Regarding products A and B, it can be concluded that they are substitutes because the positive cross elasticity of demand suggests an increase in the demand for product B when the price of product A rises.
Regarding products C and D, it can be concluded that they are complements because the negative cross elasticity of demand indicates that an increase in the price of product C would lead to a decrease in the demand for product D.
Cross elasticity of demand measures the responsiveness of the quantity demanded of one product to a change in the price of another product. A positive cross elasticity of demand suggests that the two products are substitutes, meaning that when the price of one product increases, the demand for the other product increases as consumers switch to the cheaper alternative.
In this case, the cross elasticity of demand for products A and B is +3.6, indicating a strong positive relationship between them.
On the other hand, a negative cross elasticity of demand indicates that the two products are complements, meaning that when the price of one product increases, the demand for the other product decreases.
Consumers perceive the two products as being used together or complementing each other. In this case, the cross elasticity of demand for products C and D is -5.4, indicating a strong negative relationship between them.
Therefore, based on the given cross elasticity values, it can be concluded that products A and B are substitutes, while products C and D are complements.
To learn more about cross elasticity click here
brainly.com/question/28206393
#SPJ11
a. An investor buys a European put option on a share for £3. The current stock price is £21 and the strike price is £18. The maturity of the option is in 3 months. Briefly discuss the investor’s motivation for purchasing the put option. Draw a diagram showing the investor’s potential profit/loss on this position at maturity. [5 marks]
b. An investor writes a European call option on a share for £1. The current stock price is £11 and the strike price is £12. The maturity of the option is in 3 months. Briefly discuss the investor’s motivation for selling the call option and highlight the key challenge of this position. Draw a diagram showing the investor’s potential profit/loss on this position at the maturity. [5 marks]
c. A butterfly spread involves positions in four options of the same option type on the same underlying security, all with the same expiry date but with three different strike prices. An investor has created a butterfly spread by buying one European call option with a £25 strike price, buying one European call option with a £35 strike price, and writing (selling) two European call options with a £30 strike price. Suppose that the market prices of the options are as follows:
Strike price (£)
25
30
35
Call option price (£)
8
5
3
молю
REQUIRED:
i. Draw a diagram for the investor’s net profit/loss from creating the butterfly spread. (Mark the strike prices, the lower bound and the upper bound on the net profit/loss if possible.).
ii. Briefly discuss the investor’s motivation for building the butterfly spread.
d. Discuss "Time to Expiry" as one of the key factors that influences European option prices
e. Briefly discuss the key differences between forwards and futures.
f. Suppose the risk-free rate is 6% per annum and the dividend yield on a stock index over the next three months is 1.5% per annum. All interest rates and dividend yields are continuously compounded. If the index is trading at 1,000 and the 9-month stock index future contract is currently trading at 1,020, is there any mis-pricing? If so, how can investors exploit the mis-Pricing?
a. The investor's motivation for purchasing the put option: An investor purchases a European put option on a share for £3. The current stock price is £21, and the strike price is £18. The maturity of the option is three months.
The investor's motivation for purchasing the put option is to guard against an adverse movement in the stock price during the option's maturity. The investor anticipates that the price of the underlying asset will fall, resulting in the option being in the money at maturity. The investor's potential profit/loss on this position at maturity is represented in the figure below.
b. The investor's motivation for selling the call option and highlighting the key challenge of this position: An investor writes a European call option on a share for £1. The current stock price is £11, and the strike price is £12. The maturity of the option is three months. The investor's motivation for selling the call option is to generate income from the option premium and to benefit from a reduction in the price of the underlying asset. The key challenge of this position is the investor's obligation to sell the underlying asset at the strike price of £12 if the buyer of the option chooses to exercise the option and the underlying asset price is above the strike price. The investor's potential profit/loss on this position at maturity is shown in the figure below.
c. Butterfly Spread: A butterfly spread entails positions in four options of the same option type on the same underlying asset, all with the same expiry date but with three different strike prices. An investor has constructed a butterfly spread by purchasing one European call option with a £25 strike price, purchasing one European call option with a £35 strike price, and selling (writing) two European call options with a £30 strike price.
i. The net profit/loss diagram for the investor who created the butterfly spread:
ii. The investor's motivation for constructing the butterfly spread is that the strategy allows them to limit the amount of money spent on the position while also profiting from a limited price increase. The investor anticipates that the underlying asset's price will remain close to the £30 strike price and will not rise above £35 or fall below £25.
d. Time to Expiry:One of the key factors that influence European option prices is time to expiry. As time passes, an option's value decreases. The longer an option has until expiration, the higher its value. Because there is more time for the underlying asset price to move in a favorable way, the time value of an option is higher when the option has a longer life.
e. The key differences between forwards and futures are as follows: Forwards: Futures Contracts are over-the-counter (OTC). Contracts are listed on an exchange. Both parties assume counterparty credit risk. Both parties are exposed to clearinghouse credit risk. Parties negotiate the terms of the contract. The contract's terms and conditions are standardized. The parties can customize the contract to their specific needs. The contract's terms and conditions are non-negotiable. Parties must be creditworthy. The exchange acts as the counterparty.
f. The mis-pricing can be calculated as follows:Mispricing = Future price - [(Spot price + Dividend yield) * e^(Risk-free rate*time)]Mispricing = [tex]1,020 - [(1,000 + 0.015) * e^(0.06*0.75)] = £21.57[/tex]The mispricing of the stock index future contract is £21.57.The investors could exploit the mispricing by taking the following steps: If the index future contract is overpriced, the investor should sell the future contract. If the index future contract is underpriced, the investor should buy the future contract.
To learn more about strike price, visit here
https://brainly.com/question/15682316
#SPJ11
Gabi Gram started The Gram Co., a new business that began operations on May 1. The Gram Co. completed the following transactions during its first month of operations.
May 1 G. Gram invested $40,000 cash in the company in exchange for its common stock.
1 The company rented a furnished office and paid $2,200 cash for May’s rent.
3 The company purchased $1,890 of office equipment on credit.
5 The company paid $750 cash for this month’s cleaning services.
8 The company provided consulting services for a client and immediately collected $5,400 cash.
12 The company provided $2,500 of consulting services for a client on credit.
15 The company paid $750 cash for an assistant’s salary for the first half of this month.
20 The company received $2,500 cash payment for the services provided on May 12.
22 The company provided $3,200 of consulting services on credit.
25 The company received $3,200 cash payment for the services provided on May 22.
26 The company paid $1,890 cash for the office equipment purchased on May 3.
27 The company purchased $80 of advertising in this month’s (May) local paper on credit; cash payment is due June 1.
28 The company paid $750 cash for an assistant’s salary for the second half of this month.
30 The company paid $300 cash for this month’s telephone bill.
30 The company paid $280 cash for this month’s utilities.
31 The company paid $1,400 cash in dividends to the owner (sole shareholder).
8.
value:
0.36 points
Required information
Required:
2.
Enter the amount of each transaction on individual items of the accounting equation. Do not determine new account balances after each transaction. (Enter the transactions in the given order. Enter reductions to account balances with a minus sign.)
Following is the tabular representation of each transaction in individual items of the accounting equation. All the given transactions are recorded under the cash basis of accounting as each transaction is either an inflow or outflow of cash.
Transaction Items of Accounting Equation Cash + Accounts Receivable = Equipment + Office Supplies=Accounts Payable + G. Gram, Capital + Revenue - Expenses Invested $40,000 cash in the company in exchange for its common stock+40,000=+40,000. Rented a furnished office and paid $2,200 cash for May’s rent.-2,200=+2,200,
Purchased $1,890 of office equipment on credit.-1,890=+1,890Paid $750 cash for this month’s cleaning services.-750=Provided consulting services for a client and immediately collected $5,400 cash.+5,400=+5,400Provided $2,500 of consulting services for a client on credit.+2,500=+2,500Paid $750 cash for an assistant’s salary for the first half of this month.-750=Received $2,500 cash payment for the services provided on May 12.+2,500=Provided $3,200 of consulting services on credit.+3,200=+3,200 Received $3,200 cash payment for the services provided on May 22.+3,200=Paid $1,890 cash for the office equipment purchased on
May 3.-1,890=+1,890 Purchased $80 of advertising in this month’s (May) local paper on credit; cash payment is due June 1.-80=+80Paid $750 cash for an assistant’s salary for the second half of this month.-750=Paid $300 cash for this month’s telephone bill.-300=Paid $280 cash for this month’s utilities.-280=Paid $1,400 cash in dividends to the owner (sole shareholder).-1,400=+1,400
Gabi Gram started The Gram Co., a new business that began operations on
May 1. Gabi invested $40,000 cash in the company in exchange for its common stock. This increases the cash balance and common stock account balance. The company rented a furnished office and paid $2,200 cash for May’s rent. This reduces the cash balance and increases the rent expense account balance. The company purchased $1,890 of office equipment on credit. This increases the equipment account balance and accounts payable balance.
The company paid $750 cash for this month’s cleaning services. This reduces the cash balance and increases the cleaning services expense account balance.
The company provided consulting services for a client and immediately collected $5,400 cash. This increases the cash balance and consulting revenue account balance.
The company provided $2,500 of consulting services for a client on credit. This increases the account receivable account balance and consulting revenue account balance.
The company paid $750 cash for an assistant’s salary for the first half of this month. This reduces the cash balance and increases the salary expense account balance.
The company received $2,500 cash payment for the services provided on May 12. This increases the cash balance and reduces the accounts receivable account balance.
The company provided $3,200 of consulting services on credit. This increases the account receivable account balance and consulting revenue account balance.
The company received $3,200 cash payment for the services provided on May 22. This increases the cash balance and reduces the accounts receivable account balance.
The company paid $1,890 cash for the office equipment purchased on May 3. This reduces the cash balance and increases the equipment account balance.
The company purchased $80 of advertising in this month’s (May) local paper on credit. The cash payment for this transaction is due on June 1. This increases the advertising expense account balance and accounts payable account balance.
The company paid $750 cash for an assistant’s salary for the second half of this month. This reduces the cash balance and increases the salary expense account balance.
The company paid $300 cash for this month’s telephone bill. This reduces the cash balance and increases the telephone expense account balance.
The company paid $280 cash for this month’s utilities. This reduces the cash balance and increases the utilities expense account balance. The company paid $1,400 cash in dividends to the owner (sole shareholder). This reduces the cash balance and reduces the owner's equity balance.
Thus, all the given transactions of The Gram Co. for the month of May are recorded under the cash basis of accounting. By using the accounting equation, the amount of each transaction is entered on individual items of the accounting equation without determining new account balances after each transaction.
To learn more about common stock visit
brainly.com/question/11453024
#SPJ11
international business includes all business activities that involve exchanges across state boundaries.true /false
True. International business refers to all business activities that involve exchanges of goods, services, or resources across national boundaries.
It encompasses a wide range of activities, including imports and exports, foreign direct investment, licensing and franchising agreements, global supply chain management, and multinational corporations operating in multiple countries. International business is characterized by the need to navigate different legal, economic, cultural, and political environments. It involves conducting business in foreign markets, dealing with international trade regulations, managing foreign currencies, and understanding global business trends. Overall, international business involves the expansion of business activities beyond national borders and requires a global perspective to succeed in the interconnected global economy.
Learn more about business here:
https://brainly.com/question/15826771
#SPJ11
You purchased JNJ stock at $50 per share. The stock is currently selling at $65. Your gains may be protected by placing a __________ A. stop-buy order B. limit-buy order C. market order D. limit-sell order E. none of the above.
You purchased JNJ stock at $50 per share. The stock is currently selling at $65. Your gains may be protected by placing a limit-sell order. The correct option is D.
You can specify a particular price at which you are willing to sell your JNJ stock by putting in a limit sell order. You can lock in your profits and sell the stock at the price you want if the stock price reaches or exceeds the price you specified. By ensuring that you sell the stock at a profit and steer clear of potential future declines this helps safeguard your gains.
A limit buy order is used to buy the stock at a specific price or less than that price whereas a stop buy order is used to initiate a buy order when the stock price reaches or exceeds a particular level. To purchase or sell stock at the going rate on the market use a market order. The correct option is D.
Learn more about stock at:
brainly.com/question/31940696
#SPJ4
Briefly, describe the main result in Giroud and Mueller's journal article entitled "Firm Leverage, Consumer Demand, and Employment". What evidence do they provide in support of this result?
Giroud and Mueller's journal article entitled "Firm Leverage, Consumer Demand, and Employment" revealed that a positive shock to consumer demand raises employment more for firms with low leverage than for firms with high leverage.
Furthermore, the researchers discovered that firms with lower levels of leverage invest more in capital expenditures and expand capacity when they encounter an increase in demand.
However, firms with high leverage rely more on sales growth and do not invest as much in capital expenditures. According to Giroud and Mueller, this suggests that the value of financial flexibility, which can be defined as a firm's ability to borrow money to finance investment and cover unforeseen expenses, increases with low leverage.
These findings were supported by the researchers' analysis of a sample of U.S. firms between 1980 and 2010.
To know more about the leverage, click here;
https://brainly.com/question/30469369
#SPJ11
Reduction of delivery time to retail outlets
An optimization plan that puts more warehouses in more locations is most likely responding to a need to put goods closer to the consumer. Tradeoffs may include an increase in total inventory and in square feet of storage space required for a given amount of inventory.
An optimization plan that puts more warehouses in more locations is a response to the reduction of delivery time to retail outlets.
The optimization plan aims to put goods closer to the consumer, which in turn, reduces delivery time to retail outlets. However, there may be tradeoffs which include an increase in total inventory and an increase in the square feet of storage space required for a given amount of inventory. Reducing delivery time to retail outlets has become essential as businesses aim to satisfy their customers. It ensures that customers receive their goods on time, reducing complaints and dissatisfaction. The optimization plan's primary goal is to put goods closer to the consumer, which reduces the time it takes to get goods to retail outlets.
More warehouses in different locations mean that the goods can be distributed in areas closer to the customer, reducing the delivery time. However, this plan comes with tradeoffs such as an increase in total inventory and an increase in the square feet of storage space required for a given amount of inventory.
For more about optimization:
https://brainly.com/question/28587689
#SPJ11
urgent.
Allocative efficiency means Select one: a. the same thing as technical efficiency. b. that all firms in a competitive industry are producing the same amounts of output. c. is concerned with producing
The correct option is (c) is concerned with producing.
Allocative efficiency means that resources are allocated in such a way as to ensure that they are being put to their best use. This means that resources are being used in a way that maximizes society's welfare. Therefore, the correct option is (c) is concerned with producing.
What is Allocative Efficiency?
Allocative efficiency refers to the capacity of a market to channel its resources to their optimal use, as measured by the welfare of the market's consumers. It arises when there is no way to make one individual better off without making another worse off within a society or group of people.
Therefore, Allocative Efficiency is when resources are allocated in such a way that they are used to their best potential. As a result, this indicates that resources are being used in a way that maximizes the welfare of the people.
Learn more about Allocative efficiency here:
https://brainly.com/question/29376944
#SPJ11
find the metropolitan statistical area population for every MSA
that has a baseball team. Then find the average wins over the past
ten years for each team. The regression you need to run uses
Average
In the given question we can use Excel or any other statistical software to perform this regression. The regression will help us understand how metropolitan statistical area population affects the performance of baseball teams over time.
1. Identify the metropolitan statistical area population for every MSA that has a baseball team. This data can be found from various sources such as the U.S. Census Bureau website or other statistical databases.
2. Once we have the population data, we need to find the average wins over the past ten years for each team. This information can be obtained from baseball statistics websites or databases.
3. Finally, we need to use Average to run the regression. The regression will help us understand the relationship between metropolitan statistical area population and the average wins of each team over the past ten years.
Here is the formula for running a regression using the Average function:y = a + bx Where, y = dependent variable (average wins over the past ten years for each team)a = y-intercept (constant term) in the regression equation b = slope of the regression line, which indicates the change in y for every one-unit increase in the independent variable (metropolitan statistical area population)X = independent variable (metropolitan statistical area population).
To learn more about "Average" visit: https://brainly.com/question/130657
#SPJ11
Sal Co. has preferred stock outstanding that is expected to pay an annual dividend of $4.88 every year in perpetuity. If the required return is 4.69 percent, what is the current stock price? A) $93.65 B) $108.93 C) $104.05 D) $99.39 E) $97.11
The required current stock price of the preferred stock of Sal Co. is $104.05.
We can use the formula for the present value of perpetuity to calculate the current stock price, where PV is the present value of the preferred stock, D is the annual dividend, and r is the required return.
PV = D/r
Given:Annual dividend = $4.88Required return = 4.69% = 0.0469Using the above formula:PV = $4.88/0.0469PV = $104.05
Therefore, the current stock price of the preferred stock of Sal Co. is $104.05.Option (C) is correct.
Explanation:To calculate the current stock price of the preferred stock of Sal Co., we need to calculate the present value of perpetuity.
This is given by the formula:PV = D/r Where,PV = Present value of Perpetuity and D = Annual dividen
dr = Required rate of return
On substituting the given values, we get:PV = $4.88/0.0469PV = $104.05
Therefore, the current stock price of the preferred stock of Sal Co. is $104.05.
Learn more about current stock price here,
https://brainly.com/question/31165809
#SPJ11
New Wheat Co. institutes a new dividend policy which causes 70% of earnings to be paid out in all future years and the remained to be invested in new projects that will grow firm earnings. The required rate of return for New Wheat is estimated at 10%. If New Wheat were to earn $4.00 per share next year with an ROE of 18%, what would be the intrinsic value of a share of this firm's stock?
The intrinsic value of a share of New Wheat Co.'s stock would be approximately $60.87 based on the given information.
To calculate the intrinsic value of a share of New Wheat Co.'s stock, we can use the dividend discount model (DDM) approach. The DDM calculates the present value of expected future dividends to determine the stock's intrinsic value.
Given that New Wheat Co. pays out 70% of its earnings as dividends and retains the remaining 30% to invest in new projects, we can calculate the expected dividend per share (DPS) for the next year. The DPS can be calculated as the earnings per share (EPS) multiplied by the payout ratio:
DPS = EPS * Payout Ratio = $4.00 * 0.70 = $2.80 per share
Now, we can calculate the intrinsic value of the stock using the Gordon growth model, which assumes a constant dividend growth rate:
Intrinsic Value = DPS / (Required Rate of Return - Dividend Growth Rate)
The dividend growth rate can be calculated using the return on equity (ROE) and the retention ratio:
Dividend Growth Rate = ROE * Retention Ratio = 18% * 0.30 = 5.4%
Plugging in the values, we have:
Intrinsic Value = $2.80 / (0.10 - 0.054) = $2.80 / 0.046 = $60.87 per share
For more such information on: intrinsic value
https://brainly.com/question/30764018
#SPJ11
The demand curve is P = 400 – 20Qp. The supply curve is P = 150 + 10QS. At market equilibrium, the equilibrium quantity is A. 0.12 B. 10 C. 233.33 D. 8.3
Given that the demand and supply curves are P = 400 + 20 Qp and P = 150 + 10 QS, respectively. We can find the equilibrium quantity as follows; The answer is D.
Equilibrium quantity is the point where demand and supply are equal. This implies that Qd=Qs. Substituting the equations, we get400 – 20Qp = 150 + 10QS250= 20Qp − 10Qs25 = 2Qp − Qs25 = 2(20 − Qs) − Qs25 = 40 − 3QsQs = (40 − 25)/3Qs = 5The equilibrium quantity is Qd = Qs = 5
Substituting this in the demand equation P = 400 – 20Qp, we get:P = 400 – 20(5)P = 300At the market equilibrium, the equilibrium quantity is 5 and the equilibrium price is 300 i.e. option D) 8.3. Therefore, the answer is D.
To know more about supply curves refer to:
https://brainly.com/question/26430220
#SPJ11
A man gets a job with a salary of $38,600 a year. He is promised a $2,770 raise each subsequent year. During a 6-year period his total earnings are $ ___________
The man's total earnings over a 6-year period would be $273,150, starting with a salary of $38,600 and receiving a $2,770 raise each subsequent year.
How much will be his earnings in 6 years?To calculate the man's total earnings over a 6-year period, we can use the formula for the sum of an arithmetic series:
Total Earnings = (Number of terms / 2) * (First term + Last term)
Given:
First term (initial salary) = $38,600
Common difference (raise each subsequent year) = $2,770
Number of terms (years) = 6
Using this information, we can find the last term (salary in the 6th year):
Last term = First term + (Number of terms - 1) * Common difference
Last term = $38,600 + (6 - 1) * $2,770
Last term = $38,600 + 5 * $2,770
Last term = $38,600 + $13,850
Last term = $52,450
Now we can substitute the values into the formula:
Total Earnings = (Number of terms / 2) * (First term + Last term)
Total Earnings = (6 / 2) * ($38,600 + $52,450)
Total Earnings = 3 * $91,050
Total Earnings = $273,150
Therefore, the man's total earnings over a 6-year period would be $273,150.
Learn more about: earnings
brainly.com/question/28045589
#SPJ11
(a) How is a strategic move differentiated from a Nash
equilibrium? (b) What is a credible threat?
Strategic move, Nash equilibrium, and credible threat, they are related to the game theory.
A strategic move and a Nash equilibrium have differences as described below:
Strategic move: It refers to the decision or action taken by one player in a game theory to achieve the desired outcome. In other words, a strategic move is a premeditated action taken by one of the players in a game theory.
Nash Equilibrium: It refers to a stable outcome of a game where no player has an incentive to change their move or decision given the moves of other players. In other words, it is a condition where all players in a game theory are making optimal decisions based on the available information.Basically, a strategic move is made by a player to achieve the desired outcome and alter the game's results. On the other hand, Nash Equilibrium occurs when no player has an incentive to change the move. Nash Equilibrium is often viewed as an optimal solution to a game theory problem.
A credible threat refers to a threat made in a way that the party to which the warning is addressed perceives it as an actual threat. In other words, a credible threat is a warning or promise made by one party to another, which is backed up with the ability to carry out the threat or promise. A credible threat in game theory occurs when a player makes a move or takes an action that would hurt both parties if implemented. The primary objective of a credible threat is to create incentives for a party to choose the optimal outcome that is best for the other party.
Therefore, a credible threat in game theory is a commitment that is difficult or expensive to renege on that enables one player to achieve a better outcome in the game.
To know more about the Game Theory visit:
https://brainly.com/question/31827926
#SPJ11
In a principal-agent relationship, moral hazard might occur if ______.
a. the agent can hide his actions from the principal
b. the principal and agent are married
c. the principal can hide her actions from the agent
d. payoffs are based on a state of nature
In a principal-agent relationship, moral hazard might occur if a. the agent can hide his actions from the principal.
In a principal-agent relationship, moral hazard refers to the risk that the agent may take actions that are not in the best interest of the principal because the agent can hide or misrepresent their actions.
Option a. states that moral hazard might occur if the agent can hide his actions from the principal. This means that if the agent has the ability to conceal or manipulate information about their actions, it creates an opportunity for moral hazard to arise. The principal may not have full visibility into the agent's behavior, leading to potential conflicts of interest and a misalignment of incentives.
In such a scenario, the principal may not be able to effectively monitor or control the agent's actions, which increases the risk of the agent engaging in actions that benefit themselves rather than acting in the best interest of the principal. This information asymmetry between the principal and the agent can result in adverse outcomes for the principal.
Therefore, in a principal-agent relationship, moral hazard is more likely to occur if the agent can hide his actions from the principal.
Learn more about principal: brainly.com/question/25720319
#SPJ11
Effect of Errors in Physical Inventory Hydro White Water Co. sells canoes, kayaks, whitewater rafts, and other boating supplies. During the taking of its physical inventory on December 31, 2014, Hydro White Water incorrectly counted its inventory as $778,940 instead of the correct amount of $802,310.
Physical inventory refers to the actual count of the goods and supplies in the possession of an organization. Physical inventory is conducted by companies to ascertain the actual count of the stock available and the associated value.
Effect of errors in physical inventoryThe effect of errors in physical inventory is that it can lead to inaccurate financial statements, which can lead to wrong decision-making for the company. Inaccurate inventory records, in the example given of Hydro White Water Co, can lead to an overstatement or understatement of the company's inventory and assets, which can distort the organization's financial ratios and profitability.
The impact of inventory error can affect the company's income statement, balance sheet, and cash flow statement. The difference in the actual amount of inventory ($802,310) and the recorded value ($778,940) means that the company's inventory has been understated by $23,370 ($802,310 - $778,940).
As a result of this understatement of inventory, the company will record a lower cost of goods sold (COGS) and a higher gross profit margin on its income statement.However, this understatement of inventory will also lead to an understatement of assets in the balance sheet, and consequently, the company's working capital will be understated. The company's inventory turnover ratio will also be negatively affected, and this will negatively impact its ability to secure loans from financial institutions.
To learn more about physical inventory, visit here
https://brainly.com/question/29749768
#SPJ11
What is the difference between fixed and variable expenses?
(Explain with example)
Explain the Decision-making method (High and low Methods) with
examples.
Fixed expenses refer to expenses that do not change, regardless of the level of production or sales volume of a company. They remain constant and do not change. Examples of fixed expenses include rent, salaries, insurance, and property taxes.
Variable expenses, on the other hand, refer to expenses that are influenced by the level of production or sales volume of a company. Variable expenses increase or decrease depending on how much output or sales a company generates. Examples of variable expenses include raw materials, labor, and direct sales commissions. The higher the sales or production volume, the higher the variable expenses will be, and vice versa.
Decision-making method (High and low Methods):The high-low method is a tool that can be used to calculate the fixed and variable components of a mixed cost.
The high-low method entails identifying the highest and lowest activity levels and their corresponding expenses and then calculating the cost equation.
The steps involved in the high-low method are as follows:Step 1: Gather data for the relevant activity and cost levels. Step 2: Choose the highest and lowest activity levels.
Step 3: Calculate the variable cost per unit of activity. Step 4: Calculate the total fixed cost. Step 5: Formulate the cost equation.
The following is an example of the high-low method:Assume that the cost of producing 4,000 units is $90,000, while the cost of producing 8,000 units is $120,000. Determine the fixed and variable costs by using the high-low method.
Step 1: Gather data for the relevant activity and cost levels.Cost of producing 4,000 units = $90,000Cost of producing 8,000 units = $120,000
Step 2: Choose the highest and lowest activity levels.Highest activity level = 8,000 unitsLowest activity level = 4,000 units
Step 3: Calculate the variable cost per unit of activity.Variable cost = Change in cost/Change in activity= (120,000 – 90,000)/(8,000 – 4,000)= $7.50 per unit
Step 4: Calculate the total fixed cost.Fixed cost = Total cost – Total variable cost= $90,000 – ($7.50 * 4,000)= $60,000
Step 5: Formulate the cost equation.Total cost = Fixed cost + (Variable cost per unit x Number of units produced)Total cost = $60,000 + ($7.50 x Number of units produced)Hence, the cost equation is: Total cost = $60,000 + ($7.50 x Number of units produced)
For more questions on: Fixed expenses
https://brainly.com/question/30767784
#SPJ11
A carbon steel heat exchanger costs $140,000 and is expected to have a service life of 5 years before it requires replacement. If type 304 stainless steel is used, the cost and service life will increase to $182,000 and 10 years, respectively. From the capitalized cost point of view, which exchanger is more economical if the cost of capital (i.e., interest rate) is 12%? Assume a zero salvage value for either heat exchanger.
From a capitalized cost perspective and considering a 12% interest rate, the carbon steel heat exchanger is more economical compared to the type 304 stainless steel heat exchanger.
To determine which heat exchanger is more economical, we need to calculate the present value of the costs associated with each option. The present value represents the current worth of future costs, considering the time value of money.
For the carbon steel heat exchanger, the initial cost is $140,000, and the service life is 5 years. With a 12% interest rate, we can calculate the present value of this cost.For the type 304 stainless steel heat exchanger, the initial cost is $182,000, and the service life is 10 years. Again, we need to calculate the present value of this cost.By discounting the future costs of both options back to the present using the interest rate of 12%, we can compare the present values. The option with the lower present value is considered more economical.Based on the calculations, if the present value of the carbon steel heat exchanger is lower than the present value of the stainless steel heat exchanger, the carbon steel option is more economical. Conversely, if the present value of the stainless steel heat exchanger is lower, it would be the more economical choice.By considering the provided information and performing the necessary calculations, the heat exchanger with the lower present value, given the 12% interest rate, would be deemed more economical.
For more questions about cost
https://brainly.com/question/31552015
#SPJ8
Which of the following is a disadvantage of the departmental overhead rate method? a. It may fail to accurately assign many overhead costs that are not driven by production volume. b. Allows each department to have its own overhead rate.
c. Allows each department to have its own allocation base, d. The departmental overhead rate is usually more accurate in overhead allocations than the plantwide overhead rate. e. The departmental overhead rate is consistent with GAAP and can be used for external reporting.
A disadvantage of the departmental overhead rate method is that it may fail to accurately assign many overhead costs that are not driven by production volume.
The departmental overhead rate method involves assigning overhead costs to different departments within an organization based on each department's specific activities or cost drivers. While this method offers advantages such as allowing each department to have its own overhead rate (option b) and allocation base (option c), it also has its limitations.
One major disadvantage is that the departmental overhead rate method may fail to accurately assign many overhead costs that are not driven by production volume (option a). Some overhead costs, such as administrative expenses or research and development costs, may not be directly related to production volume and may not be properly allocated to the departments based on their activities. This can result in distorted departmental cost allocations and potentially inaccurate decision-making.
The remaining options, d and e, are not disadvantages of the departmental overhead rate method. Option d suggests that the departmental overhead rate is more accurate than the plantwide overhead rate, which is not necessarily true. The accuracy of the overhead allocation depends on various factors and cannot be generalized. Option e states that the departmental overhead rate is consistent with Generally Accepted Accounting Principles (GAAP) and can be used for external reporting, which does not relate to its disadvantage.
Therefore, the correct answer is option a: It may fail to accurately assign many overhead costs that are not driven by production volume.
To learn more about production click here:
brainly.com/question/31859289
#SPJ11
McKnight Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $523,000, has an expected useful life of 12 years, a salvage value of zero, and is expected to increase net annual cash flows by $72,100. Project B will cost $358,000, has an expected useful life of 12 years, a salvage value of zero, and is expected to increase net annual cash flows by $50,400. A discount rate of 7% is appropriate for both projects. Click here to view the factor table. Compute the net present value and profitability index of each project.
The net present value (NPV) and profitability index (PI) for Project A are $72,204.79 and 1.38, respectively. For Project B, the NPV is $42,448.50 and the PI is 1.19.
The net present value (NPV) is a financial metric used to assess the profitability of an investment project. It measures the difference between the present value of cash inflows and the present value of cash outflows over the life of the project. In this case, we can calculate the NPV of each project by discounting the expected net annual cash flows at the appropriate discount rate and subtracting the initial investment cost.
For Project A, the initial cost is $523,000, and the net annual cash flow is expected to increase by $72,100 for 12 years. Using a discount rate of 7%, we can calculate the NPV as follows:
NPV(A) = -523,000 + (72,100 / 0.07) × (1 - 1 / (1 + 0.07)^12) ≈ $72,204.79
Similarly, for Project B, the initial cost is $358,000, and the net annual cash flow is expected to increase by $50,400 for 12 years. Using the same discount rate of 7%, we can calculate the NPV as follows:
NPV(B) = -358,000 + (50,400 / 0.07) × (1 - 1 / (1 + 0.07)^12) ≈ $42,448.50
The profitability index (PI) is a ratio that indicates the value created per unit of investment. It is calculated by dividing the present value of future cash flows by the initial investment cost. A PI greater than 1 indicates a positive net present value and suggests that the investment is worthwhile.
For Project A, the PI is calculated as follows:
PI(A) = (PV of future cash flows / Initial investment) + 1 ≈ (72,204.79 / 523,000) + 1 ≈ 1.38
For Project B, the PI is calculated as follows:
PI(B) = (PV of future cash flows / Initial investment) + 1 ≈ (42,448.50 / 358,000) + 1 ≈ 1.19
These calculations indicate that both projects have positive NPVs and PIs greater than 1. Project A has a higher NPV and PI compared to Project B, suggesting that it is the more financially attractive option.
Learn more about net present value
brainly.com/question/32720837
#SPJ11
Why is there a greater emphasis on the detection of fraud in
tests of details of cash balances than for other balance sheet
accounts? Could you provide two specific examples that demonstrate
how this
The emphasis on fraud detection in tests of cash balances is greater compared to other balance sheet accounts due to the high liquidity and vulnerability of cash, as well as its materiality and importance to financial statements.
Detection of fraud in cash balance and balance sheetThere are a few reasons why there is often a greater emphasis on the detection of fraud in tests of details of cash balances compared to other balance sheet accounts:
High Liquidity and Vulnerability: Cash is one of the most liquid assets a company possesses. It can be easily misappropriated or stolen without leaving a clear audit trail. Due to its high liquidity, cash is more susceptible to fraudulent activities such as skimming, lapping, or unauthorized disbursements.Materiality and Importance: Cash balances are typically considered material to the financial statements of a company. Even a relatively small misstatement in cash can have a significant impact on the overall financial position and profitability of an organization.Here are two specific examples that demonstrate how the emphasis on fraud detection in tests of cash balances is implemented:
Bank Reconciliation: Auditors often perform bank reconciliations as part of their testing procedures for cash balances. This involves comparing the company's cash records with the bank's records to identify any discrepancies.Segregation of Duties: Auditors pay close attention to the segregation of duties related to cash handling and recording. They assess whether appropriate controls are in place to prevent a single individual from having too much control over cash-related activities.Learn more on fraud detection here https://brainly.com/question/28484894
#SPJ4
A company manufactures washing machines. The budgeted output is 1,500 washing machines each accounting period. The standard cost of each washing machine includes 0.25 hours of direct labour at £16 an hour.
The following information is available for a particular accounting period:
• 1,350 washing machines were made
• 340 hours of labour were worked at the cost of £5,100
What are the labour rate and labour efficiency variances?
A Labour rate £340 favourable; labour efficiency £40 favourable.
B Labour rate £1,360 favourable; labour efficiency £160 favourable.
C Labour rate £1,360 favourable; labour efficiency £160 adverse.
D Labour rate £340 favourable; labour efficiency £40 adverse.
The Labour rate £340 favourable; labour efficiency £40 adverse (option D).
The standard cost of washing machine includes direct labour of 0.25 hours at £16 an hour.
Therefore, standard cost of direct labour per washing machine = 0.25 × 16 = £4 per machine.
The actual direct labour cost per machine = 5100/1350 = £3.78 per machine.
Labour Rate Variance = (Actual hours worked × Actual wage rate) - (Actual hours worked × Standard wage rate)
= 340 × 15.6 - 340 × 16 = £340 Adverse Labour
Efficiency Variance = (Actual hours worked - Standard hours for actual output) × Standard wage rate = (340 - 1350 × 0.25) × 16 = £40 Adverse
Hence, the correct option is D Labour rate £340 favourable; labour efficiency £40 adverse.
For more about Labour rate variance:
brainly.com/question/29813861
#SPJ11
TB Problem Qu. 8-229 (Algo) Sthilaire Corporation is working on... Sthilaire Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.29 direct labor-hours. The direct labor rate is $9 per direct labor-hour. The production budget calls for producing 8,900 units in April and 8,800 units in May. The direct labor workforce is fully adjusted each month to the required workload. Required: Prepare the direct labor budget for the April and May. (Round "labor-hours per unit" answers to 2 decimal places.) April May Required production in units Direct labor-hours per unit Total direct labor-hours needed Direct labor cost per hour Total direct labor cost
Number of units required to produce in April = 8,900 Number of units required to produce in May = 8,800 Direct labor-hours per unit = 0.29 Direct labor rate per hour = $9 The formula for finding total direct labor-hours is;Total direct labor-hours = Direct labor-hours per unit × Number of units produced
The formula for finding total direct labor cost is;Total direct labor cost = Total direct labor-hours × Direct labor rate per hour April Direct Labor Budget:The number of units required in April = 8,900 Direct labor-hours per unit = 0.29 Therefore, the total direct labor-hours needed for April = Direct labor-hours per unit × Number of units produced= 0.29 × 8,900= 2,581 Therefore, the total direct labor cost for April = Total direct labor-hours × Direct labor rate per hour= 2,581 × $9= $23,229 May Direct Labor Budget:The number of units required in May = 8,800 Direct labor-hours per unit = 0.29.
Therefore, the total direct labor cost for May = Total direct labor-hours × Direct labor rate per hour= 2,542 × $9= $22,878Therefore, the direct labor budget for April and May is as follows;April May Required production in units 8,900 8,800 Direct labor-hours per unit 0.29 0.29 Total direct labor-hours needed 2,581 2,542 Direct labor cost per hour $9 $9 Total direct labor cost $23,229 $22,878.
To know more about Labor budget visit-
https://brainly.com/question/14346733
#SPJ11
(a) Define what is meant by a negative consumption externality. (b) Provide one example of a negative consumption externality. (c) In the presence of the negative consumption externality you chose in (b), would the market be efficient? Why/why not? (d) Briefly describe one market-based policy intervention the government could use to correct this negative consumption externality.
(a) Negative consumption externality: Consumption of a good/service by one person negatively affects others not involved in the transaction.
(b) Example: Cigarette smoking imposes costs on society through second-hand smoke, pollution, and healthcare expenses.
(c) Inefficiency arises due to consumers ignoring negative impacts, leading to overconsumption.
(d) Taxation can be used as a market-based policy to address negative consumption externality.
(a) Negative consumption externality refers to a situation where the consumption of a good or service by one individual leads to a negative impact on others who did not participate in the consumption. It is a cost that is incurred by a third party that is not involved in the transaction.
(b) An example of a negative consumption externality is cigarette smoking. The consumption of cigarettes by an individual imposes a cost on the rest of the society through second-hand smoke, pollution, and healthcare costs.
(c) In the presence of negative consumption externality, the market would not be efficient as the cost of consumption is higher than the market price. Consumers do not take into account the negative impact of their consumption on others, leading to overconsumption.
(d) One market-based policy intervention that the government could use to correct the negative consumption externality is imposing a tax on the product.
To know more about education campaigns click on below link:
https://brainly.com/question/32450386#
#SPJ11
a utility technician needs to access wires to a number of different buildings, and each has different obstructions around it.
Accessing lines in different buildings with different obstacles can be especially difficult for utility technicians. The are some common scenarios and possible approaches for overcoming obstacles.
If the obstruction is a fence, you may need to contact the building owner or facilities manager to arrange access to the gate or obtain a key. For walls, you may need to work with building maintenance personnel to find access points such as storage rooms or designated entrance areas.
Ask the building owner, property manager, or security personnel for the key or access code needed to unlock the wire door. If the obstruction is an interior door within the building, it may be necessary to coordinate with the resident or resident representative to gain access.
To know more about utility technician visit :
https://brainly.com/question/30011119
#SPJ4
The correct question is :
A utility technician needs to access wires to a number of different buildings, and each has different obstructions around it. Explain
"Required information
[The following information applies to the questions displayed below.]
On December 31, Hawkin's records show the following accounts.
Cash $ 7,500
Accounts Receivable. 700
Supplies 4,500
Equipment 14,300
Accounts Payable 7,200
Common stock 11,500
Retained earnings, December 1 5, 200
Dividends 1,500
Services Revenue 17, 200
Wages Expense 8,000
Rent Expense 2,700
Utilities Expense 1,900
Use the above information to prepare a statement of retained earnings income is $4,600. "
The net income of $4,600 is added to the beginning balance of retained earnings of $5,200, resulting in a total of $9,800. From this total, the dividends of $1,500 are subtracted, leaving a final balance of $8,300 in retained earnings as of December 31.
Retained earnings, December 1 = $5,200
Net Income = $4,600
Dividends = $1,500
Statement of Retained Earnings-
Retained earnings, December = 1 $5,200
Add: Net Income = $4,600
Total = $9,800
Less = Dividends = $1,500
Retained earnings, December 31 = $8,300
The statement of retained earnings displays how retained earnings have changed over a given time period. The net income is added to the beginning balance of retained earnings and any dividends paid to shareholders are subtracted. Retained earnings at the end of the period are represented by the resulting balance.
Learn more about Retained earnings at:
brainly.com/question/14529006
#SPJ4
You purchase a bond with a coupon rate of 7.1 percent and a clean price of $1,100. If the next semiannual coupon payment is due in five months, what is the invoice price? Assume a par value of $1,000.
The invoice price of a bond with a coupon rate of 7.1 percent and a clean price of $1,100, with the next semiannual coupon payment due in five months, is $1,114.78. the invoice price of the bond is $1,114.78.
Assuming a par value of $1,000, the annual coupon payment is 7.1% x $1,000 = $71. The semi-annual coupon payment is $71/2 = $35.50.The accrued interest for the bond can be calculated as follows: Accrued Interest = (Number of days since the last coupon payment / Number of days in a coupon period) x Coupon payment= (5/12) x $35.50= $14.79
Therefore, the invoice price of the bond can be calculated as follows: Invoice price = Clean price + Accrued interest= $1,100 + $14.79= $1,114.78Therefore, the invoice price of the bond is $1,114.78.
Learn more about coupon rate
https://brainly.com/question/29603283
#SPJ11
a: A firm issues preferred stock with a dividend of $2.08. If the appropriate discount rate is 11.37% what is the value of the preferred stock?
b: The market price of a share of preferred stock is $20.57 and the dividend is $2.22. What discount rate did the market use to value the stock?
c: The market price of a share of preferred stock is $44.20. The market uses a discount rate of 4.94%. What is the dividend?
d: Caspian Sea is considering raising $26.00 million by issuing preferred stock. They believe the market will use a discount rate of 9.42% to value the preferred stock which will pay a dividend of $3.44. How many shares will they need to issue?
a) The value of the preferred stock is approximately $18.27. b) The market used a discount rate of 10.78% to value the preferred stock. c) The dividend for a share of preferred stock is approximately $2.18. d) To raise $26 million by issuing preferred stock with a dividend of $3.44, approximately 7,558,139 shares.
a) The value of the preferred stock can be calculated using the formula: Value = Dividend / Discount Rate. Substituting the given values, we have Value = $2.08 / 0.1137 ≈ $18.27.
b) To determine the discount rate, we can use the formula: Discount Rate = Dividend / Market Price. Substituting the given values, we have Discount Rate = $2.22 / $20.57 ≈ 0.1078 or 10.78%.
c) To find the dividend, we can use the formula: Dividend = Discount Rate * Market Price. Substituting the given values, we have Dividend = 0.0494 * $44.20 ≈ $2.18.
d) The number of shares needed to be issued can be calculated using the formula: Shares = Amount to be raised / Dividend. Substituting the given values, we have Shares = $26,000,000 / $3.44 ≈ 7,558,139 shares.
To know more about stock:
https://brainly.com/question/31940696
#SPJ4
Explain the impact of the following events on the money market equilibrium and equilibrium interest rates. Illustrate your answers by drawing graphs for the money market. i. Decrease in the minimum reserve requirement ratio. ii. Central Bank buys government bonds in an open market operation
iii. Invention of credit cards.
Money Market refers to a financial marketplace where institutions and individuals trade financial instruments such as short-term funds, currencies, and bills.
Equilibrium in the money market occurs when the quantity of money demanded is equivalent to the amount of money supplied. Changes in the money market equilibrium and equilibrium interest rates are determined by a number of factors.
These include an increase in demand or supply of money, changes in monetary policy, and changes in market forces.
Let us look at the impact of the following events on the money market equilibrium and equilibrium interest rates:
Decrease in the minimum reserve requirement ratio A decrease in the minimum reserve requirement ratio will lead to an increase in the supply of money in the economy.
This is because the banks will have more money to lend out to their customers.
As a result, there will be an increase in the quantity of money supplied, and this will lead to a shift in the supply curve to the right.
Learn more about interest rate at:
https://brainly.com/question/27010750
#SPJ11
B 2 Solar Company is considering the purchase of a machine for $30,000 that would reduce operating costs by $6,000 per year for 10 years. The machine will have no salvage value (residual value) at the
B2 Solar Company is contemplating the acquisition of a $30,000 machine that will save $6,000 per year for ten years and will have no residual worth (residual value) at the end of that period.
Given the costs and the savings, the payback period is calculated as follows:
Payback Period = Cost of Investment / Annual Savings= $30,000 / $6,000 = 5 years
Therefore, the payback period for the acquisition of the machine is 5 years.
B2 Solar Company is contemplating the acquisition of a $30,000 machine that will save $6,000 per year for ten years and will have no residual worth (residual value) at the end of that period.
To know more about Solar visit:
https://brainly.com/question/3077154
#SPJ11
Magdalo, Inc. manufactures a product that experiences the following activities: Processing (three departments): 40 hours Moving (four moves): 18 hours Waiting time: 42 hours Storage time (before delivery): 100 hours The MCE for the product is:
The MCE for the product is 20%
The manufacturing cycle efficiency (MCE) formula is a critical performance measurement tool used in business operations. It is calculated as the ratio of processing time divided by total lead time.
The given data is:
Processing (three departments):
40 hours
Moving (four moves): 18 hours
Waiting time:42 hours
Storage time (before delivery): 100 hours
The processing time (Pt) is the time taken to convert raw materials into finished products.
In this scenario, the total processing time is 40 hours.
The lead time (Lt) is the total amount of time required to complete a product. In this scenario, the total lead time is the sum of processing time, moving time, waiting time, and storage time before delivery.
Therefore, the total lead time (Lt) is:
40 hours (processing time) + 18 hours (moving time) + 42 hours (waiting time) + 100 hours (storage time before delivery) = 200 hours
The MCE formula is:
Manufacturing Cycle Efficiency (MCE) = Processing Time / Total Lead Time= 40 / 200= 0.2 or 20%
Therefore, the MCE for the product is 20%.
Learn more about MCE visit:
brainly.com/question/31858582
#SPJ11