Answer:
A. 2017 $61,400
2018 $49,400
B. $1,650,800
Explanation:
A. Calculation to Determine the equity income to be recognized by Killearn during each of these years.
2017 EQUITY INCOME
Equity Income =(25%*$634,400)-($ 1 per share April 1 Cash dividend+$ 1 per share October 1 Cash dividend*$110,000)
Equity Income =$158,600-($2per share*110,000)
Equity Income =$158,600-$220,000
Equity Income =$61,400
2018 EQUITY INCOME
Equity Income =(25%*$682,400)-($ 1 per share April 1 cash dividend+$ 1 per share October 1 cash dividend*$110,000)
Equity Income =$170,600-($2per share*110,000)
Equity Income =$170,600-$220,000
Equity Income =$49,400
Therefore the equity income to be recognized by Killearn during 2017 is $61,400 and 2018 is $49,400 .
b. Computation for Killearn's investment in Shaun Company's balance as of December 31, 2018
Original Investment at Cost $1,540,000
( 110,000*14per share)
Add 2017 Profit shared (Net of Dividend) $61,400
Add 2018 Profit shares (Net of Dividend) $ 49,400
2018 Investment Value $1,650,800
($1,540,000+$61,400+$ 49,400)
Therefore Killearn's investment in Shaun Company's balance as of December 31, 2018 will be $1,650,800
What is the financial advantage (disadvantage) of making the 73,000 starters instead of buying them from an outside supplier
Answer: Financial advantage of $43,800
Explanation:
The cost to make the starters:
= Direct materials + Direct labor + Variable manufacturing overhead + Supervisor salary
= (6 * 73,000) + (3 * 73,000) + ( 0.6 * 73,000) + (1.90 * 73,000)
= $839,500
Cost to buy them = 73,000 * 12.10
= $883,300
Financial advantage (disadvantage) to making them = 883,300 - 839,500
= $43,800
Rent and depreciation are not relevant to this decision because rent is not directly attributable to this product and depreciation is not based on wear and tear.
Horford Co. has no debt. Its cost of capital is 8.9 percent. Suppose the company
converts to a debt-equity ratio of 1.0. The interest rate on the debt is 5.7 percent. Ignore
taxes for this problem.
a. What is the company's new cost of equity? (Do not round intermediate calculations
and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b. What is its new WACC? (Do not round intermediate calculations and enter your
answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Answer:
A. 12.1%
B. 8.9%
Explanation:
a. Calculation for What is the company's new cost of equity
Using this formula
New cost of equity=Cost of capital+[(Cost of capital- Debt interest rate ) *(Debt-equity ratio)*(1)]
Let plug in the formula
New cost of equity=[0.089+[(0.089-0.057)*(1)*1]
New cost of equity=[0.089+0.032*(1)*1]
New cost of equity=[0.121*(1)*1]
New cost of equity=0.121*100
New cost of equity=12.1%
Therefore the company's new cost of equity will be 12.1%
b. Calculation for What is its new WACC
Particular Weight Cost Weighted cost
Equity 0.5000 *12.1% = 0.0605
Debt 0.5000 * 5.7% =0.0285
WACC =0.089*100
WACC =8.9%
(0.0605+0.0285)
Therefore the new WACC will be 8.9%
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Arabian Beauty Cosmetics borrowed BD 152.300 from the National Bank of Bahrain (NBB) for three years. If the quoted rate (APR) is 11.75%, and the compounding is daily, what is the Effective Annual Rate?
Answer: 12.47%
Explanation:
First convert the APR to the relevant periodic rate.
The compounding is done daily so the periodic rate is:
= 11.75%/365
Effective Annual rate is calculated by the formula:
= ( 1 + periodic rate) ^ compounding period per year - 1
= ( 1 + 11.75%/365)³⁶⁵ - 1
= 12.47%
The net decrease in Prepaid Expenses (Prepaid) amounts to $30,000 and the net decrease in Accounts Payable (AP) is $20,000. Assuming no inventory provision involved, what is the net effect of Inv and AP on the adjustments to Net Income if the indirect method is used in the Statement of Cash Flows
Answer:
Net decrease in prepaid expenses of $30,000 will be added to the net income in adjustments to net income because it will be considered that working capital (inventory or any other expense) has been generated by the operations.
Net decrease in Accounts payable of $20,000 will be deducted from net income in adjustments to net income because decrease in accounts payable means that cash has been paid to the outstanding payables.
Net effect of the above transactions is $30,000 - $20,000 = $10,000
So, net income will be increased by $10,000 as net effect of the above adjustments.
Analyze the given scenario for potential ethical concerns.
Susan has just begun a new job. The office's computers are automatically set to inform employees when the computer anti-virus software is due to be updated. This web-security technology is vital to keeping business documents safe. However, Susan does not pay attention to the alerts that pop up on her computer, which results in the anti-virus software expiring.
Susan regularly gets distracted from her assignments and begins perusing websites for personal interests rather than for her assignment. Unfortunately, one day a computer virus infects her computer from one of these websites; she quickly begins to notice problems. When she realizes what has happened, Susan is worried and uncertain. She waits until the end of the day to inform her manager of this incident. Because of her negligence, it's possible that this virus infect her company's confidential data. In her company's workplace rules and regulations, she was told explicitly to stay away from questionable websites due to the sensitive nature of the information on her computer.
1. In this scenario, what is the importance of anti-virus software and other similar virus protection programs?
2. What steps could Susan have taken to help prevent this incident from occurring?
3. Besides the importance of network security, what other ethical issue does this scenario illustrate?
4. What data privacy or legal issues could result from employees' use of the Internet on their company's server?
5. Besides avoiding unfamiliar websites, what other measures can be taken to ensure a virus doesn't infect your company's computer network?
Question #5
Multiple Choice
The basic calculation for Cost of Goods Sold for a retail business is:
Beginning Inventory + Inventory Purchases + End Inventory = Cost of Goods Sold
O Beginning Inventory + Inventory Purchases - End Inventory = Cost of Goods Sold
Beginning Inventory - Inventory Purchases - End Inventory = Cost of Goods Sold
O Beginning Inventory - Inventory Purchases + End Inventory = Cost of Goods Sold
© 2016 Glynlvon, Inc.
Starting inventory + purchases - ending inventory = cost of goods sold.
Answer:
the correct answer is b
Explanation:
Discuss why perfect competition is often described as the 'ideal' market structure.
Answer:
Perfect competition is an ideal type of market structure where all producers and consumers have full and symmetric information, no transaction costs, where there are a large number of producers and consumers competing with one another. Perfect competition is theoretically the opposite of a monopolistic market
Explanation:
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You are given the following information for O'Hara Marine Co.: sales = $75,500; costs = $35,200; addition to retained earnings = $9,580; dividends paid = $8,420; interest expense = $2,620; tax rate = 23 percent. Calculate the depreciation expense.
Answer:
O'Hara Marine Co.
Depreciation Expense is:
$13,903
Explanation:
a) Data and Calculations:
sales = $75,500;
costs = $35,200;
addition to retained earnings = $9,580;
dividends paid = $8,420;
interest expense = $2,620;
tax rate = 23 percent
Net Income:
addition to retained earnings = $9,580;
dividends paid = $8,420
Total net income = $18,000
Pre-tax Income = $18,000/0.77 = $23,377
Income tax (23%) of $23,377 = $5,377
After Tax Income = $18,000 ($23,377 - 5,377)
Depreciation:
sales = $75,500
costs = $35,200
Gross profit = $40,300
Less interest (2,620)
Less net income (23,777)
Depreciation = $13,903
can produce two types of light fixtures, the indoors model and the outdoors model. if the total sales are expected to be 21,050 units, what would be the totla operating income of the company if it decides to buy the new production equipment
Answer:
$1,000,000
Explanation:
The computation is shown below:
Particulars Indoors Model Outdoors Model Total
No of Units
(21,050 in ratio 2:3) 8,420 12,630 21,050
Sales 1,263,000 2,778,600 4,041,600
Less: Variable costs 168,400 505,200 673,600
Contribution margin 1,094,600 2,273,400 3,368,000
Less: Fixed costs
(2,160,000 + 208,000) 2,368,000
Operating Income 1,000,000
An increase in the time between when an order to trade a security is placed and when the order is executed most likely indicates that market efficiency has:
Answer:
decreased.
Explanation:
An increase in the time between when an order to trade a security is placed and when the order is executed most likely indicates that market efficiency has: decreased.
The fact about Market efficiency is that it does not require that the market price be equal to true value at every point in time. All it requires is that errors in the market price be unbiased, i.e., that prices can be greater than or less than true value, as long as these deviations are random.
A g drought ravaged crops across the United States during the summer of 2012. What is the likely impact of this drought on the price of corn
Answer: Increase
Explanation:
The price of corn will increase sharply due to the relative scarcity of corn in the market.
Graphically depicted, the Supply curve will shift to the left due to reduction in supply of corn brought upon by the drought. It will then intersect with the demand curve to bring about a new equilibrium price with a higher price.
An investment has the following payment structure: 1,000 payable in one year, 1,000 payable in two years, and 1,000 payable in three years. The term structure of interest rates is:
Answer: C. 7.3%
Explanation:
The yield rate is a weighted average of the yields over the years:
= [ (1 * 6%) + (2 * 7%) + (3 * 8%)] / ( 1 + 2 + 3)
= 44%/ 6
= 7.33%
= 7.3%
ou've just taken on a new client, a small business owner, who was managing their books with spreadsheets. What's the recommended first step to begin working with this client in QuickBooks Online?
The options available are:
A. Ask them to sign up for QuickBooks Online on QuickBooks.com
B. To Create a QuickBooks Online for them and manually email them their Intuit ID and password
C. Add new client in QuickBooks Online Accountant
D. Add new client in QuickBooks Online
Answer:
Add new client in QuickBooks Online Accountant
Explanation:
In this situation, as the new client, the recommended first step to begin working with this client in QuickBooks Online is to add the client in QuickBooks Online Accountant.
This will assists you in getting their information and at the same time have direct access to the client's account and easily work on the client's bookkeeping.
Hence, in this case, the correct answer is "Add new client in QuickBooks Online Accountant."
Select the correct answer.
Someone who scores mostly "yes" answers in the social category of the RIASEC would probably not enjoy a career in
A Research
B. Social work
C Nursing
D Teaching
Answer:
D
Explanation:
Answer:
D, Teaching
Explanation:
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Randi wants to hire five workers for her factory. She is finding that the people
who live in the same county as the factory lack the skills needed to perform
the job. She has been told that workers from surrounding areas are not willing
to drive over 100 miles each day to get to the factory. Which situation is Randi
facing?
Answer:
D
Explanation:
In a survey of a group of people, it was found that 60 0f them have
business, 45 have government jobs, 125 have farming, 27 have business
only, 15 have government job only, 10 have business and government
job only, 5 have government job and farming only.
i) How many people have all the profession?
ii) How many people were there in a survey?
Answer:
i) 15 ii) 177
Explanation:
Number of people with business = 60
Number of people with farming = 125
Number of people with government jobs = 45
Number of people with business only = 27
Number of people with government jobs only = 15
10 have business and government job only, 5 have government job and farming only.
i) Let x represent the number of people with all three jobs. Hence:
Number of people with government jobs = number of people with all three jobs + number of people with government and farming job + number of people with government and business + number of people with government job only
45 = x + 10 + 5 + 15
45 = x + 30
x = 15
15 people have all three profession.
ii)
Number of people with business jobs = number of people with all three jobs + number of people with business and farming job + number of people with government and business + number of people with business job only
60 = 15 + number of people with business and farming job + 10 + 27
number of people with business and farming job = 60 - 52 = 8
Number of people with farming jobs = number of people with all three jobs + number of people with business and farming job + number of people with government and farming + number of people with farming job only
125 = 15 + 8 + 5 + number of people with farming job only
number of people with farming job only = 125 - 28 = 97
Number of people surveyed = number of people with all three jobs + number of people with business and farming job + number of people with government and farming + number of people with farming job only + number of people with government and business + number of people with business job only + number of people with government job only
Number of people surveyed = 15 + 8 + 5 + 97 + 10 + 27 + 15
Number of people surveyed = 177
Describe the role of information technology in globalization.
Answer:
Information technology facilitates the effortless exchange of information across borders, as well as the expansion of resources from countries all across the world. This expansion leads to new ideas and products, as well as new ways of doing business.
Explanation:
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An increase in a current asset account, other than cash, results in an addition in calculating operating cash flows.
a. True
b. False
When a current asset account other than cash increases, the calculation of operating cash flows is increased. is a true assertion.
What is Cash Flow?The net balance of money coming into and going out of a business at a particular period is referred to as cash flow. A firm constantly receives and expends cash. Cash flow refers to the quantity of money that a business gets or transfers to its debtors in the form of cash or cash equivalent. Analysis of the company's liquidity condition sometimes involves cash flow analysis.
A rise in current liabilities indicates that only expenses have been recorded and not yet received in cash. As a result, an increase in current liabilities results in an increase in income adjustment.
Therefore, The calculation of operating cash flows is increased. is a true assertion.
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Masters, Inc., has sales of $37,900, costs of $15,000, depreciation expense of $2,400, and interest expense of $1,310. If the tax rate is 25 percent, what is the operating cash flow, or OCF?
Answer:
Operating cash flow= $16,792.5
Explanation:
Giving the following information:
Masters, Inc., has sales of $37,900, costs of $15,000, depreciation expense of $2,400, and interest expense of $1,310.
To calculate the operating cash flow, we need to use the following structure:
Sales= 37,900
COGS= (15,000)
Gross profit= 22,900
Depreciation= (2,400)
Interest= (1,310)
EBT= 19,190
Tax= (19,190*0.25)= (4,797.5)
Depreciation= 2,400
Operating cash flow= 16,792.5
Suppose that your monthly net income is $2,540. Your monthly debt payments include your student loan payment and a gas credit card. They total $762. What is your debt payments-to-income ratio
Answer: 30%
Explanation:
We should note that debt payments-to-income ratio is calculated as:
= Debt payment / Net income
= 762 / 2540
= 0.3 or 30%
Therefore, the debt payments to income ratio is 30%
The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.52 per share on its stock. The dividends are expected to grow at a constant rate of 7 percent per year indefinitely.
Required:
a. If investors require a 11 percent return on The Jackson-Timberlake Wardrobe Co. stock, what is the current price?
b. What will the price be in 8 years?
Answer:
A. $40.66
B. $69.86
Explanation:
A. Calculation for what is the current price
Using this formula
Current price=Dividend per share(1+Expected constant rate)/ (Require return percentage-Expected constant rate)
Let plug in the formula
Current price=1.52(1+.07) / (.11-.07)
Current price=1.52(1.07) / (.11-.07)
Current price=1.6264/0.04
Current price=$40.66
Therefore the Current price will be $40.66
b. Calculation for What will the price be in 8 years
Using this formula
Price=Dividend per share(1+Expected constant rate)^Numbes of years/ (Require return percentage-Expected constant rate)
Price=1.52(1+.07)^9/ (.11-.07)
Price=1.52(1.07)^9/ (.11-.07)
Price=2.7945/0.04
Price=$69.86
Therefore What will the price be in 8 years is $69.86
Please help with the highlighted part. this is a practice essay
Answer:
Expansion: A speedup in the pace of economic activity defined by high growth, low unemployment, and increasing prices.
Peak: The upper turning point of a business cycle and the point at which expansion turns into contraction.
Contraction: A slowdown in the pace of economic activity defined by low or stagnant growth,...
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Explanation:
the scott company had the following activities during 2019. during the year, work-in-process increased by $2,500 and finished goods decreased by $6,000. during the year, work-in-process increased by $2,500 calculate the amount of direct labor cost for the year
Answer:
$5,000
Explanation:
The amount of direct labor cost is calculated as;
= Increase in work in process during the year + Increase in work in process during the year
Given that;
Increase in work in process during the year = $2,500
Further increase in work in process during the year = $2,500
Direct labor cost = $2,500 + $2,500
Direct labor cost $5,000
Warner Company purchases $50,100 of raw materials on account, and it incurs $62,800 of factory labor costs. Supporting records show that (a) the Assembly Department used $33,500 of the raw materials and $44,400 of the factory labor, and (b) the Finishing Department used the remainder. Manufacturing overhead is assigned to departments on the basis of 160% of labor costs. Journalize the assignment of overhead to the Assembly and Finishing Departments.
Answer:
[Debit] Work In Process : Assembly Department $47,064
[Debit] Work In Process : Finishing Department $19,504
[Credit] Overheads $66,568
Explanation:
Note that overheads are assigned to departments on the basis of 160% of labor costs. Thus, our first point of call is to determine the labor cost for the respective departments. After that we then apply the 160 % to arrive at the Overheads assigned to that department
Step 1
Determine Departmental Labor Cost
Total Labor Costs = $62,800
Assembly Department = ( $44,400)
Finishing Department = $18,400
Step 2
Determine Overhead Cost for the Departments
Assembly Department ( $44,400 × 160 %) = $47,064
Finishing Department ( $18,400 × 160 %) = $19,504
Step 3
Journalize
Debit the Work In Process Account for the respective department and Credit the Overheads Account as above.
You can buy an item for $140 on an in-store payment plan with the promise to pay $140 in 90 days. Suppose you can buy an identical item for $128 cash. If you buy the item for $140, you are in effect paying $12 for the use of $128 for three months. What is the effective annual rate of interest
Answer:
the effective annual rate of interest is 37.50%
Explanation:
The computation of the effective annual rate of interest is as follows:
Interest = Principal × rate × time period
$12 = $128 × rate × 3 months ÷ 12 months
$48 = $128 × rate
rate = 37.50%
Hence, the effective annual rate of interest is 37.50%
We simply applied the above formula so that the correct annual rate could come
Partial ownership of a firm that is considered to be the strongest and financially sound is done through what method
Answer:
The answer is: Buying blue-chip stocks
Explanation:
A firm considered a business enterprise, often involves a partnership of two or more individuals doing business for profit-making as a way of selling shares of the company to individuals in the form of stock which can directly make stakeholders a partial owner of the business depending on the percentage bought. Partial ownership of a firm gives the individual some degree of contributions the individual can make towards decision making.
The correct answer is buying blue-chip stocks. Blue-chip stocks which are considered a secure stock investments because of the stability that investors get are companies that have done so much overtime in ensuring with each profit turn, investors get paid their dividends.
An accountant passed the closing entries of the expenses and then closed all the expense accounts by crediting them. Which account should she debit to complete the dual aspect of the journal entry
Answer:
Profit and Loss Account or Income Statement
Explanation:
When closing off an expense, we debit the Expense Account and Credit the Profit and Loss Account or Income Statement. This is because an Expense is accounted as a decrease in the profit of the company. The Final Statement that reports profit is the Profit and Loss Account or Income Statement.
1. _______ Allen was driving home when a deer jumped out. The deer damaged his truck.
2. _______ A lightning strike at Troy’s home damages his TV and DVD player.
3. _______ ABC Insurance Inc. advises Katie that she cannot take out a policy on Brad Pitt.
4. _______ Adam’s job is deciding if the insurer will accept a risk and what the cost will be.
5. _______ Amy decides not to purchase a new car because insurance is so expensive.
6. _______ Bill is paid for a collision claim based on the book value of his vehicle.
7. _______ Cheetum’s Body Shop padded the repair bill for Chris’s pick up.
8. _______ Janet hit a car and someone was hurt. This covers the medical expenses.
9. _______ Keith let the auto insurance policy lapse. Keith rear-ended Ann’s truck today.
10. _______ Missy owes for damage to John’s car because she hit him while talking on her cell.
11. _______ Monica’s life insurance costs more but includes a savings component.
12. _______ Pat insures his business partner, Chuck, with a $1 million life insurance policy.
13. _______ Rob gets a bill in the mail from ABC Insurance Company for $125.
14. _______ Ross contacted this business when he had an automobile accident.
15. _______ Tammy hit a telephone pole and did over $2000 damage to her car.
16. _______ This requires Joe to buy liability insurance prior to getting a license plate.
17. _______ Thomas shut the trunk on his thumb and went to the emergency room.
18. _______ Tony and Chris staged an auto accident to collect claim benefits.
19. _______ Wanda’s car was damaged by hail during a storm.
20. _______ An ambulance transported Melanie to the hospital after the other car crossed the center line and caused a wreck.
a. Actual Cash Value
b. Bodily Injury Liability
c. Collision
d. Comprehensive
e. Financial Responsibility Law
f. Homeowner’s
g. Insurable Interest
h. Insurance Company/Insurer
i. Insurance fraud
j. Insured
k. Joint Insurance
l. Medical Payments
m. Premium
n. Property Damage Liability
o. Renter’s
p. Risk management
q. Underwriter
r. Uninsured and Underinsured Motorist
s. Whole Life
Answer:
Matching Situation with appropriate term:
1. _c. Collision __ Allen was driving home when a deer jumped out. The deer damaged his truck.
2. _n. Property Damage Liability _ A lightning strike at Troy’s home damages his TV and DVD player.
3. _h. Insurance Company/Insurer _ ABC Insurance Inc. advises Katie that she cannot take out a policy on Brad Pitt.
4. _p. Risk management _ Adam’s job is deciding if the insurer will accept a risk and what the cost will be.
5. __o. Renter’s __ Amy decides not to purchase a new car because insurance is so expensive.
6. __m. Premium _ Bill is paid for a collision claim based on the book value of his vehicle.
7. __i. Insurance fraud _ Cheetum’s Body Shop padded the repair bill for Chris’s pick up.
8. _b. Bodily Injury Liability _ Janet hit a car and someone was hurt. This covers the medical expenses.
9. _r. Uninsured and Underinsured Motorist _ Keith let the auto insurance policy lapse. Keith rear-ended Ann’s truck today.
10. _d. Comprehensive _ Missy owes for damage to John’s car because she hit him while talking on her cell.
11. _m. Premium_ Monica’s life insurance costs more but includes a savings component.
12. _s. Whole Life__ Pat insures his business partner, Chuck, with a $1 million life insurance policy.
13. __m. Premium__ Rob gets a bill in the mail from ABC Insurance Company for $125.
14. __h. Insurance Company/Insurer _ Ross contacted this business when he had an automobile accident.
15. _n. Property Damage Liability _ Tammy hit a telephone pole and did over $2000 damage to her car.
16. _e. Financial Responsibility Law __ This requires Joe to buy liability insurance prior to getting a license plate.
17. __l. Medical Payments __ Thomas shut the trunk on his thumb and went to the emergency room.
18. __i. Insurance fraud_ Tony and Chris staged an auto accident to collect claim benefits.
19. _n. Property Damage Liability_ Wanda’s car was damaged by hail during a storm.
20. _b. Bodily Injury Liability_ An ambulance transported Melanie to the hospital after the other car crossed the center line and caused a wreck.
Explanation:
Appropriate terms:
a. Actual Cash Value
b. Bodily Injury Liability
c. Collision
d. Comprehensive
e. Financial Responsibility Law
f. Homeowner’s
g. Insurable Interest
h. Insurance Company/Insurer
i. Insurance fraud
j. Insured
k. Joint Insurance
l. Medical Payments
m. Premium
n. Property Damage Liability
o. Renter’s
p. Risk management
q. Underwriter
r. Uninsured and Underinsured Motorist
s. Whole Life
Identify each word that represent each situation
1. Collision is when Allen was driving home when a deer jumped out. The deer damaged his truck.
2. A lightning strike at Troy’s home damages his TV and DVD player is called Property Damage Liability
3. ABC Insurance Inc. advises Katie that she cannot take out a policy on Brad Pitt. This is called Insurance Company/Insurer
4. Risk management occurs when Adam’s job is deciding if the insurer will accept a risk and what the cost will be.
5. Amy decides not to purchase a new car because insurance is so expensive. This is called Renter’s
6. Premium is the Bill paid for a collision claim based on the book value of his vehicle.
7. Insurance fraud is when Cheetum’s Body Shop padded the repair bill for Chris’s pick up.
8. Janet hit a car and someone was hurt. This covers the medical expenses. This is refered to as Bodily Injury Liability
9. Uninsured and Underinsured Motorist is when Keith let the auto insurance policy lapse. Keith rear-ended Ann’s truck today.
10. Comprehensive : Missy owes for damage to John’s car because she hit him while talking on her cell.
11. Premium: Monica’s life insurance costs more but includes a savings component.
12. Whole Life: Pat insures his business partner, Chuck, with a $1 million life insurance policy.
13. Premium: Rob gets a bill in the mail from ABC Insurance Company for $125.
14. Insurance Company/Insurer: Ross contacted this business when he had an automobile accident.
15. Property Damage Liability: Tammy hit a telephone pole and did over $2000 damage to her car.
16. Financial Responsibility Law: This requires Joe to buy liability insurance prior to getting a license plate.
17. Medical Payments: Thomas shut the trunk on his thumb and went to the emergency room.
18. Insurance fraud: Tony and Chris staged an auto accident to collect claim benefits.
19. Property Damage Liability: Wanda’s car was damaged by hail during a storm.
20. Bodily Injury Liability: An ambulance transported Melanie to the hospital after the other car crossed the center line and caused a wreck.
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P=$150(1-1/1.03)^10/0.03
The equation above gives the present value,P, of an investment that pays the investor $150 per year for1010years. The present value is the dollar amount that is equal to the series of future payments. If the payments are changed from $150 to $75, what is the effect on the present valueP?
a. the present value stays the same
b. the present value is halved
c. the present value doubles
d. the present value increases by 3%
Answer: b. the present value is halved
Explanation:
The present value of the investment is based on several things including the future payments. If these payments were to be halved from $150 to $75, the entire present value would be halved as well.
Present Value= 150 * (( 1 - (1 / 1.03) ) ^10) / 0.03
= $1,279.53
Present Value = 75 * (( 1 - (1 / 1.03) ) ^10) / 0.03
= $639.77
Notice how the present value when the payments are $75 is half that of the present value at $150.