B2B Company is considering the purchase of equipment that would allow the company to add a new product to its product line. The equipment would cost $750,000 and is expected to have a useful life of 8 years and no salvage value. The company expects to sell 30,000 units of the new product each year. The sales price per unit will be $30 with a variable cost of $20 per unit.
The fixed costs associated with the product will be $120,000 per year. The company's required rate of return is 12%.
a. Compute the payback period.
b. Compute the equal cash flows associated with the equipment.
c. Compute the accounting rate of return.
a. Compute the payback period.
Payback period is the length of time it takes to recover the initial investment outlay.
It is an important concept for businesses in determining the feasibility of a potential investment, and it can be calculated using the following formula:
Payback Period = Initial Investment / Annual Cash Flows
The initial investment is $750,000 and the annual cash flows for the first 6 years (since payback is achieved in the 6th year) are:
Year 1: 30,000($30 - $20) - $120,000 = $60,000
Year 2: 30,000($30 - $20) - $120,000 = $60,000
Year 3: 30,000($30 - $20) - $120,000 = $60,000
Year 4: 30,000($30 - $20) - $120,000 = $60,000
Year 5: 30,000($30 - $20) - $120,000 = $60,000
Year 6: 30,000($30 - $20) - $120,000 = $60,000
Payback Period = $750,000 / $60,000
Payback Period = 12.5 years
Since the payback period is longer than the expected useful life of the equipment, it is not recommended for the company to invest in this project.
b. Compute the equal cash flows associated with the equipment.
Equal cash flows are a hypothetical constant cash flow stream that has the same present value as the actual cash flow stream of the investment.
It is calculated using the formula:
Equal Cash Flows = Initial Investment / Present Value Factor
The present value factor for an 8-year investment with a required rate of return of 12% is 4.037
Equal Cash Flows = $750,000 / 4.037
Equal Cash Flows = $185,675.49
Therefore, if the company wants to receive the same present value as the actual cash flows stream, the equal cash flows stream should be $185,675.49 per year.
c. Compute the accounting rate of return.
Accounting rate of return is a profitability ratio that measures the average net income earned by an investment over its average book value.
It is calculated using the formula:
ARR = Average Annual Net Income / Average Book Value
Average Annual Net Income = (Total Annual Revenue - Total Annual Expenses) / Number of Years
Average Annual Net Income = ($900,000 - $570,000) / 8
Average Annual Net Income = $41,250
Average Book Value = (Initial Investment + Salvage Value) / 2
Average Book Value = ($750,000 + $0) / 2
Average Book Value = $375,000ARR
Average Book Value = $41,250 / $375,000
Average Book Value = 0.11 or 11%
The accounting rate of return for the investment is 11%.
It is higher than the required rate of return of 12%.
Therefore, the investment is recommended.
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be specific to the questions and answer them.
COMPANY RESEARCH Independently, pick a company of your choice. Read their sustainability plan, often available through their website • What kinds of goals have they outlined? Where is their focus in
The kinds of goals and focus areas that companies often include in their sustainability plans:
1. Environmental Sustainability: Companies may set goals related to reducing their carbon footprint, energy consumption, water usage, waste generation, and greenhouse gas emissions. They may also focus on adopting renewable energy sources and sustainable practices in their operations.
2. Social Responsibility: Companies may outline goals related to promoting diversity and inclusion, ensuring fair labor practices, providing safe working conditions, and supporting local communities through philanthropy and social initiatives.
3. Supply Chain Sustainability: Companies may emphasize responsible sourcing and supplier engagement, ensuring that their supply chain operates ethically, minimizes environmental impacts, and respects human rights.
4. Product Innovation and Circular Economy: Companies may prioritize developing sustainable products, promoting product recycling and reuse, and embracing the principles of the circular economy to minimize waste and maximize resource efficiency.
5. Stakeholder Engagement and Transparency: Companies may commit to engaging with stakeholders, including employees, customers, investors, and communities, and maintaining transparency in reporting their sustainability performance and progress towards goals.
It's important to note that the specific goals and focus areas can vary significantly depending on the industry, company size, and corporate values. Conducting independent research on a specific company's sustainability plan will provide more detailed insights into their goals and areas of focus.
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Consider the accompanying cash flow diagram. Compute the equivalent annual worth at i = 10%. $2,000 $2,000 $1,500 $1,500 $1,000 3 4 5 6 Years 0 $4,500 1 2
The equivalent annual worth at a 10% interest rate is roughly $1,040.76.
To compute the equivalent annual worth at an interest rate (i) of 10%, we need to convert the given cash flow diagram into a series of equivalent annual cash flows.
The cash flow diagram shows the following cash flows:
Year 0: -$4,500
Year 1: $2,000
Year 2: $2,000
Year 3: $1,500
Year 4: $1,500
Year 5: $1,000
To calculate the equivalent annual worth, we need to find the annual cash flow that would be equivalent to the given cash flows over the 6-year period.
Step 1: Calculate the present worth (PW) of each cash flow at an interest rate of 10%:
PW = CF / (1 + i)^n
Where CF is the cash flow, i is the interest rate, and n is the number of years.
Present Worth of Year 0 cash flow: -4,500 / (1 + 0.10)^0 = -4,500
Present Worth of Year 1 cash flow: 2,000 / (1 + 0.10)^1 ≈ 1,818.18
Present Worth of Year 2 cash flow: 2,000 / (1 + 0.10)^2 ≈ 1,652.89
Present Worth of Year 3 cash flow: 1,500 / (1 + 0.10)^3 ≈ 1,089.17
Present Worth of Year 4 cash flow: 1,500 / (1 + 0.10)^4 ≈ 990.70
Present Worth of Year 5 cash flow: 1,000 / (1 + 0.10)^5 ≈ 680.58
Step 2: Calculate the equivalent annual worth (AEW) using the present worth values:
AEW = (PW * i) / (1 - 1 / (1 + i)^n)
Where i is the interest rate and n is the number of years.
AEW = (-4,500 * 0.10) / (1 - 1 / (1 + 0.10)^6) ≈ -1,040.76
Therefore, the equivalent annual worth at an interest rate of 10% for the given cash flow diagram is approximately -$1,040.76. The negative value indicates a net outflow or cost.
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The covariance between the return on Apple stock and the S&P 500 is 0.12. The variance of the return on the S&P 500 is 0.09. Apple stock is: a. Riskier than the market b. Less risky than the market C. As risky as the market d. Expected to have a good return when the market is doing poorly e. None of the above 25. Bookaccino's Pic wants to acquire Book Cellar Plc. Shares in Bookaccino's are currently trading at £5.00 each and shares in Book Cellar are trading at £2.40 each. Bookaccino's is offering 5 of its ordinary shares for ten shares in Book Cellar. What does this imply that Bookaccino's values shares of Book Cellar at? a. £2.40 b. £2.50 C. £5.00 d. £7.40 e. None of the above I
Riskier than the market.25) Bookaccino's Pic wants to acquire Book Cellar Plc. Shares in Bookaccino's are currently trading at £5.00 each and shares in Book Cellar are trading at £2.40 each. Bookaccino is offering 5 of its ordinary shares for ten shares in Book Cellar. The correct Option (a)
a) Riskier than the marketWe knows that the covariance of Apple stock return and S&P 500 is 0.12, and the variance of the S&P 500 return is 0.09.
Then we can calculate the beta of Apple stock. Beta = Covariance of Apple stock return and S&P 500 / Variance of S&P 500 returnBeta = 0.12 / 0.09 = 1.3333We can interpret the value of beta to determine the relative riskiness of the stock.
If the beta is greater than 1, it means that the stock is riskier than the market. If the beta is less than 1, it means that the stock is less risky than the market.
If the beta is equal to 1, it means that the stock has the same risk as the market. In this case, the beta of Apple stock is 1.3333, which is greater than 1. This means that Apple stock is riskier than the market.
What does this imply that Bookaccino's values share of Book Cellar? Bookaccino's is offering 5 of its ordinary shares for 10 shares in Book Cellar. This means that the exchange ratio is 5:10, which simplifies to 1:2.
This means that for every 1 share of Book Cellar, shareholders will receive 2 shares of Bookaccino's. If the shares of Bookaccino's are trading at £5.00 each, it means that each share of Bookaccino's is worth £2.50.
Bookaccino's is offering 2.5 pounds for each share of Book Cellar.
Option (b) is correct. Therefore, the answer is:£2.50.
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An unrealized holding gain or loss on a trading debt investment is the difference between the investment's
A. Face value and original cost
B. Face value and amortized cost
c. Fair value and amortized cost
D.Fair value and original cost
An unrealized holding gain or loss on a trading debt investment is the difference between the investment's fair value and amortized cost. Therefore, the correct answer is option (C).
An unrealized holding gain or loss is an increase or decrease in the fair value of a security held by a company but not yet sold.
When a company buys securities such as stocks, bonds, or mutual funds, it expects to earn money from them either through income from dividends, interest, or price appreciation that allows them to sell the securities for more than they paid for them. Holding gains or losses may arise as a result of fluctuations in the market value of an investment held by a firm.
Therefore, c is correct.
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Suppose that there are only two countries, Home and Foreign, and that both exporters and importers in Home country set their prices in Home currency and that Home trade is initially balanced. Discuss whether the J curve can be relevant for Home country. Suppose that there are only two countries, Home and Foreign, and that both exporters and importers in Home country set their prices in Home currency and that Home trade is initially balanced. Discuss whether the J curve can be relevant for Home country.
The J-curve can be significant for Home country, in which there are only two nations, Home and Foreign, and both exporters and importers set their prices in Home currency and Home trade is initially balanced.
This phenomenon occurs when the trade balance deteriorates after a currency devaluation and then enhances afterward, creating a curve with a "J" shape. It indicates that the initial effect of a currency devaluation is to worsen the trade balance, followed by an improvement that exceeds the original situation.
A currency devaluation might increase the cost of imported goods and services, lowering imports and increasing exports. It is anticipated that the resulting lower import demand will eventually balance the trade account and result in a better outcome.
However, in the short run, the trade balance deteriorates more than it recovers in the long run. The curve of trade balance in response to the exchange rate fluctuation has a J-shape because of this behavior.
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TRUE / FALSE. 1. Payment from negotiating bank under a L/C is final and cannot be reclaimed.
2. If a credit is subject to UCP 600 and doesn't indicate whether it is irrevocable
or not, it is a revocable L/C.
3. A draft showing "Pay to Mary White and debit my No.2 account" represents
an unconditional order to pay.
4. Once a draft is accepted, its primary debtor is changed from drawer to acceptor.
5. An uncrossed cheque implies that the cheque amount should be paid into a bank account and can not be exchanged for cash over the counter.
6. For a confirmed credit, the confirming bank holds the same liability as the issuing bank.
7. If the remittance is made by a banker's demand draft, this payment is based on bank credit.
8. The drawer of the draft used under L/C is generally the issuing bank.
9."Dishonor"means the refusal to the acceptance or payment of a duly presented draft.
10. In L/C, the advising bank is responsible for examining the documents presented by the beneficiary.
TRUE / FALSE are as follows:
1. Payment from negotiating bank under a L/C is final and cannot be reclaimed.True
2. If a credit is subject to UCP 600 and doesn't indicate whether it is irrevocable or not, it is a revocable L/C.False
3. A draft showing "Pay to Mary White and debit my No.2 account" represents an unconditional order to pay.False, A draft showing "Pay to Mary White and debit my No.2 account" represents a conditional order to pay.
4. Once a draft is accepted, its primary debtor is changed from drawer to acceptor.True
5. An uncrossed cheque implies that the cheque amount should be paid into a bank account and cannot be exchanged for cash over the counter.False
6. For a confirmed credit, the confirming bank holds the same liability as the issuing bank.True
7. If the remittance is made by a banker's demand draft, this payment is based on bank credit.True
8. The drawer of the draft used under L/C is generally the issuing bank.False
9. "Dishonor" means the refusal to the acceptance or payment of a duly presented draft.True
10. In L/C, the advising bank is responsible for examining the documents presented by the beneficiary.False
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Problem 12-1 (algo) Identify which of the three functions of money is most relevant in the following situations. a. A business traveler does an online search of fares offered by airlines for her upcoming trip. The most relevant function of money in this situation is as a (Click to select) + b. A borrower uses an electronic transfer to pay off a debt to a friend. The most relevant function of money in this situation is as a means of exchange c. A bondholder cashes a Canada Savings Bond and keeps the proceeds for a time in currency. The most relevant function of money in this situation is as a (Click to select) + d. A reader compares prices of electronic and hard copy versions of a new book. The most relevant function of money in this situation is as a (Click to select) ♦ e. A cafe customer uses currency to pay for a cup of coffee. The most relevant function of money in this situation is as a (Click to select) + f. A retailer temporarily keeps monthly sales revenue in a business bank account. The most relevant function of money in this situation is as a (Click to select) ♦
Problem 12-1 (algo) Identify which of the three functions of money is most relevant in the following situations. The three functions of money are means of exchange, store of value, and unit of account. The most relevant function of money in the following situations is:
a. A business traveler does an online search of fares offered by airlines for her upcoming trip. The most relevant function of money in this situation is as a unit of account.
b. A borrower uses an electronic transfer to pay off a debt to a friend. The most relevant function of money in this situation is as a means of exchange.
c. A bondholder cashes a Canada Savings Bond and keeps the proceeds for a time in currency. The most relevant function of money in this situation is as a store of value.
d. A reader compares prices of electronic and hard copy versions of a new book. The most relevant function of money in this situation is as a unit of account.
e. A cafe customer uses currency to pay for a cup of coffee. The most relevant function of money in this situation is as a means of exchange.
f. A retailer temporarily keeps monthly sales revenue in a business bank account. The most relevant function of money in this situation is as a store of value.
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Sectors of the external environment and the five forces of competition.
How and why are Environmental and Industry analyses relevant to Starbucks overall.
Environmental and Industry analyses are important to the overall success of Starbucks because they provide an understanding of the external environment that the company operates in and help to identify the key opportunities and threats that are likely to impact the business.
The external environment consists of several sectors including economic, social, political, legal, and technological factors, which can influence the performance of the business.
In addition, the five forces of competition model developed by Michael Porter provides a framework for analyzing the competitive environment in which Starbucks operates. The five forces include the threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products or services, and rivalry among existing firms. By analyzing these factors, Starbucks can better understand the competitive landscape and develop strategies to gain a competitive advantage. Starbucks operates in the retail coffee and snacks industry, which is highly competitive with several large players such as Dunkin’ Donuts and McDonald’s.
By conducting environmental and industry analyses, Starbucks can identify key trends and developments in the industry and adapt its strategy accordingly. For example, if a new competitor enters the market, Starbucks can respond by introducing new products or services to maintain its competitive position.
Furthermore, environmental analysis can help Starbucks to anticipate changes in consumer preferences and adjust its strategy to meet evolving demand.
In conclusion, Environmental and Industry analyses are relevant to Starbucks overall because they provide an understanding of the external environment and help the company to identify key opportunities and threats. Through analyzing the five forces of competition, Starbucks can gain a better understanding of the competitive landscape and develop strategies to gain a competitive advantage.
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______ stock is the number of shares that a corporation's charter allows it to sell. multiple choice question.
Authorized stock is the number of shares that a corporation's charter allows it to sell.
Authorized stock represents the maximum number of shares that a company is legally permitted to issue according to its corporate charter or articles of incorporation. This limit is established at the time of the company's formation and can only be changed through an amendment to the charter. The authorized stock sets the upper boundary for the total number of shares that can be offered to investors or shareholders.
It's important to note that the authorized stock does not necessarily reflect the actual number of shares issued by the company. The issued shares may be a fraction of the authorized stock, depending on the company's capital structure and financing decisions. The authorized stock provides flexibility for the company to issue additional shares in the future if required for various purposes like fundraising, acquisitions, or employee stock compensation.
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Three months ago, you purchased a stock for $72.74. The stock is currently priced at $79.16. What is the EAR on your Investment? Multiple Choice a. 35.30% b. 43.92% c. 8.83% d. 32.36% e. 40,26%
The EAR on your investment is approximately 35.43%. Option a
How to calculate the the EAR on your InvestmentTo calculate the Effective Annual Rate (EAR) on your investment, we need to consider the price change of the stock over the three-month period. Here are the steps to calculate the EAR:
Calculating the rate of return on the investment:
Rate of return = (Ending value - Beginning value) / Beginning value
Rate of return = ($79.16 - $72.74) / $72.74
Rate of return = $6.42 / $72.74
Rate of return ≈ 0.0883 or 8.83%
Calculating the EAR using the rate of return:
EAR = (1 + Rate of return)^n - 1
Where n is the number of compounding periods in a year.
Since the investment period is three months, and there are 12 months in a year, the number of compounding periods in a year (n) is 12/3 = 4.
EAR = (1 + 0.0883)^4 - 1
Calculating this expression:
EAR ≈ 0.3543 or 35.43%
Therefore, the EAR on your investment is approximately 35.43%.
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A method that uses a weighted average of past values for arriving at smoothed time series values is known as
a. a moving average
b. a smoothing average
c. an exponential smoothing
d. an exponential average
The method that uses a weighted average of past values for arriving at smoothed time series values is known as d) an exponential smoothing.
An exponential smoothing method is a forecasting technique that uses the past data of a time series to predict future trends. It is commonly used to smooth out irregularities in a time series, identify patterns, and make predictions.Exponential smoothing assigns exponentially decreasing weights to older observations. Thus, the method gives more weight to recent observations and less weight to older observations. This technique is widely used to predict sales, demand, and supply chains. It is especially useful when a time series has a trend, seasonal effects, and noise.
Exponential smoothing technique is easy to use and flexible. The formula for exponential smoothing is as follows: $$ \hat y_{t+1}= \alpha y_{t} + (1 - \alpha)\hat y_t$$ where y is the actual observation, $\hat y_t$ is the forecast, and $\alpha$ is the smoothing constant. The smoothing constant $\alpha$ lies between 0 and 1. The closer the value of $\alpha$ to 1, the more weight is given to recent observations, and the smoother the trend is. The answer is d. an exponential average.
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As restrictions for Covid-19 have eased and businesses are opening at some point people will again go out to dinner. When evaluating different alternatives for a Saturday night outing at a fine restaurant, explain the difference between the Universal set, The Retrieval set, and the evoked set. Then explain from which set of alternatives would you choose a restaurant to go to and why.
When deciding to choose a restaurant to dine out at, it is essential to consider all three sets. However, the Evoked set should be the primary consideration because it comprises alternatives that the individual considers before making a decision.
When evaluating different alternatives for a Saturday night outing at a fine restaurant, there are three types of sets that must be taken into account. These are the Universal set, the Retrieval set, and the Evoked set.Difference between Universal set, Retrieval set, and Evoked setUniversal setThe Universal set refers to all the options or choices that are accessible for a given decision. This set is limitless and extensive in terms of options, but only a few are usually feasible.
The Universal set, in this context, refers to all restaurants available in the area or nearby locations.Retrieval setThe Retrieval set refers to the group of options or alternatives that come into the individual's mind immediately. This set is made up of things that are readily accessible from memory and come to mind quickly. For example, this can be the group of restaurants that the individual usually dines out, or restaurants that are nearby to the individual's location.
Evoked setThe Evoked set refers to the subset of alternatives that the individual considers before making a decision. This set is typically a selection of options from the Retrieval set that appears to be appealing to the individual. The evoked set may include the individual's favorite restaurant or restaurants that the individual has read about or heard from friends. These alternatives are selected from the Retrieval set, which consists of items that come to the individual's mind effortlessly.
The Evoked set involves the individual's past experiences, preferences, and values; thus, it comprises a group of options that are most likely to satisfy the individual's expectations. Additionally, it is essential to take into account the individual's budget and the location of the restaurant to ensure that it is feasible. Therefore, when choosing a restaurant, the evoked set should be the primary focus.
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Bentz Corporation bought and sold several securities during 2021. Listed below is a summary of the transactions: February 17 Purchased $102,000 of U.S. Treasury 6% bonds at par plus accrued interest of $1,000. The security is to be held for short-term profits. April 10 August 8 Purchased 500 shares of Gauges Inc. common stock at $140 per share. This security will be held for an unspecified period of time. Sold 100 shares of Gauges Inc. for $150 per share. October 5 Sold half of the U.S. Treasury bonds for $51,500 plus accrued interest of $300. Required: Prepare the journal entries for the above transactions.
To prepare the journal entries for the transactions, we need to record the purchases and sales of securities. Here are the journal entries for each transaction:
February 17:
Debit: U.S. Treasury 6% bonds - $102,000
Debit: Accrued interest - $1,000
Credit: Cash - $103,000
April 10:
Debit: Gauges Inc. common stock - $70,000 ($140/share * 500 shares)
Credit: Cash - $70,000
August 8:
No journal entry is required at this time since the stock is being held.
Sold 100 shares of Gauges Inc. for $150 per share:
Debit: Cash - $15,000 (100 shares * $150/share)
Credit: Gauges Inc. common stock - $14,000 (100 shares * $140/share)
Credit: Gain on sale of securities - $1,000
October 5:
Debit: Cash - $51,800 ($51,500 + $300)
Debit: Accrued interest - $300
Credit: U.S. Treasury 6% bonds - $51,800
Please note that the journal entries provided are general entries based on the information provided. It's important to consult with an accounting professional or refer to specific accounting standards for accurate and complete journal entries.
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You are considering an investment opportunity that requires an initial investment of $159 million in period 0. Starting in one year, it will generate $12.1 million per year in perpetuity (i.e. every y
NPV is positive, the investment is profitable. If NPV is negative, the investment should be rejected. If NPV is zero, the investment is neither profitable nor unprofitable.
The net present value (NPV) of an investment is a popular metric used to assess the value of an investment opportunity. The concept of NPV is based on the idea that a dollar today is worth more than a dollar in the future because the dollar today can be invested and earn a return. Therefore, the present value of a future cash flow must be discounted to account for the time value of money.
The calculation of the net present value of the investment is:NPV = PV of cash inflows - PV of cash outflowsPV of cash outflows = $159 million PV of cash inflows = $12.1 million/ (r-g) where r is the discount rate and g is the annual growth rate of cash flowsAfter calculating the PV of the cash inflows and outflow
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To analyze the sources of specific risk, IBM uses sensitivity analysis to determine the impact of different market risk exposures on the fair value of the company's assets. What kind of financial instruments are included in this sensitivity analysis?
The kind of financial instruments are included in this sensitivity analysis are - Equity Instruments, Interest Rate Instruments, Currency Instruments, Commodities instruments, and Derivative Instruments is the answer.
Sensitivity analysis is an important tool used by IBM to identify and analyze the various sources of specific risk, which affect its business operations. This tool helps in determining the impact of different market risk exposures on the fair value of the company's assets. It identifies the specific risks that impact IBM's financial position and assists in developing effective risk management strategies.
Financial instruments that are included in sensitivity analysis are as follows:
Equity Instruments: This financial instrument includes stocks, common shares, and preferred stocks. These are highly volatile and subject to fluctuations due to market conditions. They are the most important sources of financial risk that are included in sensitivity analysis.
Interest Rate Instruments: These financial instruments include bonds, bills, and other interest rate-sensitive instruments. They are subject to fluctuations in interest rates and can result in changes in the value of IBM's assets.
Currency Instruments: These financial instruments include foreign exchange rates, and their fluctuations can impact IBM's assets' value.
Commodities instruments: Commodities like gold, oil, and other precious metals can be included in this financial instrument. Changes in their prices can lead to a change in the value of the company's assets.
Derivative Instruments: These financial instruments include futures, options, swaps, and other financial contracts. They are highly sensitive to changes in market conditions and can impact the value of IBM's assets.
Thus, these are the financial instruments included in sensitivity analysis to determine the impact of different market risk exposures on the fair value of the company's assets.
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Question 1 Partially correct Mark 5.00 out of 10.00 Estimating Share Value Using the DCF Model Following are forecasts of Home Depot's sales, net operating profit after tax (NOPAT), and net operating
Stock price per share: $222.51. The valuation estimate of Home Depot's stock using the DCF model is higher than the closing price of $174.86, indicating that the stock is undervalued.
a. To estimate the value of a share of Home Depot's common stock using the discounted cash flow (DCF) model, we need to calculate the present value of future cash flows.
1. Calculate the free cash flows to the firm (FCFF) for each forecast period. FCFF is calculated by subtracting net nonoperating obligations (NNO) from the net operating profit after tax (NOPAT).
FCFF 2018 = NOPAT 2018 - NNO
FCFF 2019 = NOPAT 2019 - NNO
FCFF 2020 = NOPAT 2020 - NNO
FCFF 2021 = NOPAT 2021 - NNO
FCFF 2022 = NOPAT 2022 - NNO
FCFF Terminal = NOPAT 2022 * (1 + Terminal growth rate) / (Discount rate - Terminal growth rate)
2. Determine the present value factor for each forecast period. The present value factor is calculated as 1 / (1 + discount rate) raised to the power of the forecast period.
PV Factor 2018 = 1 / (1 + Discount rate)¹
PV Factor 2019 = 1 / (1 + Discount rate)²
PV Factor 2020 = 1 / (1 + Discount rate)³
PV Factor 2021 = 1 / (1 + Discount rate)⁴
PV Factor 2022 = 1 / (1 + Discount rate)⁵
PV Factor Terminal = 1 / [tex](1 + Discount rate) ^ {(5 + 1)[/tex]
3. Calculate the present value of each FCFF by multiplying the FCFF for each period by its corresponding PV factor.
PV FCFF 2018 = FCFF 2018 * PV Factor 2018
PV FCFF 2019 = FCFF 2019 * PV Factor 2019
PV FCFF 2020 = FCFF 2020 * PV Factor 2020
PV FCFF 2021 = FCFF 2021 * PV Factor 2021
PV FCFF 2022 = FCFF 2022 * PV Factor 2022
PV FCFF Terminal = FCFF Terminal * PV Factor Terminal
4. Calculate the sum of all present values of FCFF to get the total present value (PV) of cash flows.
Total PV of Cash Flows = PV FCFF 2018 + PV FCFF 2019 + PV FCFF 2020 + PV FCFF 2021 + PV FCFF 2022 + PV FCFF Terminal
5. Divide the total PV of cash flows by the number of common shares outstanding to get the estimated value per share.
Estimated Value per Share = Total PV of Cash Flows / Number of Common Shares Outstanding
b. Comparing the valuation estimate with the closing price of Home Depot stock on March 28, 2019:
The closing price of Home Depot stock on March 28, 2019, was $174.86. Since the estimated value per share using the DCF model is $222.51, it suggests that the stock price is appropriately valued.
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The probable question may be:
Estimating Share Value Using the DCF Model Following are forecasts of Home Depot's sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of February 3, 2019, which the company labels fiscal 2018. $ millions Sales NOPAT NOA Forecast Horizon Period Reported Terminal 2018 2019 2020 2021 2022 Period $99,547 $106,515 $113,971 $121,949 $130,485 $133,095 11.107 11,930 12,765 13,658 14,614 14,907 23,502 25,145 26,905 28,789 30,804 31,420 Answer the following requirements assuming a discount rate (WACC) of 7.85%, a terminal period growth rate of 2%, common shares outstanding of 1,105 million, net nonoperating obligations (NNO) of $25,230 million Required a. Estimate the value of a share of Home Depot's common stock using the discounted cash flow (DCF) model as of February 3, 2019. Note: Do not round until your final answer; round your final answer to two decimal places. Stock price per share: $ 0 X b. Home Depot stock closed at $174.86 on March 28, 2019, the date the Form 10-K was filed with the SEC. How does your valuation estimate compare with this closing price? Stock price is appropriately valued
Problem statement - Supply Chain Coordination Part II
S-Mart is a local convenience store (retailer), which manages an inventory of a SKU for resell to customers. S-Mart faces a constant demand for the SKU (i.e., demand rate is "horizontal" and not random) with the annual total demand being 25,000 units, and orders from a local supplier for resupplies.
S-Mart uses the EOQ model to manage its inventory. It costs $60 ordering cost for S-Mart to place an order. The supplier charges S-Mart $50 for each unit of supply. S-Mart’s inventory holding cost per unit, per year is 35% of the cost of purchase from the supplier. (Let's assume all assumptions for the EOQ model are satisfied.)
For every order received from S-Mart, the supplier executes one production run to fully and instantly meet the order's requirement. The supplier’s setup cost for each production run is $180. The supplier delivers the order to S-Mart immediately after production, so the supplier holds no inventory.
(Continue with supply chain in "Supply Chain Coordination Part I", but with the following new information.)
Suppose that you correctly calculate the costs of S-Mart and the supplier to be as follows:
If S-Mart uses the EOQ that is optimal for itself (i.e., S-Mart), then
S-Mart's annual total costs = $6,480
The supplier's annual total costs = $9,702
If S-Mart uses the EOQ that is optimal for for the supply chain (i.e., S-Mart and the supplier combined), then
S-Mart's annual total costs = $8,103
The supplier's annual total costs = $4,858
Answer the following questions:
1. To create an incentive for S-Mart and the supplier to participate in "coordination" with a transfer payment, it must be paid by _____ to the other firm.
Group of answer choices:
S-Mart
The supplier
Neither
2. The amount of the payment must fall in the range of [ Select ] ["from $3,222 to $3,245", "from $4,858 to $6,480", "from $8,103 to $9,702", "from $1,623 to $4,844"]
1) The incentive for S-Mart and the supplier to participate in "coordination" with a transfer payment must be paid by The supplier to the other firm.
2) The amount of the payment must fall in the range of from $3,222 to $3,245.
1. The coordination of the supply chain provides mutual benefit to both S-Mart and the supplier, which is why supply chain coordination is desirable. In the current situation, if S-Mart utilizes the EOQ that is optimal for itself, the annual total cost will be $6480, but if S-Mart utilizes the EOQ that is optimal for the supply chain, the annual total cost will be $8103.
To encourage the supply chain to participate in coordination with a transfer payment, the supplier must pay the incentive to the other firm as the supplier's annual total cost has a greater decline.
2. The transfer payment must be within a specific range to ensure that the coordination is beneficial to both parties. The transfer payment from the supplier to S-Mart must be between $3,222 and $3,245 for supply chain coordination to be beneficial.
This is found by calculating the annual total cost difference if S-Mart uses the EOQ that is optimal for itself and the annual total cost difference if S-Mart uses the EOQ that is optimal for the supply chain. In this scenario, the transfer payment falls in the above range.
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Which of the following is NOT usually a responsibility of the Human Resources department of a company? a. Designing the scope and nature of jobs in the business b. Recruiting and interviewing people for jobs c. Designing compensation and benefits plans for workers d. Shipping finished products from warehouses to customers e. Writing job descriptions
The correct option is: d. Shipping finished products from warehouses to customers
Explanation:
The Human Resources department of a company primarily focuses on managing the organization's human capital and ensuring the well-being and development of its employees. While they play a crucial role in various aspects of employee management, such as job design, recruitment, compensation, and benefits.
they are not typically responsible for shipping finished products from warehouses to customers. This responsibility usually falls under the domain of the operations or logistics department, which handles the physical distribution and transportation of goods.
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Which of the following terms best describes the assumption made in applying the four inventory methods?
a. physical flow
b. goods flow
c. cost flow
d. asset flow
The terms that best describes the assumption made in applying the four inventory methods is the cash flow. Thus, option C is correct.
The movement of money into and out of a business is referred to as cash flow. Cash received represents inflows, while cash spent represents outflows.
The cash flow statement is a financial statement that details a company's cash sources and expenditures over time. The assumption made when using the four inventory methods (FIFO, LIFO, weighted average, and particular identification) is related to the flow of inventory expenses. These approaches are used to calculate the cost of goods sold and the ending inventory value.
The cost of inventory items is assumed to flow in a given pattern or order, and this cost flow assumption is required for reliably valuing and tracking inventory.
Therefore, option C is correct.
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What would wages payable and unearned revenue be?
Wages Payable:This refers to the amount of money that a company owes to its employees for the time they have spent working. The company records a wage payable to recognize the liability that will be paid to the employees in the future period when the company prepares its payroll.
Unearned Revenue: Unearned revenue is a liability account, which refers to money that a company has received from its customers but hasn’t earned it yet.
It is money that a company has collected for goods or services that it hasn’t delivered yet. It arises when a customer pays for a product or service upfront, and the company has not yet provided the product or service.
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A monopoly sells its goods in the United States, where the elasticity of demand is -2, and in Japan, where the elasticity of demand is -5. Its marginal cost is $10. At what price does the monopoly sell its goods in each country if resale is impossible?
The monopoly sells its goods at a price of $30 in the United States and $60 in Japan.
To determine the prices at which the monopoly sells its goods in each country, we need to consider the elasticity of demand and the monopoly's marginal cost.
In the United States:
Elasticity of demand (US) = -2
Since the elasticity is negative, we know that the demand curve is downward sloping. In this case, a more elastic demand indicates that consumers are more responsive to changes in price.
To maximize its profit, the monopoly sets its price where marginal cost equals marginal revenue. Since the demand elasticity is -2, the monopolist would set the price markup at half of the elasticity (1/2) to maximize profit.
Price markup = 1/2 * elasticity of demand = 1/2 * (-2) = -1
Marginal revenue (US) = 1 + price markup = 1 + (-1) = 0
To find the price, we need to add the marginal cost to the marginal revenue:
Price (US) = Marginal cost + Marginal revenue = $10 + $0 = $10
Therefore, the monopoly sells its goods at a price of $10 in the United States.
In Japan:
Elasticity of demand (Japan) = -5
Using the same logic as above, the price markup for Japan would be 1/2 * (-5) = -2.5.
Marginal revenue (Japan) = 1 + price markup = 1 + (-2.5) = -1.5
Price (Japan) = Marginal cost + Marginal revenue = $10 + (-$1.5) = $8.5
Therefore, the monopoly sells its goods at a price of $8.5 in Japan.
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Summarize the current state of the economy (AS-AD curves).
Explain proposed fiscal, monetary, and legislative
changes.
Identify the economic impact of the fiscal, monetary and
legislative changes.
Det
The economy is in a state of recovery after experiencing a sharp downturn in response to the COVID-19 pandemic. Both the Aggregate Supply and Aggregate Demand curves were adversely impacted by this shock, with supply disruptions and a drop in aggregate demand caused by job losses, low consumer confidence, and supply chain interruptions.
Monetary policy has been employed in an effort to mitigate these negative effects. The Federal Reserve Bank has taken several steps to support the economy, including lowering interest rates to near-zero levels, expanding its asset purchases, and providing liquidity to the financial system. Fiscal policy is a broad term that encompasses a variety of government actions, including tax policy, government spending, and regulations. The CARES Act is a notable example of recent fiscal policy, providing funding for small businesses, households, and state and local governments. Legislative changes that may have an economic impact include changes to trade policy, immigration policy, and environmental regulations.
It is difficult to predict the precise economic impact of these changes, but economists generally agree that expansionary fiscal and monetary policies can help boost the economy, while legislative changes may have a more mixed effect.
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ob has $1,000 to invest for 120 days and is considering two options, Option 1: He can invest the money in a 120-day GIC paying simple interest of 4.45%. Option 2: He can invest the money in a 60-day GIC paying simple interest of 4.50% and then re-invest the maturity value into another 60-day GIC. What would the interest rate on the second 60-day GIC have to be for both options to be equivalent? Round your answer to two decimal places and don't include the % symbol.
The interest rate on the second 60-day GIC has to be 4.74% for both options to be equivalent.
To determine the interest rate on the second 60-day GIC that would make the two options equivalent, we need to calculate the interest earned on Option 1 and Option 2 and then solve for the unknown interest rate.
Option 1: For Option 1, the interest earned can be calculated as- Interest = Principal x Rate x Time
Interest = $1,000 x 4.45% x (120/365)Interest = $15.16
Option 2: For Option 2, the interest earned in the first 60-day GIC can be calculated as: Interest = Principal x Rate x Time
Interest = $1,000 x 4.50% x (60/365)Interest = $7.40
After 60 days, the maturity value will be:$1,000 + $7.40 = $1,007.40
This can be reinvested in another 60-day GIC, and the interest earned can be calculated as: Interest = Principal x Rate x Time
Interest = $1,007.40 x Rate x (60/365)
For the two options to be equivalent, the interest earned in Option 2 must be equal to the interest earned in Option 1.
Therefore: Interest earned in Option 2 = $15.16$1,007.40 x Rate x (60/365) = $15.16
Rate = $15.16 / ($1,007.40 x 60/365)Rate = 0.0474 or 4.74% (rounded to two decimal places)
Therefore, the interest rate on the second 60-day GIC has to be 4.74% for both options to be equivalent.
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Suppose you get a job at MICROVIEW, a small manufacturer of TV sets installed in cars and boats. Business has declined recently, foreign rivals from emerging markets are increasing competition, and management is worried. Because MICROVIEW does all its manufacturing in Canada and the United Kingdom, it lacks cost advantages, and its prices are relatively high. After studying the problem, you conclude that MICROVIEW should move much of its production to Mexico, but senior management knows little about FDI.
Prepare a report to management using an evidence-based approach and:
Analyse the current geographical and competitive situation of MICROVIEW. Also explain why MICROVIEW should be interested in foreign manufacturing and recommend which type of FDI MICROVIEW should use in Mexico. ALSO Explain the advantages and disadvantages the venture should expect from manufacturing in Mexico?
Analysis of the current geographical and competitive situation of MICROVIEW a small manufacturer of TV sets installed in cars and boats, has seen a decline in business recently from emerging markets.
MICROVIEW does all its manufacturing in Canada and the United Kingdom, it lacks cost advantages, and its prices are relatively high. A foreign manufacturing process for MICROVIEW would be beneficial because it will help to lower the cost and increase the profit for the business. The move will not only increase the profit but also help MICROVIEW to compete with other companies. Therefore, the business should consider moving much of its production to Mexico. Analyzing why MICROVIEW should be interested in foreign manufacturingA foreign manufacturing process for MICROVIEW will be beneficial as it will help to lower the cost and increase the profit for the business. The move will not only increase the profit but also help MICROVIEW to compete with other companies. The benefits of foreign manufacturing include reduced cost of production, the opportunity to enter new markets, the opportunity to use local resources and labor and also helps to reduce transportation costs which leads to more affordable products. Therefore, it is a good choice for MICROVIEW to consider foreign manufacturing.The type of FDI MICROVIEW should use in MexicoMICROVIEW should use the horizontal FDI type in Mexico. This type of foreign direct investment allows MICROVIEW to produce the same products or offer the same services in the foreign country as they do at home. Therefore, the company will still be able to maintain the same production process, quality, and branding.Advantages and disadvantages the venture should expect from manufacturing in Mexico.
Advantages of Manufacturing in Mexico:
The labor cost in Mexico is very low which means that MICROVIEW will be able to save a lot of money on labor cost.
MICROVIEW can also benefit from low energy costs and other raw materials required for the production process.
Manufacturing in Mexico also provides an opportunity for the company to access new markets in the region.
MICROVIEW can take advantage of the tax incentives provided by the Mexican government for foreign investors.
Disadvantages of Manufacturing in Mexico:MICROVIEW will have to deal with different laws and regulations which can be complex.There might be a language barrier that could create communication issues between employees of MICROVIEW and the local workforce in Mexico.The company may also face challenges related to logistics and transportation to export its products.
In conclusion, by moving much of its production to Mexico, MICROVIEW can take advantage of the low cost of labor, energy, and other raw materials in Mexico. The company can also benefit from the tax incentives provided by the Mexican government. MICROVIEW should use the horizontal FDI type in Mexico. However, there are some disadvantages that the company may face such as language barriers, complex laws and regulations, and transportation challenges. Nevertheless, the advantages of manufacturing in Mexico for MICROVIEW outweigh the disadvantages.
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Which of the following is NOT true about globalization? Multiple Choice Is not a new phenomenon Began towards the end of the fifteenth century Creates interdependencies among nations Requires transparency Which of the following is a type of political risk for global managers? Multiple Choice Cultural Financial Operational Organizational
The following statement is NOT true about globalization Requires transparency (option d). The type of political risk for global managers is organizational (option d).
This statement is because transparency is required to promote good governance and accountability, but it is not a necessity of globalization. While transparency can help to combat corruption, globalization can happen without this value. The following is a type of political risk for global managers:
Operational risk is a type of political risk for global managers. It is a risk associated with the day-to-day operations of an organization. It is the risk of loss resulting from inadequate or failed internal procedures, systems, or policies, or from external events. It can also be caused by human error, system failures, fraud, or terrorism, among other factors. It is one of the primary risks that global managers must consider when doing business in foreign countries.
Other types of political risks for global managers include financial risk, which is the risk associated with fluctuations in exchange rates, interest rates, and commodity prices, and cultural risk, which is the risk of misunderstanding local customs, beliefs, and values. Organizational risk, on the other hand, is not a type of political risk, but rather a risk associated with the structure and management of an organization. The correct option is Requires transparency is NOT true about globalization. The correct option is d.
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An experienced manager- Tarun- found that one of his subordinates- Arun- simply refused to understand even the most logical viewpoint shared by another subordinate- Varun, both of whom had been working in the same team for a project. The difference of opinion between Arun and Varun would happen every time, irrespective of the mode of communication (physical meeting or online communication). Tarun and Arun had almost similar experience, while Varun was comparatively young, although he also possessed good experience in other companies prior to joining this one. Arun had been in the organization for a considerable time, but had not been promoted still. Varun had worked as an intern in this organization earlier, and was later recruited in the same designation as Arun. Tarun found Varun to be quite intelligent, smart and hardworking; while Arun was lethargic but highly ambitious. All three- Tarun, Arun and Varun- were from similar societal and educational background. Explain what was causing this barrier in communication between Arun and Varun.
The barrier to communication between Arun and Varun is a perceptual difference. Despite the fact that Arun and Varun were from similar social and educational backgrounds, they had different perceptions that prevented them from understanding each other, even though they were both experienced in the field.
The difference of opinion between Arun and Varun would happen every time, irrespective of the mode of communication (physical meeting or online communication), according to the passage. This indicates that the issue is not with the method of communication, but rather with the differences in perception that the two employees have.Arun had not been promoted, even though he had been with the company for a long time and was lethargic, but ambitious. On the other hand, Varun was intelligent, hardworking, and had a strong work ethic.
However, it is not just the difference in work ethics that causes the problem. In other companies, Varun had previously worked and gained experience, while Arun had only worked for this company. As a result, their perceptions and ideas regarding work and the company are different. Therefore, their difference in perception creates a barrier to communication between Arun and Varun.
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QUESTION 3 Psychological contracts are based on: trust commitment need satisfaction loyalty All of the answers listed Hygiene factors are part of the theory of motivation. two-factor equity expectancy goal-setting need QUESTION 5 Providing recognition to employees for significant achievements at work would help satisfy their needs. self-actualization esteem belonging and love Osafety and security physiological 00
3. The correct option is "All of the answers listed."Psychological contracts are based on trust, commitment, need satisfaction, and loyalty. This means that they are composed of many aspects that can be found in various categories.
For instance, trust and commitment belong to the loyalty category, while need satisfaction has to do with the need satisfaction category. All the choices listed are necessary elements that make up a psychological contract.
5. The correct option is "self-actualization, esteem, belonging and love."Providing recognition to employees for significant achievements at work would help satisfy their needs. Maslow's theory of motivation outlines the various needs that people have.
According to Maslow, there are five levels of needs: physiological, safety and security, belonging and love, esteem, and self-actualization. When employees are recognized for their achievements, their esteem and self-actualization needs are satisfied, which results in them feeling fulfilled and valued.
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What should Colin do first as he begins investing? Make paper trades Learn about the market
When Colin begins investing, he should first learn about the market. The correct answer is B.
When Colin starts investing, the first thing he should do is learn about the market. The stock market is a complex system, and he should not invest without first educating himself. This will aid in the understanding of how the market works, as well as how to make good investment decisions.
To invest properly, he should understand fundamental and technical analysis, market trends, and investment strategies, among other things. He should also have a basic knowledge of financial statements and metrics such as the price-to-earnings (P/E) ratio, the price-to-book (P/B) ratio, and the return on equity (ROE).Only after learning about the market should he move on to making paper trades and eventually real trades.
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How many employees are unemployed nationwide. How many employees are unemployed in California. How does this unemployment affect the supply/demand curve for products and services. (please include info on demand curve!)bu
As of October 2021, there were approximately 4.2 million unemployed individuals in the United States. Meanwhile, in California, there were an estimated 471,000 unemployed individuals in October 2021.
The level of unemployment affects the supply/demand curve of products and services. When unemployment rates rise, there is a decrease in the demand for products and services, which can result in a leftward shift of the demand curve. This is because consumers have less income to spend on goods and services.
When demand decreases, the supply curve shifts to the left as well because producers are less willing to supply goods and services at lower prices. This results in a new equilibrium point with a lower price and quantity supplied. The economy may also experience lower economic growth and decreased spending on capital goods due to decreased demand for products and services.
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a company has determined that its sales to residential home builders tend to vary with changes in the prime interest rate. sales this year will be $5 million. the following information is available: prime interest rate probability sales growth increases 2% 15% (20%) increases 1% 40% 3% unchanged 35% 5% decreases 1% 10% 8% what amount is the expected value of the company's sales for the coming year's budget?
To find the expected value of the company's sales for the coming year's budget, we need to use the formula of the expected value. Expected value is the sum of all probabilities multiplied by their respective values. It is also known as the weighted average of all possible outcomes.
Here's how to find the expected value:Expected value = Probability * ValueThe following table shows the prime interest rate, probability, and sales growth rates:Prime interest rateProbabilitySales growth2%15% (20%)1%40%3%0%35%5%-1%10%-8%
To calculate the expected value, we need to first calculate the sales growth rate for each scenario. The sales growth rate is calculated by multiplying the probability of each scenario with the sales growth rate for that scenario.
For example, the sales growth rate for the scenario where the prime interest rate increases by 2% is calculated as follows:Sales growth rate for prime interest rate increase of 2% = 15% * 20% = 3%Using this method,
we can calculate the sales growth rate for each scenario as shown in the table below: Prime interest rate Probability Sales growthSales growth rate2%15%20%3.00%1%40%3%1.20%0%35%5%0.00%-1%10%-8%-0.80%The expected value of the company's sales for the coming year's budget is the sum of all the sales growth rates.
So, the expected value can be calculated as follows:Expected value = (Probability of prime interest rate increase of 2% * Sales growth rate for prime interest rate increase of 2%) + (Probability of prime interest rate increase of 1% * Sales growth rate for prime interest rate increase of 1%) + (Probability of prime interest rate unchanged * Sales growth rate for prime interest rate unchanged) + (Probability of prime interest rate decrease of 1% * Sales growth rate for prime interest rate decrease of 1%)Expected value = (0.15 * 3.00%) + (0.40 * 1.20%) + (0.35 * 0.00%) + (0.10 * -0.80%)Expected value = 0.45% + 0.48% + 0% - 0.08%Expected value = 0.85%
Therefore, the expected value of the company's sales for the coming year's budget is 0.85%.
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