myths, or legends that support each of the values.Assertiveness: The ability to be direct, decisive, and take control of situations. An example of practice that supports assertiveness in Brazil is Capoeira. It is a martial art that was developed in Brazil during the 16th century. Capoeira is a unique blend of dance, music, and acrobatics, which requires focus, discipline, and physical strength.Gender: Refers to the roles, expectations, and characteristics that society ascribes to men and women. In Brazil, Gender equality is promoted through initiatives such as quotas for women in politics, education, and employment. One example of tradition that supports gender equality in Brazil is the celebration of Women's Day on March 8th. It is a national holiday in Brazil that celebrates the social, economic, cultural, and political achievements of women.Egalitarianism: The belief that all people should have equal rights, opportunities, and status. One example of myth that supports egalitarianism in Brazil is the myth of "Boitata." The myth describes a giant snake with glowing eyes that guards the forests and helps farmers by protecting their crops from fires. This myth reflects the Brazilian culture of respect for nature and the idea of sharing resources equally.Future orientation: Refers to the extent to which people in a culture plan, save, and prepare for the future. An example of practice that supports future orientation in Brazil is the "13th salary" (13o salário). It is a unique Brazilian law that requires employers to pay an extra month's salary to their employees at the end of each year. This extra salary helps employees to save money for the future.Performance orientation: Refers to the extent to which a culture values achievement, success, and competitiveness. An example of tradition that supports performance orientation in Brazil is the Carnival. Carnival is a festival that is celebrated in Brazil and other countries with colorful costumes, music, dance, and parades. The Carnival reflects the Brazilian culture of creativity, innovation, and artistic expression.
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Problem 3 The Ministry of Finance uses the standard Solow growth model to predict the long-run rate of GDP growth. The rate of population growth equals 0.01; the rate of technological progress equals
The new value of tax revenues, τ', should be 0.016 or 1.6% of GDP in order to stabilize the debt-to-GDP ratio at 120% of GDP.
The Solow growth model is an economic framework developed by Robert Solow in the 1950s. It is a neoclassical model that focuses on the long-run growth of an economy by examining the contributions of capital accumulation, labor force growth, and technological progress.
In the Solow growth model, the long-run rate of GDP growth is determined by the following factors:
Population Growth: The rate of population growth (n) represents the increase in the size of the labor force. Higher population growth leads to a larger workforce, which contributes to economic output and GDP growth.Technological Progress: The rate of technological progress (g) captures advancements in technology, innovation, and productivity improvements. Technological progress allows for more efficient use of inputs, leading to higher output and GDP growth.Capital Accumulation: The model considers the accumulation of physical capital (machinery, equipment, infrastructure) as an important driver of economic growth. Investment in capital goods increases the productive capacity of the economy, contributing to GDP growth.The long-run rate of GDP growth (g) in the Solow growth model is given by the equation:
g = (s / (1 - s)) x [tex][A (L/K)^{(1-\alpha) } - \beta ][/tex]
Where:
s is the savings rate (the fraction of income saved and invested),
A represents the level of technology,
L is the labor force,
K is the capital stock,
α is the capital's share in income (a parameter typically assumed to be between 0 and 1), and
β is the depreciation rate of capital.
a) To determine the dynamics of the debt-to-GDP ratio and assess if the debt is explosive or if it will stop growing, we can use the following equation:
Debt-to-GDP ratio (D/Y) = (1+r-g)(D/Y) + (g - τ)B/Y
Where:
r is the real interest rate
g is the rate of GDP growth
τ is the tax revenue as a percentage of GDP
B/Y is the debt-to-GDP ratio
In this case, we have r = 0.06, g = 0.04, τ = 0.405 - 0.4 = 0.005 (since tax revenues are 40.5% and government expenditures are 40% of GDP).
The debt-to-GDP ratio will continue to grow over time and will eventually become explosive. This is because the real interest rate is greater than the rate of GDP growth. The government is spending more money than it is taking in, and this difference is being financed by borrowing. As the debt-to-GDP ratio grows, the interest payments on the debt will become a larger and larger share of government spending. This will lead to even higher deficits and even more borrowing, which will cause the debt-to-GDP ratio to grow even faster.
b) In order to stabilize the debt-to-GDP ratio at 120% of GDP, the government must increase tax revenues to 45% of GDP. This is because the government's current spending is 40% of GDP, and the interest payments on the debt will be 6% of GDP. Therefore, the government must raise taxes by 5% of GDP in order to cover its spending and interest payments.
Here is the calculation:
Government spending = 40% of GDP
Interest payments = 6% of GDP
Total government spending = 40 + 6 = 46% of GDP
Tax revenues = 45% of GDP
The government can achieve a balanced budget by raising taxes to 45% of GDP. This will allow the government to cover its spending and interest payments, and the debt-to-GDP ratio will stabilize at 120% of GDP.
The correct and complete question is:
The Ministry of Finance uses the standard Solow growth model to predict the long-run rate of GDP growth. The rate of population growth equals 0.01;the rate of technological progress equals 0.04.The predicted rate of GDP growth helps to assess the stability of public debt-to-GDP ratio in (a)and(b)below.
a)The real interest rate equals r=0.06.Tax revenues are equal to40.5%of GDP i.e.=0.405 and government expenditures on goods and services are equal to 40% of GDP i.e.=0.4 they are expected to remain at these levels. Show the dynamics of the debt-to-GDP ratio in a graph. ls the debt explosive or it will stop growing?
b) Now assume that interest rate, GDP growth rate, and government spending are as in(a) The government changes the tax revenues in order to stabilize the debt-to-GDP ratio at 120% of GDP. Calculate the new value of tax revenues in percent of GDP
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SHORT-RUN COSTS and OPTIMIZATION: Consider the following production function: Q = K1/3 L1/3. Let the price of output be P = $100 and factor prices w = $5 and r = $10.
a) Assume that K is fixed at 64. What are the short-run costs? C=wL + r(64)?.
b) Plot cost versus output. Show that costs are accelerating. Why is this the case? (hint. What are the returns to scale?)
c) What is the firm's optimization problem?
d) What is the supply function for this firm? Eg, what is the relationship between market prices and the firm's optimal choice of output. Hint: look at MC = P. Confirm that higher P leads to higher Q.
e) Graph the supply curve. Discuss its shape (eg why does the slope increase?).
a) The short-run costs can be expressed as C = 5L + 10(64) = 5L + 640.
b) To plot the cost versus output, we need to express cost in terms of output (Q). The cost curve will exhibit accelerating costs because of diminishing returns to scale.
c) The firm's optimization problem is to maximize profit.
d) The supply function for this firm can be derived by equating the marginal cost (MC) to the price (P) of the output.
e) To graph the supply curve, we can plot the optimal levels of output (Q) at different price levels (P).
a) In the short run, with capital fixed at 64, the total cost (TC) can be calculated as C = wL + rK, where w is the wage rate and r is the rental rate for capital. With w = $5, r = $10, and K = 64, the short-run costs can be expressed as C = 5L + 10(64) = 5L + 640.
b) To plot the cost versus output, we need to express cost in terms of output (Q). Using the production function Q = K^(1/3)L^(1/3), we can substitute K = 64 and rearrange to solve for L: L = (Q³)/64. Substituting this value of L in the cost function, we get C = 5((Q³)/64) + 640. By varying Q, we can calculate the corresponding costs and plot them on a graph.
The cost curve will exhibit accelerating costs because of diminishing returns to scale. As output increases, additional units of output become more costly to produce, leading to an increasing rate of cost accumulation.
c) The firm's optimization problem is to maximize profit, which can be expressed as Total Revenue (TR) minus Total Cost (TC). The firm needs to determine the optimal level of output (Q) that maximizes profit given the prices of inputs and outputs.
d) The supply function for this firm can be derived by equating the marginal cost (MC) to the price (P) of the output. In this case, MC = (w/3)(K^(1/3))(L^(-2/3)) + (r/3)(L^(1/3))(K^(-2/3)). Setting MC equal to P = $100, we can solve for the optimal level of output (Q). The relationship between market prices and the firm's optimal choice of output can be summarized as higher prices (P) leading to higher output (Q).
e) To graph the supply curve, we can plot the optimal levels of output (Q) at different price levels (P). As P increases, the firm will choose higher levels of output to maximize profit. The shape of the supply curve will depend on the specific values of input prices and the production function. Generally, the slope of the supply curve will be positive, indicating a positive relationship between price and quantity supplied. The slope may increase if the production function exhibits diminishing returns to scale, as additional units of output become increasingly expensive to produce.
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Skiles Coporation is a manufacturer of classic rocking chairs. The company has been using a particular sanding and finishing machine for over 10 years and believes that it may be time to replace the machine. The company is trying to decide whether replacing the old machine is a wise economic decision. The company's controller pulled together the following information on the old machine and the new possible replacement machine.
The new machine will generate positive cash flows and provide the company with a return that is greater than the required rate of return (hurdle rate) of 10%. Skiles Corporation is a manufacturer of classic rocking chairs. The company has been using a particular sanding and finishing machine for over 10 years and believes that it may be time to replace the machine.
The company is trying to decide whether replacing the old machine is a wise economic decision. The company's controller pulled together the following information on the old machine and the new possible replacement machine.The old machine cost $40,000 10 years ago and is being depreciated on a straight-line basis over 20 years with no salvage value.
The old machine has accumulated depreciation of $20,000 to date. The old machine is still in use but requires significant maintenance to keep it operating properly.The new machine has a purchase price of $60,000, with an estimated useful life of 20 years and no salvage value.
The new machine will require less maintenance than the old machine, but will also require operator training, which will cost $4,000. The new machine will generate annual cash inflows of $15,000. The company's hurdle rate is 10%.To determine if replacing the old machine is a wise economic decision, the company should conduct a net present value (NPV) analysis.
The NPV analysis considers the present value of all cash inflows and outflows associated with replacing the old machine with the new one. The NPV of the new machine is calculated as follows:Initial Investment = $60,000 - $4,000 = $56,000Annual Cash Inflow = $15,000Discount Rate = 10%Useful Life = 20 yearsNPV = Present Value of Annual Cash Inflows - Initial InvestmentPV of Annual Cash Inflows = [Annual Cash Inflow x (1 - (1 + Discount Rate)^-Useful Life)] ÷ Discount RatePV of Annual Cash Inflows = [$15,000 x (1 - (1 + 10%)^-20)] ÷ 10%PV of Annual Cash Inflows = $118,139.90NPV = $118,139.90 - $56,000 = $62,139.90.
Since the NPV of the new machine is positive, it would be a wise economic decision for Skiles Corporation to replace the old machine with the new one. The new machine will generate positive cash flows and provide the company with a return that is greater than the required rate of return (hurdle rate) of 10%.
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