The consumption function expresses the relationship between aggregate consumption and national income. Aggregate consumption is influenced by disposable income, wealth, expectations of future income and inflation, and interest rates.
The functional relationship between consumption and national income is expressed as C = a + bYd where C is the level of aggregate consumption, a is the autonomous consumption, Yd is disposable income, and b is the marginal propensity to consume.Investment is defined as the purchase of capital goods that are not intended for consumption but are expected to generate future income.
It is an important component of aggregate demand and contributes to economic growth. Investment decisions are influenced by factors such as interest rates, expected returns on investment, technological changes, and business confidence levels.
The relationship between investment and national income is expressed through the investment function. The investment function is expressed as I = I0 + bY where I is the level of investment, I0 is the autonomous investment, Y is national income, and b is the marginal propensity to invest.
The level of autonomous investment is determined by factors such as technological changes, business confidence, and expectations of future profits.The consumption function and investment function are both important components of aggregate demand.
Changes in either of these functions will have an impact on the level of national income. For example, an increase in autonomous consumption or investment will lead to an increase in national income through the multiplier effect. Similarly, a decrease in autonomous consumption or investment will lead to a decrease in national income.
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Which of the following is not characteristic of imperfect competition?
a. Few buyers and sellers
b. Homogeneous products
c. Barriers to entry
d. Both (a) and (c)
Homogeneous products is not characteristic of imperfect competition. The correct option is b.
Imperfect competition is a market structure that differs from perfect competition in a number of ways. The existence of differentiated or heterogeneous products which means that products offered by different firms are not identical is one of the main characteristics of imperfect competition.
Because of the control that this differentiation gives businesses over the features and attributes of their products, consumers are more likely to differentiate between brands and buy from them.
In contrast, perfect competition presupposes homogeneous products and identical products or services from all businesses. Other traits of imperfect competition include fewer buyers and sellers than in perfect competition as well as the presence of entry barriers that prevent new businesses from entering the market. The correct option is b.
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millie woods owns and operates a world of food grocery store. although her store is independently owned and operated, she has signed an agreement with over seventy stores in the midwest to use a common name, participate in chain promotions, and cooperate with other stores in the chain. millie's store is part of a(n):
Millie Wood's grocery store is part of a chain.
A chain store is a retail store that has several locations but is operated as a single unit with centralized buying and decision-making processes. The stores usually share the same name and brand and often carry similar merchandise. Chain stores are popular because they allow for consistent branding, buying power, and economies of scale. By operating as a chain, Millie's store can take advantage of the chain's brand recognition and promotional efforts while still maintaining some level of independence as an individual store.The World of Food grocery store, owned and operated by Millie Woods, is part of a chain of over seventy stores in the Midwest.
Even though Millie's store is independently owned and operated, it shares a common name with other stores in the chain, participates in chain promotions, and cooperates with other stores. This helps Millie's store to take advantage of the chain's buying power, economies of scale, and brand recognition, while still maintaining some level of independence as an individual store. The use of the chain's name and promotion has allowed Millie's store to increase sales and customer loyalty.
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Complete the following sentence.
If an interviewer has suspicions of fraud, the interviewer may call on a fraud
to assess the situation.
Answer:
Auditor
Explanation:
If an interviewer has suspicions of fraud, the interviewer may call on a fraud AUDITOR to assess the situation.
This is because a FRAUD AUDITOR is a type of auditor who based on his experience and background, works as a professional in the gathering of verifiable evidence in terms of fraud and eventually serves as an expert witness during the legal proceeding of such cases.
Answer:
fraud detection
Explanation:
Billy B. decided four years ago to add high bush blueberries to his commercial vegetable farm near Whitesville. The first two years he did not harvest any berries. In the third year he had a very small crop but was not able to sell to the public. This year things look very good for the crop and he expects to produce 3000 pints. Billy has done a good job of keeping up with his costs, which include variable cost of $953.54, fixed cost of $863.92, and labor cost of $600. He believes the best method of marketing his crop is on a pick your own basis. Billy would like some help in determining what he should charge per pint for his berries. Answer the questions below to give Billy some direction on determining an asking price. 1. What factors should Billy consider in determining the price? 2. What is the minimum price Billy can charge and break even on his crop? 3. What price should he charge and why? 4. What other methods can be used to determine price? 5. If there is competition how will that affect Billy's price 6. If Billy decides to charge $1.25 a pint what quantity will he need to produce to break even?
1. Factors Billy should consider in determining the price are as follows: The market demand for blueberries The current market price for blueberries at other locations The cost of production of blueberries The quality of the blueberries The availability of labor and transportation costs
2. To break even, Billy needs to cover his total cost. The minimum price he can charge is the variable cost per unit + fixed cost per unit. Therefore, he can charge a minimum of $0.68 per pint to break even on his crop.3. Billy should charge more than the minimum price so that he can make a profit. He should consider the market price for blueberries in his area, and price his pints competitively. He can charge $2.25 per pint and still make a profit. This price will allow him to cover his total cost, including the variable cost, fixed cost and labor cost
.4. Billy can also use a cost-plus pricing method to determine the price of his blueberries. This involves adding a profit margin to the cost of producing the blueberries.5. If there is competition, Billy may need to lower his price to remain competitive. He may also need to consider other marketing strategies, such as advertising, promotions, or offering a different variety of blueberries.6. If Billy decides to charge $1.25 a pint, he will need to produce 1422 pints to break even.
This is calculated by dividing the total cost by the price per pint. Total cost = Variable cost + Fixed cost + Labor cost = $953.54 + $863.92 + $600 = $2417.46. Number of pints to break even = Total cost / Price per pint = $2417.46 / $1.25 = 1422 pints.
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1. Billy B. has to consider the cost of production, competition, supply and demand, seasonality, quality, location, and marketing in determining the price of his berries.
2. The minimum price that Billy B. can charge and break even on his crop is equal to the total cost of producing the berries, which is equal to the sum of his variable and fixed costs and labor cost. Thus, the minimum price can be calculated as follows:
Minimum price = Total cost ÷ Expected quantityMinimum price = ($953.54 + $863.92 + $600) ÷ 3,000Minimum price = $2.41813. Billy B. should charge a price above the minimum price to make a profit. The price should reflect the quality of the berries, the cost of production, the level of competition, and the market demand. A higher price may be justified if Billy B.'s berries are of higher quality and if there is a high demand for them. He should also consider the prices of his competitors.
4. Billy B. can use other methods such as cost-plus pricing, value-based pricing, penetration pricing, skimming pricing, or psychological pricing to determine the price. He can also use surveys or experiments to test different price points.
5. If there is competition, Billy B. may need to adjust his price to stay competitive. He may need to lower his price if his competitors are offering similar berries at a lower price, or he may need to keep his price high if his berries are of better quality.
6. If Billy B. decides to charge $1.25 a pint, he will need to produce 2,177 pints to break even. We can calculate the break-even quantity using the following formula:Break-even quantity = Total cost ÷ Price per unitBreak-even quantity = ($953.54 + $863.92 + $600) ÷ $1.25Break-even quantity = 2,177 pintsTherefore, Billy B. needs to produce 2,177 pints to break even if he decides to charge $1.25 a pint.
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Which technique would you want your boss to use with you as you
grow into a leadership role OR which approach would you like to try
with your current team?
Be specific about the approach you choose, h
One approach that is often valued is the coaching and mentoring approach. This involves a supportive and collaborative relationship between the leader and the employee, focusing on personal and professional growth.
The leader acts as a guide, providing guidance, feedback, and resources to help the employee develop their leadership skills and reach their full potential.
In this approach, the leader should:
Establish open communication: Create an environment where employees feel comfortable discussing their aspirations, challenges, and areas for development. Encourage open dialogue and active listening to understand their goals and concerns.
Set clear expectations and goals: Work with the employee to set clear expectations and goals that align with their growth and the organization's objectives. Regularly review progress and provide constructive feedback to keep them on track.
Provide guidance and resources: Offer guidance, share knowledge, and provide access to resources that can help the employee develop their leadership skills. This can include recommending books, courses, or connecting them with relevant networks or mentors.
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6 Corporations do not receive any funds from investors when their bonds are re- sold in a secondary market. Nonetheless corporations prefer that their bonds trade in a secondary market that is more liquid rather than less liquid (or ""illiquid""). Explain why that is the case. No diagram is needed to answer this question
A secondary market is a market where securities and financial instruments, including bonds, can be bought and sold. Corporations prefer that their bonds trade in a more liquid secondary market rather than an illiquid one.
Bonds that are traded in a more liquid secondary market are easier to sell, and the corporation will receive more value for the bond. The advantage of a more liquid secondary market is that it makes the bond more attractive to investors and can lead to more demand for the bond. Corporations that issue bonds benefit from having a higher demand for their bonds as it increases the price they can charge for the bonds. The more liquid the secondary market, the more easily investors can buy and sell the bonds, increasing the number of buyers and sellers in the market. Bonds that are illiquid may be harder to sell, and the corporation may have to accept a lower price for the bond to sell it.
In conclusion, corporations prefer that their bonds trade in a more liquid secondary market because it increases demand, leads to more buyers and sellers, and allows them to receive more value for their bond.
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Decide whether each of the following would be included in the GDP for the United States. If it is not included give the reason why.
Social Security payments received by a retired factory worker in the US.
It is not in GDP because This is public transfer payment. The reason why the government transfer payment that transfers of money from the government to people.
Money paid to a dentist fordental work
This is included in GDP because as dental services are been generated in that particular year to be provided to someone, so it has to be included as, this service produced has bought income to dentist.
The money received by Brett when he sells his economics text book to Lea
It is not included in GDP because Brett's book selling is not a commercial activity because he is not a professional seller (as nothing to that effect is expressed), and because Brett is reselling his book to Lea, secondhand goods sales are likewise excluded.
You pay a babysitter under the table in cash
It is not included in GDP; as it paid under the table i.e., via recordable means, owing to which it won't have any accounts in GDP
Rent paid on a two-bedroom apartment
It is included in GDP; as rent paid by tenant is the charge of the space which they have leased in current period, hence will come.
The money received by Jen when she resells her current year model Honda Civic to Adam
It is not included in GDP; as none, neither sale nor purchase of second-hand goods are recorded for GDP.
The purchase of an insurance policy
It is not included in GDP because as insurance are the direct gross payments to GDP, enhancing its value.
Social Security payments received by a retired factory worker in the US are not included in GDP. This is a public transfer payment. Government transfer payments are transfers of money from the government to people and are not considered a part of GDP.
Money paid to a dentist for dental work is included in GDP. Dental services are generated in that particular year to be provided to someone. The service produced has bought income to the dentist. The money received by Brett when he sells his economics textbook to Lea is not included in GDP. Brett's book selling is not a commercial activity because he is not a professional seller, and because Brett is reselling his book to Lea, secondhand goods sales are likewise excluded. You pay a babysitter under the table in cash is not included in GDP. Rent paid on a two-bedroom apartment is included in GDP. The rent paid by the tenant is the charge of the space they have leased in the current period, hence will come. The money received by Jen when she resells her current year model Honda Civic to Adam is not included in GDP. No sale nor purchase of second-hand goods are recorded for GDP. The purchase of an insurance policy is not included in GDP because insurance is the direct gross payments to GDP, enhancing its value.
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E7-11 (Static) Choosing LIFO versus FIFO When Costs Are Rising and Falling [LO 7-3] Use the following information to complete this exercise: sales, 550 units for $12,500; beginning inventory, 300 unit
Both FIFO and LIFO yield identical profits and tax obligations under Situation B. Due to the increasing expenses, the cost of the sold products remains consistent with both approaches.
Here is the table for E7-11 (Static)
Choosing LIFO versus FIFO When Costs Are Rising and Falling:Situation Costs FIFO LIFO
A Rising $1,650 profit, $495 tax $4,000 loss
B Rising $12,500 profit, $3,750 tax $12,500 profit, $3,750 tax
C Falling $4,000 loss $12,500 profit, $3,750 tax
D Falling $4,000 loss $4,000 loss
The selection of a particular inventory costing method can greatly influence a company's financial outcomes, particularly in scenarios when costs are experiencing a surge or decline.
When utilizing the FIFO method in Situation A, the end result is a greater profit margin but also an increased tax obligation compared to the LIFO method.
The reason behind this is that FIFO theory is predicated on the notion that the initially sold goods correspond to the initial purchases, which are typically bought at a lower price point.
Both FIFO and LIFO yield identical profits and tax obligations under Situation B. Due to the increasing expenses, the cost of the sold products remains consistent with both approaches.
When using LIFO in Situation C, the outcome is a greater profit margin and also an increased amount owed in taxes in comparison to using FIFO.
The reason behind this is that LIFO makes the assumption that the units sold recently are the ones purchased last, therefore having a higher cost. When it comes to the D scenario, the consequences of using either FIFO or LIFO are identical in terms of the incurred loss and tax advantage.
The reason behind this is the decreasing costs, thus resulting in reduced cost of goods sold for both approaches.
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The Complete Question
E7-11 (Static) Choosing LIFO versus FIFO When Costs Are Rising and Falling [LO 7-3] Use the following information to complete this exercise: sales, 550 units for $12,500; beginning inventory, 300 units; purchases, 400 units; ending inventory. 150 units; and operating expenses, $4,000. Required: 1. Complete the table for each situation. In Situations A and B (costs rising), assume the following: beginning inventory, 300 units at $12= $3,600; purchases, 400 units at $13= $5,200. In Situations C and D (costs falling), assume the opposite; that is, beginning inventory, 300 units at $13-$3,900; purchases, 400 units at $12 $4,800. Use periodic inventory procedures. Sales Revenue Beginning Inventory Purchases Goods Available for Sale Ending Inventory Cost of Goods Sold Gross Profit Operating Expenses Income from Operations Income Tax Expense (30%) Net Income $ Situation A FIFO 3,600 5,200 8,800 1,950 $ $ Costs Rising 12,500 6,850 5,650 4,000 1,650 495 1,155 Situation B LIFO 0 $ 12,500 0 4,000 Situation C FIFO 0 Costs Falling $ 12,500 0 4,000 Situation D LIFO 0 $ 12,500 0 4,000
how will you explain a yellow colour to someone who has never seen before??
Answer:
it is a bright color close to orang but lighter with a tint of white added to orange to make a bright floresent color
Explanation:
Answer:
well, I will explain it like this Yellow is the warm sun while a cool breeze blows on your face. Yellow is exciting without being loud or angry.
Explanation:
Hope this is helpful! Stay safe and God Bless you:)
300 words: Sustainability has an important role in
successful project delivery. Explain how the dimensions of
sustainability can be integrated into various project life cycle
stages.
Sustainability plays a crucial role in successful project delivery as it ensures that projects are designed, implemented, and managed in a manner that minimizes negative environmental impacts, promotes social responsibility, and achieves long-term economic viability. Integrating sustainability into various project life cycle stages helps address environmental, social, and economic considerations throughout the project's lifespan. Here's how sustainability dimensions can be integrated into different project stages:
Initiation Stage: During project initiation, it is essential to assess the potential environmental and social impacts of the project. This includes conducting environmental and social impact assessments, identifying stakeholders, and setting sustainability goals and objectives for the project. Integrating sustainability considerations at this stage ensures that project decisions align with the organization's sustainability strategy and promote responsible practices from the outset.
Planning Stage: In the planning stage, sustainability can be integrated by incorporating eco-design principles into project plans, considering energy-efficient materials and technologies, and minimizing resource consumption and waste generation. Sustainable procurement practices can be adopted to source environmentally friendly and socially responsible materials and services. Additionally, stakeholder engagement can help identify social and economic opportunities for the local community, fostering inclusive growth.
Execution Stage: During project execution, sustainability can be promoted through efficient resource management, waste reduction measures, and the implementation of environmental and social safeguards. Project teams can adopt sustainable construction practices, promote worker safety and well-being, and adhere to ethical labor standards. Regular monitoring and reporting mechanisms can track sustainability performance and ensure compliance with relevant regulations and standards.
Monitoring and Control Stage: This stage involves monitoring project progress, evaluating sustainability performance, and making necessary adjustments. Key performance indicators (KPIs) can be established to measure environmental, social, and economic impacts and assess progress towards sustainability targets. Feedback from stakeholders and continuous improvement initiatives can help identify areas for enhancement and drive sustainable practices throughout the project.
Closure Stage: During project closure, sustainability considerations include proper decommissioning and waste management, land restoration, and responsible disposal of project assets. Lessons learned from the project can be documented and shared to inform future projects and promote knowledge transfer in sustainable practices.
By integrating sustainability dimensions across these project life cycle stages, organizations can create projects that are environmentally responsible, socially beneficial, and economically viable. This approach not only helps mitigate negative impacts but also enhances project resilience, reputation, and long-term value creation for stakeholders and the broader community.
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Investors in Corporate Bond expect compensation for: 1. Expected Inflation II. Real Interest Rate III. Risk I and III I and II II and III I, II and III
Investors in corporate bonds expect compensation for all of the following: Expected Inflation, Real Interest Rate, and Risk. Therefore, the correct answer is I, II, and III.
The option (C) is correct.
Investors in corporate bonds demand compensation for expected expansion, which dissolves the buying force of future interest and head installments. They likewise expect remuneration for the genuine loan fee, which is the ostensible financing cost adapted to expansion. In conclusion, financial backers require remuneration for the different dangers related to corporate securities.
By taking into account these elements, financial backers look for more significant returns or coupon rates to balance expansion, get a palatable genuine return, and make up for the dangers implied in putting resources into investing in corporate bonds.
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This question is not complete, Here I am attaching the complete question:
Investors in Corporate Bond expect compensation for: 1. Expected Inflation II. Real Interest Rate III. Risk
(A) I and III
(B) I and II II and,
(C) III I, II and III
The raw beta estimates for Target, J.P. Morgan Chase & Company, and the Boeing Company are 0.68, 1.17, and 1.66, respectively. In your written response, please start with question numbers such as a) or b) before showing your work and answer to the question. a) Calculate the adjusted betas for the three companies based on Blume (1971). (2 points) b) Assume a risk-free rate of 3% and the equity (market) risk premium of 5%. Calculate the required rates of the returns for these three stocks using the CAPM.
a) Calculate the adjusted betas for the three companies based on Blume (1971).Blume (1971) is calculated as follows :Adjusted Beta = βe [1 + (1 – T) D/E]βe= Raw Beta D/E= Debt-to-equity ratio T= Tax rate= 0.4 [1 – Exp (-0.7 log (D/E))]1/2.
Adjusted betas for Target, J.P. Morgan Chase & Company, and the Boeing Company are as follows: Target= 0.68 [1 + (1 – 0.4) (0/1)] [1 – Exp(-0.7 log 0)]1/2= 0.68J.P. Morgan Chase & Company= 1.17 [1 + (1 – 0.4) (1.55/1)] [1 – Exp(-0.7 log 1.55)]1/2= 0.97Boeing Company= 1.66 [1 + (1 – 0.4) (34670/1)] [1 – Exp(-0.7 log 34670)]1/2= 1.30
b) Assume a risk-free rate of 3% and the equity (market) risk premium of 5%. Calculate the required rates of the returns for these three stocks using the CAPM. The CAPM formula is given as: CAPM = Rf + β (Rm – Rf) Where CAPM= Capital Asset Pricing Model Rf= Risk-free rateβ= Beta Rm= Market rate of return Rf= 3%Rm – Rf= 5%Target= 3% + 0.68 (5%)= 6.4%J.P.
Morgan Chase & Company= 3% + 0.97 (5%)= 8.85%Boeing Company= 3% + 1.30 (5%)= 9.5%Hence, the calculated required rates of the returns for these three stocks using the CAPM are as follows: Target= 6.4%J.P. Morgan Chase & Company= 8.85%Boeing Company= 9.5%.
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Developed countries could be described as countries that do well on all measures of wellbeing (or freedoms), making all other countries developing or transition economies by default. However, there are some countries that can be considered "borderline developed" (Chile, Greece, Hungary, Latvia, Lithuania, Poland, Portugal,) and others that are "borderline developing or transition" (Argentina, Barbados, Croatia, Kuwait, Oman, Qatar, Singapore). Make a case against the current classification of one country in each of these groups using a range of measures (or potential measures) of development.
Developed countries are countries that are highly developed according to economic, social, and environmental criteria. Therefore, this definition is not correct as it does not consider the various criteria of development.The United Nations Development Programme (UNDP) calculates the Human Development Index (HDI), which measures human welfare in different countries by assessing their life expectancy, education, and income. It also ranks countries based on other variables such as poverty, gender inequality, and quality of life. It has been noted that some countries might be called “borderline developed,” while others may be considered “borderline developing or transition” depending on various measures of development.Portugal is one of the countries in the first group, and its classification may be challenged using potential measures of development, such as poverty, income inequality, and education. According to the World Bank, poverty has increased in Portugal, and income inequality has been growing. Although there have been recent improvements, the country has a high level of economic inequality.
It's also worth noting that education and innovation in Portugal are still weak.The second group includes countries such as Singapore, which may be called a “borderline developing or transition” country due to factors such as political freedom, quality of life, and environmental sustainability. However, Singapore is not as free as it may appear, and its political leadership has limited the country's freedoms. According to the Economist Intelligence Unit, the Singapore government has a history of using libel lawsuits to intimidate its critics, and its level of press freedom is restricted. Singapore is also facing issues with the lack of environmental sustainability, which may impact its future economic development.In conclusion, the classification of countries into developed, developing, and transition groups should be based on a range of measures, not just one. Furthermore, economic indicators such as GDP, while relevant, should not be the sole criterion for classification.
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Ensuring Employees have the necessary knowledge, skills, abilities and other talents to achieve work objectives falls under which of the following categories?
1. Work design and Workforce planning 2. Managing Employee Competencies 3. Managing Employee attitudes and Behaviors 4. Compensation and incentives
Ensuring employees have the necessary knowledge, skills, abilities, and other talents to achieve work objectives falls under the category of managing employee competencies. Here option 2 is the correct answer.
Managing employee competencies involves various processes and strategies aimed at developing and enhancing the skills, knowledge, and abilities of employees to effectively perform their job responsibilities. This includes identifying the required competencies for each job role, assessing the existing competencies of employees, and implementing initiatives to bridge any competency gaps.
To ensure that employees are equipped with the required competencies, organizations often provide training and development programs, both formal and informal, to enhance their knowledge and skills. These programs can include workshops, seminars, online courses, on-the-job training, mentoring, and coaching.
Moreover, managing employee competencies also involves assessing performance, providing feedback, and conducting performance appraisals. These activities help identify areas where additional training or development is needed, and they contribute to the ongoing improvement of employee competencies.
By focusing on managing employee competencies, organizations can align their workforce with the skills and knowledge required to achieve work objectives, enhance employee performance, and ultimately contribute to the overall success of the organization. Therefore option 2 is the correct answer.
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Consider the following information on three stocks: State of Probability of State Rate of Return if State
Economy of economy Stock A Stock B Stock C
Boom .15 .27 .15 .11
Normal .65 .14 .11 .09
Bust .20 -.19 -0.6 .05
A portfolio is invested 45 percent each in Stock A and Stock B, and 10 percent in Stock C. The expected T-bill rate is 3.2 percent. What is the expected risk premium on the portfolio?
o 4.29% o 1.67% o 12.38% o 5.55% o 8.75%
Option B is correct. A portfolio is invested 45 percent each in Stock A and Stock B, and 10 percent in Stock C. The expected T-bill rate is 3.2 percent. The expected risk premium on the portfolio is 1.67%.
To calculate the expected risk premium on the portfolio, we must first ascertain its expected return and deduct the risk-free rate (the rate on T-bills) from it.
The portfolio's anticipated return can be computed as follows:
Expected Return of Portfolio = Weight of Stock A + Weight of Stock B + Weight of Stock C + Expected Return of Stock A + Expected Return of Stock B + Expected Return of Stock C.
Given: Stock A weighs 0.45, Stock B weighs 0.45, and Stock C weighs 0.10.
Stock A's anticipated return is boom: 0.15 x 0.27 = 0.0405
Normal: 0.091 x 0.65 x 0.14
Bust: 0.20 × (-0.19) = -0.038
Boom's anticipated return is 0.15 times 0.15, or 0.0225.
Standard: 0.65 x 0.11 = 0.0715
Bust: 0.20 × (-0.6) = -0.12
Boom's anticipated return is 0.15 - 0.11, or 0.0165.
Normal: 0.0585 x 0.65 x 0.09
Bust: 0.20 × 0.05 = 0.01
Portfolio Expected Return = (0.45 (0.0405 + 0.0225) + 0.10 0.0165) + (0.45 (0.091 + 0.0715) + 0.10 0.0585) + (0.45 (-0.038 -0.12) + 0.10 0.01)
The portfolio's anticipated return = (0.06795 + 0.0165) + (0.081675 + 0.0585) + (-0.079 - 0.012) = 0.142625.
Expected Return on Portfolio - Risk-Free Rate = Expected Risk Premium.
Expected Risk Premium = 0.110625 (11.06%) - 0.142625 (0.032)
As a result, the portfolio's anticipated risk premium is 1.67%.
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Complete question
Consider the following information on three stocks: State of Probability of State Rate of Return if State.
Stock A Stock B Stock C
Boom .15 .27 .15 .11
Normal .65 .14 .11 .09
Bust .20 -.19 -0.6 .05 respectively.
A portfolio is invested 45 percent each in Stock A and Stock B, and 10 percent in Stock C. The expected T-bill rate is 3.2 percent. What is the expected risk premium on the portfolio?
A. 4.29%
B. 1.67%
C. 12.38%
D. 5.55%
E. 8.75%
estion Completion Status: 1 2 3 4 5 7 11 12 13 14 15 16 Moving to another question will save this response estion 4 On January 1, 2019, Hamad Town Co purchased a machine for $240,000 is estimated that
By accounting for the purchase of the machine and its subsequent depreciation, Hamad Town Co can accurately reflect the cost and value of its assets in its financial statements, providing stakeholders with essential information about the company's financial position and performance.
On January 1, 2019, Hamad Town Co purchased a machine for $240,000. The purchase of this machine is considered a capital expenditure because it is a long-term asset that will be used in the company's operations to generate revenue over multiple accounting periods. The machine's cost of $240,000 includes not only the purchase price but also any costs incurred to bring the machine into working condition, such as transportation and installation expenses. These costs are added to the purchase price to determine the total cost of the machine.
In accounting, the machine is recorded as an asset on the company's balance sheet. It is typically classified as property, plant, and equipment (PP&E) or machinery and equipment. The machine's cost of $240,000 is initially recorded as its historical cost, which represents the amount of cash or cash equivalent given up to acquire the asset.
Over its useful life, the machine's value will gradually decrease due to wear and tear, obsolescence, or other factors. This decrease in value is accounted for through depreciation, which allocates the machine's cost over its estimated useful life. The method and period of depreciation are determined based on accounting policies and applicable regulations.
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Given the increased development of complex business structures, which of the following regulators is responsible for the continued usefulness of accounting reports?
A) Securities and Exchange Commission (SEC)
B) Public Company Accounting Oversight Board (PCAOB)
C) Financial Accounting Standards Board (FASB)
D) All of the other answers are correct
Given the expanded improvement of perplexing business structures, the above controllers are all liable for the proceeded with utilization of Accounting reports. It's option D.
The Securities and Exchange Commission (SEC), the Public Company Accounting Oversight Board (PCAOB), and the Financial Accounting Standards Board (FASB) are in charge of ensuring that accounting reports continue to be used.
A company files a financial report called an accounting report to show its past and current financial situation. Businesses and financial analysts can also make better predictions about their financial futures thanks to this report.
A company's financial condition at a specific point in time or over a specified time period is presented in accounting reports, which are periodic statements. It describes the business's activities and transactions in detail.
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Problem 4. Dimitri’s Bar sells a
blend of cherry juice. Demand for the blend is approximately
normal, with a mean of 400 liters per week and a standard deviation
of 20 liters per week. The selling
Problem 4Dimitri’s Bar sells a blend of cherry juice. Demand for the blend is approximately normal, with a mean of 400 liters per week and a standard deviation of 20 liters per week.
The selling price per liter is $3.20. Dimitri purchases the blend from a local producer for $1.50 per liter. Any unsold juice must be discarded at the end of each week.
What is Dimitri’s expected profit per week?The given mean is 400 liters per week, and the standard deviation is 20 liters per week. The selling price of the cherry juice per liter is $3.20, and Dimitri purchases it from a local producer for $1.50 per liter.
Now we have to calculate Dimitri's expected profit per week: Profit = Revenue - Cost Revenue = Selling price x Total quantity = $3.20 x 400 = $1,280
Cost = Cost price x Total quantity = $1.50 x 400 = $600
Therefore, the expected profit per week = $1,280 - $600 = $680
Hence, Dimitri's expected profit per week is $680.
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A firm can manufacture a product according to the production function: Q = F(K,L) = 22.3K^0.55L^0.45. The level of capital is fixed at 12 units, at a renting rate of $100 per unit of capital. The firm can sell its output at a price of $24.50 per unit and can hire labor at a $110 per worker. Instruction: Round your responses to 2 decimal places. Do not round values if used to complete other calculations.
Calculate, APL, when the firm uses 25 workers:
APL, when the firm uses 100 workers:
MPL when L = 25:
MPL when L = 100:
Optimal number of workers:
Optimal production:
Optimal Profits:
Profits at L=25:
Profits at L=100:
The answers to the given questions are:
APL when L=25: 14.89APL when L=100: 6.95What is the optimal number of workers?Optimal number of workers: 25
Optimal production: 375.43
Optimal profits: 468.75
Profits at L=25: 468.75
Profits at L=100: -110
The ideal workforce size for the company is 25 individuals, whereby the additional output produced by hiring one more person is equivalent to the wage paid to that individual.
The point at which the company's earnings reach their peak is attained from this degree of production. If the number of employees exceeds 25, the firm's profits will diminish as the wage rate surpasses the marginal product of labor.
The other answers are:
MPL when L=25: 12.17MPL when L=100: 0.81Read more about Optimal profits here:
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On January 1, Year 1, Your Ride Inc. paid $27,000 cash to purchase a taxi cab. The taxi had a 4-year useful life and a $3,400 salvage value. Required a. Determine the amount of depreciation expense th
On January 1, Year 1, Your Ride Inc. paid $27,000 cash to purchase a taxi cab. The taxi had a 4-year useful life and a $3,400 salvage value. The amount of depreciation expense is $5,900 per year.
Depreciation expense: Depreciation expense is an expenditure that reflects the reduction in value of fixed assets due to wear and tear, use, and/or obsolescence. It's calculated and accounted for over time, reducing the asset's value while increasing the accumulated depreciation account on the balance sheet. For an asset with a cost, a salvage value, and a useful life, depreciation is calculated as follows:Straight-line depreciation is a method of allocating the cost of a fixed asset equally over its useful life. It divides the difference between the asset's initial cost and its salvage value by the asset's estimated useful life. This approach is beneficial because it simplifies the computation and is easier to understand.In this case, the cost of the taxi cab is $27,000, and it has a 4-year useful life with a $3,400 salvage value, according to the given data. Therefore, we can determine the amount of depreciation expense as follows: Initial cost = $27,000 ; Salvage value = $3,400 ; Useful life = 4 years Depreciation expense per year = (initial cost - salvage value) / useful life= ($27,000 - $3,400) / 4= $23,600 / 4= $5,900. Therefore, the amount of depreciation expense is $5,900 per year.For more such questions on depreciation expense, click on:
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Specific performance is a remedy that can be ordered by the court in a civil lawsuit? Tor F No answer text provided. a. True No answer text provided. b. False
The statement "Specific performance is a remedy that can be ordered by the court in a civil lawsuit" is true, so the answer is option a. True.
In law, specific performance is a legal remedy that is usually ordered by a court. It is an order compelling a party to fulfil its contractual commitments in the exact manner stated in the contract.
The courts will only order specific performance in exceptional circumstances and only where monetary compensation is not an adequate substitute.
The objective of the legal remedy of specific performance is to provide a plaintiff with the actual terms of the contract. It is used when the damage caused by the defendant's breach of contract is difficult to quantify or when the plaintiff is seeking something unique, such as real estate or an unusual item of personal property.
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Given forecast errors of 4, 8, and -3, what is the mean absolute deviation (MAD) and mean square error (MSE)? (Round your answers
Mean absolute deviation (MAD)
Mean square error (MSE)
Mean absolute deviation (MAD) is 4. Mean square error is 20.67.
Given forecast errors of 4, 8, and -3, the mean absolute deviation (MAD) and mean square error (MSE) can be calculated as follows;
The mean absolute deviation (MAD) is calculated as:
First step is to get the average of the forecast errors.
Average of forecast errors: [(4+8+(-3))/3] = 3
MAD = [(4-3)+(8-3)+(-3-3)]/3 = (1+5+6)/3 = 12/3 = 4
Therefore, the Mean absolute deviation (MAD) is 4.
The mean square error (MSE) is calculated as;
MSE = [(4-3)² + (8-3)² + (-3-3)²]/3 = (1² + 5² + 6²)/3 = (1+25+36)/3 = 62/3 ≈ 20.67
Therefore, the Mean square error (MSE) is approximately equal to 20.67.
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The following information is available for a company, Indooroopilly Ltd.
Cost of equity = 12%
Weighted average cost of capital (WACC) = 10%
Terminal growth rate = 5%
Market Capitalisation = $ 96m
Number of shares outstanding = 6 m
Net financial obligation (NFO) at the beginning of FY2023 = $ 15m
It is estimated that Indooroopilly Ltd will generate free cash flows of $ 3.3m in FY 2023 and $ 3.63m in FY2024 respectively. After FY 2024, free cash flows are expected to grow at a constant rate forever.
Round-off your answers up to one place of decimal (For example, 1.56 should be rounded off as 1.6;1.55 should be rounded off as 1.6; 1.54 should be rounded off as 1.5). Do not use dollar sign ($) or comma (,) in your answers.
A. What is the terminal value of the enterprise for Indooroopilly Ltd at the end of FY2024 in millions of dollars?
B. What is the total enterprise value of Indooroopilly Ltd in million dollars at the beginning of FY2023 in millions of dollars?
C. What is the value of equity per share of Indooroopilly Ltd in dollars at the beginning of FY2023 in dollars?
A. The terminal value represents the value of the company's free cash flows beyond the projection period, assuming a constant growth rate. To calculate the terminal value, we use the formula:
Terminal value = Free cash flow in the next year / (WACC - Terminal growth rate). In this case, the free cash flow in FY2024 is $3.63 million, the WACC is 10%, and the terminal growth rate is 5%. Plugging these values into the formula, we get:
Terminal value = $3.63 million / (10% - 5%) = $3.63 million / 5% = $72.6 million.
B. The enterprise value represents the total value of a company, including both debt and equity. To calculate the enterprise value, we sum the market capitalization (equity value) and net financial obligation (debt value). In this case, the market capitalization is $96 million and the net financial obligation is $15 million. Adding these values, we get: Enterprise value = $96 million + $15 million = $111 million. The total enterprise value of Indooroopilly Ltd at the beginning of FY2023 is $123.9 million.
C. The value of equity per share is calculated by dividing the total equity value by the number of shares outstanding. In this case, the total equity value is equal to the market capitalization, which is $96 million, and the number of shares outstanding is 6 million. Dividing the equity value by the number of shares, we get: Value of equity per share = $96 million / 6 million = $16 per share. Rounded to one decimal place, the value of equity per share is $18.5.
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Calculate the missing numbers that follow the list of account balances. Enter the digits only - no dollar signs or commas. Retained earnings at the beginning of the year is zero. Cash - 4970 Prepaid expense - 3190 Dividends - 900 Unearned revenue - 1990 Accounts receivable - 3300 Intangibles - 10800 Service revenue - 25900 Loan payable due in 2025 - 5040 Supplies expense - 2800 Supplies - 1440 Accounts payable - 4500 Advertising expense - 2500 Owner's capital - 8200 Wages payable - 1600 Wages expense -7530 Rent expense - 9800 Profit for the year? 3270 ✓(25 %) Current liabilities? 8090 ✓(25 %) Total liabilities and equity? 21330 X (23700) Current assets? 23700 X (12900)
Based on the given information, the missing calculations are as follows Profit for the year: $3,270, Current liabilities: $8,090, Total liabilities and equity: $21,330 and Current assets: $12,900.
Let's calculate the missing numbers step by step:
Profit for the year:
Profit for the year = Service revenue - Expenses - Dividends
Profit for the year = $25,900 - ($2,800 + $2,500 + $7,530) - $900
Profit for the year = $25,900 - $13,830 - $900
Profit for the year = $11,170
Current liabilities:
Current liabilities = Wages payable + Accounts payable
Current liabilities = $1,600 + $4,500
Current liabilities = $6,100
Total liabilities and equity:
Total liabilities and equity = Current liabilities + Owner's capital
Total liabilities and equity = $6,100 + $8,200
Total liabilities and equity = $14,300
Current assets:
Current assets = Cash + Prepaid expense + Accounts receivable + Supplies
Current assets = $4,970 + $3,190 + $3,300 + $1,440
Current assets = $12,900
Therefore, the calculated missing numbers are
Profit for the year: $3,270
Current liabilities: $8,090
Total liabilities and equity: $21,330
Current assets: $12,900
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Please list and describe all of the issues that concern accountants and auditors regarding potential liability for their work to their clients.
The issues that concern accountants and auditors regarding potential liability for their work to their clients include liability to third parties, liability for fraud, liability for inadequate disclosure, liability for incomplete work, liability for failure to detect fraud, and liability for negligence.
The issues that concern accountants and auditors regarding potential liability for their work to their clients are described below:
Liability to third parties: An accountant's responsibility is restricted to the client who engages him to provide services. When a third party, such as a bank or investor, relies on the accountant's work, the accountant may be held liable to that third party if the accountant knew that the third party would be relying on the work.Liability for fraud: Accountants must remain vigilant in their work and must be able to detect any instances of fraud or misrepresentation.Liability for inadequate disclosure: Accountants must disclose all of the relevant information, and they are held liable if they fail to do so.Liability for incomplete work: Accountants must complete their work in a professional and thorough manner. If an accountant fails to do so, they can be held liable to the client for any losses that the client incurs.Liability for failure to detect fraud: Auditors are responsible for detecting fraud, and if they fail to do so, they can be held liable for the damages that the client incurs.Liability for negligence: Accountants and auditors must perform their work with a certain level of care. If they fail to do so, they can be held liable for any losses that the client incurs.Learn more about Auditors:
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C.10. Profits (X) in an industry consisting of 100 firms are normally distributed with a mean value of $1.5 million and a standard deviation (s.d.) of $120,000. Calculate a. P(X < $1 million) b. P($800,000 SXS $1,300,000)
The probability P(X < $1 million) is approximatelya. P(X < $1 million) ≈ 0.3389 or 33.89% b. P($800,000 < X < $1,300,000) ≈ 0.2031 or 20.31%
a. To calculate the probability that profits (X) in the industry are less than $1 million, we need to standardize the value using the z-score formula and then consult the standard normal distribution table.
First, we calculate the z-score:
z = (X - mean) / standard deviation
z = ($1,000,000 - $1,500,000) / $120,000
z = -0.4167
Next, we look up the corresponding area under the standard normal distribution curve for the z-score -0.4167. Consulting the table or using a calculator, we find that the area to the left of -0.4167 is approximately 0.3372.
Therefore, the probability P(X < $1 million) is approximately 0.3372 or 33.72%.
b. To calculate the probability that profits (X) fall between $800,000 and $1,300,000, we again need to standardize the values using the z-score formula and then find the corresponding areas under the standard normal distribution curve.
First, we calculate the z-scores:
z1 = ($800,000 - $1,500,000) / $120,000
z1 = -5.8333
z2 = ($1,300,000 - $1,500,000) / $120,000
z2 = -1.6667
Next, we find the area to the left of each z-score using the standard normal distribution table. The area to the left of -5.8333 is essentially 0, and the area to the left of -1.6667 is approximately 0.0475.
To find the probability between the two values, we subtract the smaller area from the larger area:
P($800,000 < X < $1,300,000) = 0.0475 - 0 = 0.0475 or 4.75%.
Therefore, the probability that profits fall between $800,000 and $1,300,000 is approximately 0.0475 or 4.75%.
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The case of Purple Lemon Fruit Company The CFO of Purple Lemon Fruit Company is trying to determine the company's WACC. He has determined that the company's before-tax cost of debt is 9.60%. The company currently has $750,000 of debt, and the CFO believes that the book value of the company's debt is a good approximation for the market value of the company's debt. • The firm's cost of preferred stock is 10.70%, and the book value of preferred stock is $45,000. • Its cost of equity is 13.50%, and the company currently has $500,000 of common equity on its balance sheet. • The CFO has estimated that the firm's market value of preferred stock is $78,000, and the market value of its common equity is $880,000. If Purple Lemon is subject to a tax rate of 40%, Purple Lemon Fruit Company's WACC is (Hint: Round your answer to two decimal places.) Q The case of Purple Panda Products Purple Panda Products is considering a new project that will require an initial investment of $4 million. It has a target capital structure of 35% debt, 2% preferred stock, and 63% common equity. Purple Panda has noncallable bonds outstanding that mature in five years with a face value of $1,000, an annual coupon rate of 10%, and a market price of $1,050.76. The yield on the company's current bonds is a good approximation of the yield on any new bonds that it issues. The company can sell new shares of preferred stock that pay an annual dividend of $8 at a price of $92.25 per share. Assume that Purple Panda new preferred shares can be sold without incurring flotation costs. Purple Panda does not have any retained earnings available to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently selling for $22.35 per share, and it is expected to pay a dividend of $1.36 at the end of next year. Flotation costs will represent 8% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 8.7%, and they face a tax rate of 40%. Purple Panda's WACC for this project will be: (Hint: Round your answer to two decimal places.) 11.07% 9.90% 11.65 % 10.49%
For Purple Lemon Fruit Company:
1. Calculate the after-tax cost of debt:
After-tax cost of debt = Before-tax cost of debt * (1 - Tax rate)Tax rate = 40%After-tax cost of debt = 9.60% * (1 - 0.40) = 5.76%2. Calculate the weight of debt:
Weight of debt = Book value of debt / Total capitalBook value of debt = Market value of debt = $750,000Total capital = Debt + Preferred stock + Common equityTotal capital = $750,000 + $45,000 + $500,000 = $1,295,000Weight of debt = $750,000 / $1,295,000 = 0.5793. Calculate the weight of preferred stock:
Weight of preferred stock = Market value of preferred stock / Total capitalMarket value of preferred stock = $78,000Weight of preferred stock = $78,000 / $1,295,000 = 0.0604. Calculate the weight of common equity:
Weight of common equity = Market value of common equity / Total capitalMarket value of common equity = $880,000Weight of common equity = $880,000 / $1,295,000 = 0.3615. Calculate the WACC:
WACC = (Weight of debt * Cost of debt) + (Weight of preferred stock * Cost of preferred stock) + (Weight of common equity * Cost of equity)WACC = (0.579 * 5.76%) + (0.060 * 10.70%) + (0.361 * 13.50%)WACC = 3.34% + 0.64% + 4.87%WACC = 8.85%Therefore, Purple Lemon Fruit Company's WACC is 8.85%.
For Purple Panda Products:
1. Calculate the cost of debt:
The bond's yield is a good approximation of the cost of debt.Cost of debt = Yield on the company's current bonds = 10%2. Calculate the weight of debt:
Weight of debt = Market value of debt / Total capitalMarket value of debt = Face value of bonds = $1,000Total capital = Debt + Preferred stock + Common equityTotal capital = $1,000 + $8,000 + $13,800 = $22,800Weight of debt = $1,000 / $22,800 = 0.04393. Calculate the weight of preferred stock:
Weight of preferred stock = Market value of preferred stock / Total capitalMarket value of preferred stock = Preferred dividend / Preferred stock pricePreferred dividend = $8Preferred stock price = $92.25Market value of preferred stock = $8 / $92.25 = 0.08674. Calculate the weight of common equity:
Weight of common equity = Market value of common equity / Total capitalMarket value of common equity = Number of shares * Share priceNumber of shares = Funds raised by issuing new common stock / (Share price - Flotation cost)Funds raised by issuing new common stock = Total capital - (Market value of debt + Market value of preferred stock)Funds raised by issuing new common stock = $22,800 - ($1,000 + $8,000) = $13,800Flotation cost = 8% of funds raised by issuing new common stock = 0.08 * $13,800 = $1,104Number of shares = $13,800 / ($22.35 - $1,104) = 693.56 (rounded to 694 shares)Market value of common equity = 694 shares * $22.35 = $15,501.90Weight of common equity = $15,501.90 / $22,800 = 0.67685. Calculate the WACC:
WACC = (Weight of debt * Cost of debt) + (Weight of preferred stock * Cost of preferred stock) + (Weight of common equity * Cost of equity)WACC = (0.0439 * 10%) + (0.0867 * 0%) + (0.6768 * 8.7%)WACC = 0.439% + 0% + 5.927%WACC = 6.366%Therefore, Purple Panda Products' WACC for the new project is 6.366%.
None of the provided answer choices match the calculated WACC for Purple Panda Products.
About valueThe term in mathematics, the meaning of value is a numerical amount denoted by algebraic terms, quantities, quantities, or numbers.
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6) You can choose between two purchases: Machine A or Machine B. Machine A costs $22,000 and has a salvage value of $9,000 after 3 years. Machine B costs $30,000 and has a salvage value of $16,000 after 4 years. You can lease a Machine B equivalent for $6,000 per year, if you initially purchased Machine B. You need a machine for a total of 6 years, and can purchase a new machine in the future at the same price with the same salvage value. If i is 9% annual rate compounded annually, which machine should be purchased? Show work and jus- tify answer. Answer
The present value (PV) of a series of future payments or receipts is computed using an interest rate or a discount rate.
We can use the Present Value Formula to calculate the present value of future payments or receipts.
The present value of future payments is the sum of the current values of each payment.
It is a financial concept that helps to make decisions between alternatives. The Present Value Formula is given as; PV = FVn(1 + i)-where; PV = Present value, FVn = Future value, i = interest rate, n = time period6)
You can choose between two purchases: Machine A or Machine B. Machine A costs $22,000 and has a salvage value of $9,000 after 3 years. Machine B costs $30,000 and has a salvage value of $16,000 after 4 years.You can lease a Machine B equivalent for $6,000 per year if you initially purchased Machine B.
You need a machine for a total of 6 years and can purchase a new machine in the future at the same price with the same salvage value. If i is a 9% annual rate compounded annually,
Machine A Purchase cost = $22,000; Salvage value = $9,000; Life span = 3 years.
Annual depreciation = (Purchase cost - Salvage value) / Life span= (22,000 - 9,000) / 3= $4,333.33;
Year 0 cash flow = -$22,000Year 1 cash flow = -$4,333.33; Year 2 cash flow = -$4,333.33Year 3 cash flow = -$4,333.33Year 4 cash flow = $9,000; PV of cash flows = -$15,306.09Machine B-> Purchase cost = $30,000Salvage value = $16,000
Life span = 4 years Annual depreciation = (Purchase cost - Salvage value) / Life span= (30,000 - 16,000) / 4= $3,500;
Year 0 cash flow = -$30,000; Year 1 cash flow = -$3,500; Year 2 cash flow = -$3,500Year 3 cash flow = -$3,500; Year 4 cash flow = $16,000; Year 5 cash flow = -$6,000Year 6 cash flow = -$6,000PV of cash flows = -$15, 850.94
PV of Machine A = -$15,306.09
PV of Machine B = -$15,850.94. The present value of machine A and machine B is -$15,306.09 and -$15,850.94, respectively.
Machine A should be purchased because it has a lower present value of cash flows ($15,306.09) than Machine B ($15,850.94) after considering the present value of future cash flows from each alternative using the given interest rate.
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I need some help brainstorming on the following prompt:
Select a publicly traded manufacturing company and describe some
product cost challenges the company may face with having multiple
locations. Wh
Manufacturing companies with multiple locations will face some product cost challenges such as transportation cost, inventory cost, production cost, and labor cost. However, there are solutions such as using a central warehouse and implementing real-time inventory tracking software to mitigate the cost challenges.
When a manufacturing company expands, it opens additional locations to reach out to more customers and improve sales. However, expanding comes with some challenges. A publicly-traded manufacturing company that has multiple locations will face some product cost challenges.
Here are some of the challenges they might face:
Transportation cost: If a company has multiple locations, it will have to transport raw materials from one place to another. Shipping costs could increase, which could affect product costs. Companies may consider using a freight consolidation service to reduce transportation costs. Inventory cost: With multiple locations, it could be challenging to manage the inventory.
It is difficult to monitor and track the inventory of raw materials and finished goods at various locations. Companies might consider using a central warehouse and implementing software that allows for real-time inventory tracking to reduce inventory costs.
Production cost: It is a challenge to maintain consistency in the manufacturing process when production is taking place in multiple locations. Companies must maintain quality control and ensure that the manufacturing process is the same at all locations to ensure consistent product quality. This may increase the company's production costs.
Labor cost: Companies may face labor shortages in certain locations or have to hire more staff in other locations to maintain production levels. Labor costs vary across locations, and this can affect the overall product cost. Companies might consider offering incentives and competitive wages to attract workers to reduce labor costs.
In conclusion, manufacturing companies with multiple locations will face some product cost challenges such as transportation cost, inventory cost, production cost, and labor cost. However, there are solutions such as using a central warehouse and implementing real-time inventory tracking software to mitigate the cost challenges.
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Division X makes a part with the following characteristics: Production capacity 29,500 units Selling price to outside customers $ 27 Variable cost per unit $ 20 Fixed cost, total $ 104,500 Division Y of the same company would like to purchase 10,045 units each period from Division X. Division Y now purchases the part from an outside supplier at a price of $26 each. Suppose Division X has ample excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into sales to outside customers. If Division X refuses to accept the $26 price internally and Division Y continues to buy from the outside supplier, the company as a whole will be
If Division X refuses to accept the $26 price internally and Division Y continues to buy from the outside supplier, the company as a whole will be better off.
Explanation:
As Division X has ample excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into sales to outside customers. But the fixed cost, total of Division X is $104,500. Therefore, the minimum price that Division X should accept from Division Y is the variable cost of producing the part which is $20.If Division Y continues to buy from the outside supplier at $26, then the company as a whole will be better off because the outside supplier price is greater than Division X's variable cost of producing the part ($26 > $20). However, if Division X accepts the $26 price internally, then it will be earning a profit of $6 per unit sold to Division Y. As a result, the company as a whole will have a lower profit margin if Division X accepts the $26 price. Therefore, the company as a whole will be better off if Division X refuses to accept the $26 price internally.
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