1. The fair forward price of a forward contract which calls for the delivery of 1 share of IBM stock at the end of one year is $214.002. If the actual forward price FA is $212, your arbitrage strategy is to buy a forward contract at the price of $212, invest $200 for one year at the interest rate of 7% per annum and simultaneously short sell the stock at the current market price of $200.
This arbitrage strategy will generate a risk-free profit of $2.002.3. At the end of one year, suppose IBM stock price is ST, then the cash flow spot(stock) market is $ST, the cash flow in the forward contract is $214, and the arbitrage profit is $2.002.Therefore, the correct options are as follows:1. The fair forward price of a forward contract which calls for the delivery of 1 share of IBM stock at the end of one year is $214.002. If the actual forward price FA is $212, your arbitrage strategy is to buy a forward contract at the price of $212, invest $200 for one year at the interest rate of 7% per annum and simultaneously short-sell the stock at the current market price of $200. This arbitrage strategy will generate a risk-free profit of $2.002.3. At the end of one year, suppose IBM stock price is ST, then the cash flow spot(stock) market is $ST, the cash flow in the forward contract is $214, and the arbitrage profit is $2.002.
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Your portfolio is comprised of 40% of Stock A, 15% of Stock B, and 45% of Stock C. Stock A has a beta of 1.16, Stock B has a beta of 1.47, and Stock C has a beta of 0.82. What is the beta of your portfolio?
0.87
0.96
1.18
1.05
0.92
Sproul's common stock has an expected return of 10.08%. The return on the S&P 500 is 11.6% and the U.S. T-Bill rate is 3.42%. What is Sproul's beta?
The beta of the portfolio is 0.96. Beta is the statistical measure of a stock's volatility in relation to the market. It is the degree of risk the stock carries in relation to the stock market as a whole.
A stock with a beta value of 1 has a volatility that is equal to the market's average. If a stock has a beta of more than 1, it's more volatile than the market. If it's less than 1, it's less volatile than the market. In this case, we need to calculate the beta of the portfolio.
Calculation:Given: The portfolio is comprised of 40% of Stock A, 15% of Stock B, and 45% of Stock C.Stock A has a beta of 1.16Stock B has a beta of 1.47 Stock C has a beta of 0.82We need to calculate the beta of the portfolio.Using the formula of weighted average,
we have: Beta of portfolio = (Weight of stock A * Beta of stock A) + (Weight of stock B * Beta of stock B) + (Weight of stock C * Beta of stock C)Beta of portfolio = (0.4 * 1.16) + (0.15 * 1.47) + (0.45 * 0.82)Beta of portfolio = 0.464 + 0.22 + 0.369Beta of portfolio = 0.96
Therefore, the beta of the portfolio is 0.96. Answer: 0.96
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(a) (20 points) Find the coefficient of absolute risk aversion A(w) for the following utility functions:
i. u(w) = log(w)
ii. u(w) = w(1− γ)/(1−γ ), γ ≤1
iii. u(w) = −(1/p)e−pw
iv. u(w) = a + bw + cw2, b > 0, c < 0
(b) (15 points) For each of the above find whether they are IARA, CARA
or DARA (show or explain why)?
(c) (10 points) For u(w) = w(1− γ)/(1−γ ), γ ≤1, if for person 1 γ=γ1 and for person 2 γ=γ2 such that γ1 > γ2 which person is more risk averse?
A) Find the coefficient of absolute risk aversion for the given utility functions.i. u(w) = log(w)Formula for coefficient of absolute risk aversion for u(w) = log(w) is as follows:-A(w) = - (w * u''(w)) / u'(w)where u'(w) = 1/w, u''(w) = -1/w2Hence,A(w) = - (w * (-1/w2)) / (1/w)= w * (1/w2) = 1/wii. u(w) = w(1-γ)/(1-γ), γ ≤1
Formula for coefficient of absolute risk aversion for u(w) = w(1-γ)/(1-γ), γ ≤1 is as follows:-A(w) = -w * γ / (1-γ)
Hence,A(w) = -wγ/(1-γ)iii. u(w) = -(1/p)e-pwFormula for coefficient of absolute risk aversion for u(w) = -(1/p)e-pw is as follows:-A(w) = pwHence,A(w) = pwiv. u(w) = a + bw + cw2, b > 0, c < 0
Formula for coefficient of absolute risk aversion for u(w) = a + bw + cw2, b > 0, c < 0 is as follows:-A(w) = - (c * w) / (a + bw + cw2)Therefore,A(w) = - cw / (a + bw + cw2)B) Find whether the above-mentioned utility functions are IARA, CARA or DARA.i. For the function u(w) = log(w), we have,A(w) = 1/w, which is always positive.
Therefore, the function is IARA.ii. For the function u(w) = w(1-γ)/(1-γ), γ ≤1, we have,A(w) = -wγ/(1-γ), which is negative when γ < 1.
Hence, the function is CARA.iii. For the function u(w) = -(1/p)e-pw, we have,A(w) = pw, which is always positive. Therefore, the function is IARA.iv. For the function u(w) = a + bw + cw2, b > 0, c < 0, we have,A(w) = -cw / (a + bw + cw2), which is always negative.
Therefore, the function is DARA.C) For u(w) = w(1-γ)/(1-γ), γ ≤1, if for person 1 γ=γ1 and for person 2 γ=γ2 such that γ1 > γ2, then person 1 is more risk-averse.
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A firm faces the following production function: y(k, 1) = √k + √l. The output price is equal to 6, and the input price of labor is equal to 2. If the output price increases to 10, by how much does the optimal level of labor input increase?
To determine how the optimal level of labor input changes when the output price increases, we need to use the concept of marginal product and marginal revenue.
Given:
Production function: y(k, l) = √k + √lOutput price (p) = 6 (initially) and 10 (after the increase)Input price of labor (w) = 2The firm's profit-maximizing condition is that the marginal revenue product of labor (MRP) equals the input price of labor (w):
MRP = ∂(py)/∂l = wLet's calculate the initial optimal level of labor input:
MRP = ∂(6y)/∂l = 2∂(6(√k + √l))/∂l = 23/√l = 2√l = 3/2l = (3/2)^2l = 9/4Now, let's calculate the optimal level of labor input after the increase in output price:
MRP = ∂(10y)/∂l = 2∂(10(√k + √l))/∂l = 25/√l = 2√l = 5/2l = (5/2)^2l = 25/4The increase in the optimal level of labor input is:
Δl = l_new - l_oldΔl = 25/4 - 9/4Δl = 16/4Δl = 4Therefore, the optimal level of labor input increases by 4 units when the output price increases from 6 to 10.
About ProductionProduction is an activity carried out to add value to an object or create new objects so that they are more useful in meeting needs. The activity of adding to the usefulness of an object without changing its shape is called the production of services
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Dove and Eagle formed a business entity in which they are equal owners. Dove contributed cash of $100,000, and Eagle contributed land with a basis of $40,000 and fair market value of $100,000. For its first year of operations, the entity had taxable income of $60,000 and made no distributions. At year end it had outstanding recourse liabilities to third parties of $10,000. Eagle had a basis of $70,000 in the entity at the end of the first year of operations. What type of entity was formed
Answer:
S corporation
Explanation:
In the given case, The eagle basis at the closing of the year is 70,000 i.e. $40,000 + $30,000 (50% of $60,000)
In the case when the entity was a general partnership so 50% of $10,000 i.e. $5,000 would be added to the basis of Eagle
So here the type of entity that was formed is S corporation
The same is relevant
Alpha Bank is considering the following 3-year interest rate swap contract with a face value of $5 million: Fixed rate = 10% BUYER SELLER 90-day bank bill swap rate Alpha Bank is currently funding $5 million of 3-year variable-rate mortgage loans with 3-year fixed-rate bonds. To hedge its risk, should Alpha Bank enter the swap above as a buyer or seller? Explain your answer.
To hedge its risk, Alpha Bank should enter the 3-year interest rate swap contract as either a buyer or seller, depending on whether the 90-day bank bill swap rate is higher or lower than the fixed rate of the swap contract.
Alpha Bank is funding $5 million of 3-year variable-rate mortgage loans with 3-year fixed-rate bonds. The bank is looking to hedge its risk, but it needs to determine whether it should enter the 3-year interest rate swap contract mentioned above as a buyer or seller. To do so, Alpha Bank needs to compare the fixed rate of the swap to the 90-day bank bill swap rate.
The 90-day bank bill swap rate is the rate at which two parties agree to exchange fixed-rate and floating-rate payments over the course of a three-month period.The 90-day bank bill swap rate can be considered a market interest rate, and it will reflect the market's expectation of future interest rates. If the 90-day bank bill swap rate is higher than the fixed rate of the swap contract, then the buyer of the swap contract will be paying more than the market rate for a fixed rate of interest, so Alpha Bank would want to be the seller of the swap contract.
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Adjusted Trial Balance as of Dec 21, 2022
Question 1 (17 marks) Adjusted trial balance as of Dec 21, 2020 Account Titles Accounts Payable Accounts Receivable Accumulated Depr'n-Buildings Buildings Cash Common Shares Communications Expense Cos
The financial statements show a net loss, a decrease in retained earnings, and a balanced asset and liability structure.
To prepare the financial statements, we will use the information provided in the adjusted trial balance. Here are the financial statements:
Income Statement:
Sales Revenue: $460,000
Less: Sales Discounts: $15,000
Net Sales: $445,000
Cost of Goods Sold: $185,500
Gross Profit: $259,500
Operating Expenses:
Communications Expense: $15,800
Depreciation Expense: $9,200
Salaries Expense: $172,200
Selling and Admin Expenses: $52,900
Total Operating Expenses: $250,100
Operating Income: Gross Profit - Total Operating Expenses
Operating Income: $259,500 - $250,100
Operating Income: $9,400
Other Expenses:
Income Tax Expense: $14,500
Net Income: Operating Income - Income Tax Expense
Net Income: $9,400 - $14,500
Net Income: -$5,100 (Loss)
Statement of Changes in Retained Earnings:
Retained Earnings (Jan 01, 2021): $49,000
Add: Net Income: -$5,100
Less: Dividends Declared: $21,000
Retained Earnings (Dec 21, 2021): $22,900
Balance Sheet:
Assets:
Cash: $77,500
Accounts Receivable: $41,600
Notes Receivable: $24,000
Inventory: $36,400
Supplies: $7,500
Land: $65,000
Buildings: $250,000
Accumulated Depreciation-Buildings: $72,000
Total Assets: $494,000
Liability:
Accounts Payable: $20,500
Unearned Revenue: $25,000
Mortgage Payable (due in 2023): $210,000
Total Liabilities: $255,500
Equity:
Common Shares: $155,000
Retained Earnings (Dec 21, 2021): $22,900
Total Equity: $177,900
Total Liabilities and Equity: $494,000
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The market is books. For each question, draw an original supply and demand model and then show the change to that model determined by the situation given in the problem. Be sure to identify what happens to the price and quantity. a. The price of paper goes down ( {2} b. Consumers prefer reading on digital devices (—2) c. The number of sellers of books increases ( f2) d. A study is released noting the significant benefits of reading (—2)
a. When the price of paper goes down, it affects the supply of books. In the supply and demand model, we can see that the decrease in paper price will shift the supply curve to the right. As a result, the equilibrium price of books will decrease, and the equilibrium quantity will increase. This is because the lower cost of production allows sellers to offer books at a lower price, leading to higher quantity demanded.
b. When consumers prefer reading on digital devices, it affects the demand for physical books. In the model, this preference shift will cause the demand curve for books to shift to the left. As a result, the equilibrium price of books will decrease, and the equilibrium quantity will decrease as well. This is because fewer consumers are willing to buy physical books, leading to a lower quantity demanded.
c. When the number of sellers of books increases, it affects the supply of books. In the model, this increase in sellers will shift the supply curve to the right. As a result, the equilibrium price of books will decrease, and the equilibrium quantity will increase. This is because more sellers entering the market increase the overall supply, leading to a lower price and higher quantity demanded.
d. When a study noting the significant benefits of reading is released, it affects the demand for books. In the model, this positive information will shift the demand curve to the right. As a result, the equilibrium price of books will increase, and the equilibrium quantity will increase as well. This is because the study creates greater demand for books, leading to a higher price and higher quantity demanded.
Remember that these illustrations are simplified representations, and real market dynamics may be more complex. Nevertheless, they provide a basic understanding of how changes in specific factors can impact the equilibrium price and quantity of books in the market.
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The opportunity cost of producing the 76th unit of wheat is approximately Help Exam Summer 2022 that a consumer has a given budget or income of $12 and that she can buy only he goods, soples or bananes. The price of an apple is $150 and the price of a banana is $0.75. F the opportunity cost of buying one more apple is
The opportunity cost of buying one more apple is 2 bananas.
To calculate the opportunity cost, we need to compare the prices of two goods and see how much of the second good we have to give up to obtain one more unit of the first good. In this case, the price of an apple is $150 and the price of a banana is $0.75.
If we want to buy one more apple, we need to spend an additional $150. To cover this cost, we need to give up an equivalent value in bananas. Since the price of a banana is $0.75, we divide the additional cost ($150) by the price of a banana ($0.75).
$150 / $0.75 = 200 bananas.
Therefore, the opportunity cost of buying one more apple is 200 bananas. This means that for every additional apple we want to purchase, we have to forego the consumption of 200 bananas.
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a/ Is deleveraging dangerous from a macroeconomic point of
view?
b/ Is deleveraging dangerous from a financial stability point of
view?
a. No, deleveraging is not dangerous from a macroeconomic point of view. b. Yes, deleveraging is dangerous from a financial stability point of view.
a/ Deleveraging is generally not dangerous from a macroeconomic standpoint. It may be an important and necessary adjustment process to help stabilize an economy by reducing the vulnerability to future crises. When an economy faces high levels of debt, it is more vulnerable to shocks. For example, a sudden increase in interest rates or a decline in exports can cause a debt crisis, with potentially severe negative consequences for the economy.
When a country is undergoing a deleveraging process, it is reducing its overall level of indebtedness, which reduces its vulnerability to future shocks. Deleveraging can take place through different mechanisms, including debt repayment, restructuring, or default.
b/ Deleveraging can be dangerous from a financial stability point of view, particularly when it happens rapidly and abruptly. When financial institutions reduce their debt quickly, it can lead to a credit crunch, as banks may become reluctant to lend. This can result in a contraction of economic activity and further exacerbate the problem.
Moreover, rapid deleveraging can lead to fire sales of assets, which can create downward pressure on asset prices. This, in turn, can lead to further losses for financial institutions, which can result in a further reduction in lending and even more severe economic consequences.
Therefore, while deleveraging may be necessary to reduce vulnerabilities in the long term, it needs to be done in a gradual and orderly way to minimize the negative consequences.
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Please select/circle the correct answer.
A cost is not relevant for decision making if it
A. Does not differ for each option available to the decision maker.
B. Changes from period to period.
C. Is a future cost.
D. Is a mixed cost.
E. Is a fixed cost.
The correct answer is A. Does not differ for each option available to the decision maker.
When making decisions, it is important to consider costs that vary among different alternatives. If a cost remains constant and does not differ for each option, it does not provide relevant information for decision making. Irrelevant costs are those that do not impact the decision outcome and are not affected by the alternatives under consideration.
On the other hand, costs that change from period to period (B), are future costs (C), or are mixed costs (D) can all be relevant factors in decision making, as they provide insights into the potential costs associated with different options. Fixed costs (E) can also be relevant if they vary between alternatives.
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Sanchez Company engaged in the following transactions during Year 1: 1) Started the business by issuing $43,000 of common stock for cash. 2) The company paid cash to purchase $26,900 of inventory. 3) The company sold inventory that cost $16,500 for $31,850 cash. 4) Operating expenses incurred and paid during the year, $14,500. Sanchez Company engaged in the following transactions during Year 2: 1) The company paid cash to purchase $36,200 of inventory. 2) The company sold inventory that cost $33,300 for $58,250 cash. 3) Operating expenses incurred and paid during the year, $18,500. Note: Sanchez uses the perpetual inventory system. What is Sanchez's gross margin for Year 2?
The value of Sanchez's gross margin for Year 2 is $26,150.
Gross Margin can be calculated by subtracting the Cost of Goods Sold (COGS) from Net Sales. Sanchez's gross margin for Year 2 can be calculated using the below formula;
Gross Margin = Net Sales - COGS
Firstly, we will find out the COGS by using the given formula below;
COGS = Beginning Inventory + Purchases - Ending Inventory
Where,Purchases = Purchases of Inventory during the year (Year 2), $36,200
Beginning Inventory = Inventory remaining at the end of Year 1, $10,400
Ending Inventory = Inventory remaining at the end of Year 2, $14,500
Calculation of COGS is as follows;
COGS = $10,400 + $36,200 - $14,500= $32,100
Now, we will calculate the Net Sales which can be computed by summing up the total sales generated by the company during the year (Year 2);
Net Sales = Total Sales Generated during Year 2= Sales Generated by selling Inventory - $58,250 Sanchez's gross margin for Year 2 can be calculated as follows;
Gross Margin = Net Sales - COGS= ($58,250 - $32,100)= $26,150
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Financial Report on sri lanka ?
1. Introduction – General situation of the Country
2. Selected economic indicators
a. General Structure and Development of the Balance of Payments
b. Exports/Imports
c. FDI
3. Exchange rate development and its impact on the economic development
4. External debt
5. SWOT
6. Evaluation – what should be done
a.From the perspective of investors
b.From the perspective of the government
1.Sri Lanka is an island country in South Asia, located in the Indian Ocean. The country has a rich cultural heritage, beautiful scenery, and is renowned for its tea, gemstones, and spices.
In this financial report, we will provide an overview of the economic situation in Sri Lanka and its impact on the balance of payments, exports/imports, FDI, exchange rate development, external debt, and SWOT analysis. General Situation of the Country. Sri Lanka's economy has been growing steadily in recent years, with a GDP growth rate of 3.6% in 2019. The country's economy is largely driven by the services sector, followed by the industrial and agricultural sectors. The government has implemented policies to reduce poverty, improve infrastructure, and increase economic growth.
2.a. Selected Economic Indicators : General Structure and Development of the Balance of Payments. Sri Lanka's balance of payments has been negative in recent years, due to a high level of imports, particularly oil and other essential commodities. This has led to a current account deficit of around 2.7% of GDP in 2019.
b. Exports/Imports :Exports of Sri Lanka are dominated by textile and apparel products, followed by tea, rubber, and coconut products. Sri Lanka's imports include oil, vehicles, machinery, and transport equipment. The country's trade balance has been negative in recent years, reflecting the high level of imports and low export earnings.
c.FDI :Sri Lanka has attracted significant FDI in recent years, particularly in the tourism, construction, and manufacturing sectors. The government has implemented policies to improve the investment climate, such as reducing bureaucratic red tape and simplifying tax procedures.
3. Exchange Rate Development and Its Impact on the Economic Development : Sri Lanka's currency, the Sri Lankan rupee (LKR), has been depreciating against major currencies in recent years, reflecting a balance of payments deficit and high levels of external debt. This has led to inflationary pressures and higher import costs, which have negatively impacted economic growth.
4.External Debt : Sri Lanka's external debt has been increasing in recent years, reaching around 50% of GDP in 2019. The government has implemented policies to reduce external debt, such as negotiating debt restructuring agreements with creditors and improving the investment climate to attract more FDI.
5.SWOT Analysis : Strengths: Strategic location, educated workforce, and growing tourism sector.Weaknesses: High levels of external debt, negative trade balance, and low export earnings.Opportunities: Attracting more FDI, developing new export markets, and diversifying the economy.Threats: Global economic slowdown, natural disasters, and political instability.
6.Evaluation – a. What Should Be Done From the Perspective of Investors: Investors should continue to monitor the economic situation in Sri Lanka and take advantage of the country's growing tourism, construction, and manufacturing sectors. They should also be aware of the risks associated with high external debt, negative trade balance, and political instability.
b. From the Perspective of the Government: The government should continue to implement policies to reduce external debt, attract more FDI, and diversify the economy. It should also focus on improving the investment climate, simplifying tax procedures, and reducing bureaucratic red tape to encourage more investment.
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1 Welfare-enhancing tariffs (50 points) Tariffs never make small countries better off, but there are cases where they can make a large country better off. Draw side-by-side graphs for a good (call it
Welfare-enhancing tariffs never make small countries better off, but in some cases, they can make a large country better off.
Tariffs are taxes imposed on imported goods and services. Welfare-enhancing tariffs are those that increase the welfare of a country by raising the price of imports. Small countries are never made better off by tariffs because they rely on trade and have a lower bargaining power in the global market. On the other hand, large countries can use tariffs to increase their bargaining power and protect their domestic industries from foreign competition.
For example, a large country like the United States can use tariffs to protect its domestic steel industry from foreign steel imports. By raising the price of imported steel, domestic steel producers can increase their profits and increase employment. However, this comes at the cost of higher prices for consumers and can lead to retaliation from other countries. Therefore, welfare-enhancing tariffs should only be used in certain situations where the benefits outweigh the costs.
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Consider two standard Keynesian models.
In Model 1, there are two types of consumers, Type A, who have low marginal propensities to consume, and Type B, who have high marginal propensities to consume. In Model 2, there are only Type B consumers. Then, an increase in the exogenous government purchases would lead to higher output in Model 1 than in Model 2. Answer true or false. Please briefly explain your answer.
The increase in government purchases would lead to higher output in Model 1 than in Model 2. Hence, the given statement is true. The basic assumption of the Keynesian cross model is that the marginal propensity to consume (MPC) of the economy is constant, i.e., it doesn't depend on income.
According to the Keynesian theory, consumption demand plays a vital role in determining the level of output in the short run. Thus, the consumption function in the Keynesian cross model is C = c0 + MPC*Y, where C denotes consumption expenditure, Y denotes national income, and c0 is the autonomous consumption.
In Model 1, there are two types of consumers, Type A and Type B, who have low and high MPC, respectively. So, the consumption function for Type A consumers would be C_A = c_A0 + MPC_A*Y, and that for Type B consumers would be C_B = c_B0 + MPC_B*Y.
Thus, the overall consumption function for the economy would be C = C_A + C_B = c_A0 + MPC_A*Y + c_B0 + MPC_B*Y. When the government purchases increase, the expenditure multiplier is applied to the autonomous expenditure and results in a larger increase in the output level in Model 1.
Thus, the increase in government purchases would lead to higher output in Model 1 than in Model 2. Hence, the given statement is true.
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On February 1, 2021, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,300,000. During 2021, costs of $2,120,000 were incurred, with estima
The percentage of completion for the bridge construction project as of the end of 2021, based on the cost-to-cost method, is 28.65%.
To calculate the percentage of completion for the bridge construction project as of the end of 2021, based on the cost-to-cost method, we can use the formula:
Percentage of Completion = (Costs incurred to date / (Costs incurred to date + Estimated costs to complete)) * 100
In this case:
Costs incurred to date = $2,120,000
Estimated costs to complete = $5,280,000
Let's calculate the percentage of completion:
Percentage of Completion = ($2,120,000 / ($2,120,000 + $5,280,000)) * 100
Percentage of Completion = ($2,120,000 / $7,400,000) * 100
Percentage of Completion = 0.2865 * 100
Percentage of Completion = 28.65%
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--The complete question is, On February 1, 2021, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,300,000. During 2021, costs of $2,120,000 were incurred, with estimated costs to complete the project being $5,280,000. What is the percentage of completion for the bridge construction project as of the end of 2021, based on the cost-to-cost method?--
A loan was to be amortized by a group of four end-of-year payments. The initial payment was to be P5,350 and will increase by P620 every year thereafter. But the loan was renegotiated to provide for the equal payment rather than uniformly varying sums. If the interest rate of the loan was 15% compounded semi-annually, what was the annual payment?
Given that a loan was to be amortized by a group of four end-of-year payments. The initial payment was to be P5,350 and will increase by P620 every year thereafter. But the loan was renegotiated to provide for the equal payment rather than uniformly varying sums.
If the interest rate of the loan was 15% compounded semi-annually, what was the annual payment?We have to calculate the annual payment. Therefore, we need to calculate the outstanding balance after the first year.Then the remaining balance will be amortized uniformly in four payments.
A formula to calculate the outstanding balance after the first year is given by,B = [A(1+r)-P]/rwhere, B = Outstanding balance after the first year A = Annual payment r = Interest rate P = Initial paymentB = [A(1+r)-P]/r{For first year A = P = 5350}B = [5350(1+0.15/2) - 5350]/(0.15/2)B = 5648.94
Now, calculate the amortized payment.Amortized payment = [5648.94(0.15/2)]/ [1 - (1+0.15/2)^-4] Amortized payment = 2153.96
Therefore, the annual payment is P2153.96.
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Clyde had worked for many years as the chief executive of Red Industries, Inc., and had been a major shareholder. Clyde and the company had a falling out, and Clyde was terminated. Clyde and Red executed a document under which Clyde's stock in Red would be redeemed and Clyde would agree not to compete against Red in its geographic service area. After extensive negotiations between the parties, Clyde agreed to surrender his Red stock in exchange for $600,000. Clyde's basis in his shares was $143,000, and he had held the shares for 17 years. The agreement made no explicit allocation of any of the $600,000 to Clyde's agreement not to compete against Red. How should Clyde treat the $600,000 payment on his 2021 tax return?
The agreement made no explicit allocation of any of the $600,000 to Clyde's agreement not to compete against Red. The payment of $600,000 should be treated as a long-term capital gain on Clyde's 2021 tax return.
According to the Internal Revenue Code, capital gain or loss is classified as either short-term or long-term. A long-term capital gain is a profit that is made on the sale or exchange of an asset that has been held for more than one year. In this situation, Clyde had held the shares for 17 years. The amount of the gain is calculated as the difference between the sales price and the basis. Here, Clyde's basis in his shares was $143,000, and he received $600,000 from Red in exchange for his stock. Therefore, his capital gain is $457,000 ($600,000 - $143,000).
Clyde was terminated after a falling out with Red Industries, Inc., where he had worked for many years as the chief executive and been a major shareholder. Following negotiations between the two parties, they agreed that Clyde's shares in Red would be redeemed, and he would agree not to compete against Red in its geographic service area. Clyde agreed to surrender his Red stock in exchange for $600,000, which was not explicitly allocated to Clyde's agreement not to compete against Red. Clyde's basis in his shares was $143,000, and he had held the shares for 17 years. It is worth noting that the payment of $600,000 should be treated as a long-term capital gain on Clyde's 2021 tax return.
Clyde should treat the $600,000 payment as a long-term capital gain on his 2021 tax return. Clyde's basis in his shares was $143,000, and he had held the shares for 17 years. The payment of $600,000 should be treated as a long-term capital gain on Clyde's 2021 tax return. The amount of the gain is calculated as the difference between the sales price and the basis. In this situation, Clyde's capital gain is $457,000 ($600,000 - $143,000).
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The following is NOT a growth investment
a)A firm has fallen in value because its product is facing strong competition from a lower cost producer and the competing product has better features as well.
b)A consumer staple firm during an economic downturn.
c)A firm that is planning to replace its production workers with robots.
d)A solar panel firm that has made 16% more efficient solar panels.
e)A pharmaceutical firm that has discovered a vaccine for a virus.
The following is NOT a growth investment: a) A firm that is planning to replace its production workers with robots.
Growth investment is an investment that provides higher-than-average returns. A firm that is planning to replace its production workers with robots is not a growth investment as it does not have any potential for growth. It is instead an example of a cost-cutting investment that seeks to reduce costs by replacing labor with capital.The investment in this case is not for expansion but rather to optimize the efficiency of the company’s production processes. The company invests in new technology to replace the employees as it has realized that investing in technology is more beneficial than investing in labor. By replacing the workers with robots, the company aims to improve its profitability by reducing its operating costs. However, such an investment does not provide higher-than-average returns and does not create new opportunities for growth, hence not a growth investment.
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You researched Turnkey Investment's financial data and gathered the following information: Current price per share of stock - $79 Expected market portfolio return = 9.2% Dividend per share that will be paid next year = $5.59 Risk-free interest rate = 5.3% Expected annual growth of dividend per share = 6% Stock Beta - 1.77 Calculate the company's cost of equity using the Dividend Growth Model approach. Your answer should be in percent, not in decimals: e.g. 12.34 rather than 0.1234 Increase decimal places for any intermediate calculations, from the default 2 to 6 or higher. Only round your final answer to TWO decimal places: for example, 10.23. Do NOT use "%" in your answer.
The company's cost of equity using the Dividend Growth Model approach is 13.08%.
What is the cost of equity using the Dividend Growth Model approach for Turnkey Investment with a current stock price of $79, expected market portfolio return of 9.2%, dividend per share of $5.59, risk-free interest rate of 5.3%, expected annual growth of dividend per share of 6%, and a stock Beta of 1.77?To calculate the company's cost of equity using the Dividend Growth Model approach, we can use the formula:
Cost of equity = (Dividend per share / Current price per share) + Expected annual growth rate of dividend per share
Current price per share = $79Dividend per share that will be paid next year = $5.59Expected annual growth rate of dividend per share = 6%Calculating the cost of equity:
Cost of equity = ($5.59 / $79) + 6%Cost of equity = 0.070759 + 0.06Cost of equity = 0.130759Converting to a percentage:
Cost of equity = 13.08%Learn more about Dividend Growth
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What is the price of one share of 6% preferred stock that has a par value of $50 while investors have a required rate of return of 9%? F. What is the required rate of return on a $7 preferred stock with a market price of $67 and a par value of $50?
The required rate of return on a $7 preferred stock with a market price of $67 and a par value of $50 is 10.45%.
Par value = $50,Required rate of return = 9%,Dividend rate = 6%.To find: Price of one share of 6% preferred stock. Solution: We know that the formula for the price of preferred stock is: Price of the preferred stock = Dividend / Required rate of return, the price of one share of 6% preferred stock that has a par value of $50 while investors have a required rate of return of 9% is: Price of one share of preferred stock = (Dividend rate * Par value) / Required rate of return now, let's calculate the dividend rate: Dividend rate = Par value * Rate of dividend= $50 * 6%= $3Plugging the value of dividend rate in the formula above,
we get Price of one share of preferred stock = ($3 / 9%) * ($1 / $1)= $33.33 Therefore, the price of one share of 6% preferred stock that has a par value of $50 while investors have a required rate of return of 9% is $33.33.Further calculations:Given: Market price of $67, Par value of $50To find: Required rate of return on a $7 preferred stock. Let the required rate of return be r. Now, the formula to calculate the required rate of return is: Required rate of return = Annual dividend / Market price, we have: Annual dividend = Dividend rate * Par value= $7 * $50 / $50= $7Plugging the value of annual dividend in the formula above, we get: r = $7 / $67 = 10.45%
Therefore, The required rate of return on a $7 preferred stock with a market price of $67 and a par value of $50 is 10.45%.
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Prepare a balance sheet for Alaskan Peach Corp. as of December 31, 2019, based on the following information: cash $210,000; patents and copyrights $864,000; accounts payable $279,000, accounts receivable $270,000, tangible net fixed assets = = $5,270,000, inventory $555,000, notes payable $172,000, accumulated retained earnings $4,756,000, long-term debt $1,080,000. (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)
A balance sheet is a financial statement that provides information about the assets, liabilities, and shareholder equity of a company.
It aids investors and creditors in assessing the financial health of a corporation. Here are the given data:
Cash: $210,000, Accounts Receivable: $270,000, Inventory: $555,000, Patents and Copyrights: $864,000, Tangible Net Fixed Assets: $5,270,000, Accounts Payable: $279,000, Notes Payable: $172,000, Long-Term Debt: $1,080,000, Accumulated Retained Earnings: $4,756,000. We can calculate the current liabilities of the company by summing up the accounts payable, notes payable, and long-term debt. Accounts Payable + Notes Payable + Long-term Debt = Current Liabilities. Therefore, the Current Liabilities = $279,000 + $172,000 + $1,080,000 = $1,531,000. Similarly, we can calculate shareholder equity by subtracting the current liabilities from the total assets. Total Assets - Current Liabilities = Shareholder Equity. Thus, the Shareholder Equity = ($210,000 + $270,000 + $555,000 + $864,000 + $5,270,000) - $1,531,000 = $6,638,000. Finally, the balance sheet of Alaskan Peach Corp. as of December 31, 2019, is prepared as follows: Current Assets: Cash: $210,000 Accounts Receivable: $270,000 Inventory: $555,000 Total Current Assets: $1,035,000. Fixed Assets: Patents and Copyrights: $864,000 Tangible Net Fixed Assets: $5,270,000 Total Fixed Assets: $6,134,000Total Assets: $7,169,000, Current Liabilities: Accounts Payable: $279,000 Notes Payable: $172,000 Long-Term Debt: $1,080,000 Total Current Liabilities: $1,531,000Shareholder Equity: Accumulated Retained Earnings: $4,756,000 Shareholder Equity: $6,638,000, Total Liabilities and Shareholder Equity: $7,169,000.
A balance sheet is a snapshot of a company's financial situation at a given point in time. The balance sheet shows the company's assets, liabilities, and shareholder equity. To calculate shareholder equity, the total assets must be reduced by the company's current liabilities. Current liabilities are those obligations that must be met within a year, such as accounts payable, notes payable, and long-term debt.
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which of the following related-party transactions by a company should be disclosed in the notes to the financial statements? payment of per diem expenses to members of the board of directors consulting fees paid to a marketing research firm, one of whose partners is also a director of the company
The disclosure of related-party transactions in the notes to the financial statements is necessary for financial statements to be meaningful and complete.
It includes transactions with any parties that have a relationship with the company, including management, directors, shareholders, and their families.Related-party transactions refer to transactions that occur between two parties that share a connection that could lead to a conflict of interest. One party has the power to influence the decisions of the other due to the connection between them. As a result, related-party transactions necessitate more careful examination and scrutiny than other transactions.
The payment of per diem expenses to board members should be disclosed in the notes to the financial statements. Per diem expenses are payments given to members of the board of directors to cover their expenses. These expenses might include hotel expenses, food expenses, transportation expenses, and so on.Consulting fees paid to a marketing research firm, one of whose partners is also a director of the company should also be disclosed in the notes to the financial statements. Since one of the directors has a relationship with the marketing research firm, it could lead to a conflict of interest that should be disclosed in the notes to the financial statements.
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Individual Assignment • In 1954 the appellant's husband Lee formed the company named LEE'S AIR FARMING LTD. For the purpose of carrying on the business of aerial top-dressing with 3000 thousand shar
Lee's wife may not succeed in her claim for worker compensation under the Workers' Compensation Act because the court would likely consider the relationship between Lee and the company, the control he had over its affairs, and the nature of his role as a director and pilot.
Based on the provided background information, it appears that Lee's wife, the appellant, is claiming worker compensation under the New Zealand Workers' Compensation Act, 1922, stating that Lee was an employee of the company and was engaged in work at the time of his death. In order for Lee's wife to succeed in her claim, it would need to be established that Lee was indeed an employee of the company and that his work as a pilot during aerial top-dressing falls under the definition of employment according to the Workers' Compensation Act.
However, based on the information provided, it is mentioned that Lee was the director of the company and held a majority of the shares. He had unrestricted power to control the company's affairs and made decisions relating to contracts. This suggests a significant level of control and influence over the company, which may indicate that Lee was not an employee but rather a principal or owner of the company.
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Complete Question : In 1954 the appellant's husband Lee formed the company named LEE'S AIR FARMING LTD. For the purpose of carrying on the business of aerial top-dressing with 3000 thousand shares of leuro each forming share capital of the company and out of which Lee himself owned 2999 shares. • Lee was also the director of the company. He exercised unrestricted power to control the affairs of the company and made all the decisions relating to contracts of the company. • Company entered into various contracts with insurance agencies for insurance of its employees and a few premiums of the policies were paid through a company's bank account for the personal policies taken by Lee in its own name but it was debited in the account of lee in companies book. • Lee apart from being the director of the company was also a pilot. In March 1956, Lee was killed while piloting the aircraft during the course of aerial top-dressing. Lee's wife who is the appellant claimed worker compensation under New Zealand Workers' Compensation Act, 1922 as she claimed that Lee during work as an an an employee of the company. . Based on the background of the case, Do you think Lee's wife will succeed? Highlights the merit and judgement of this case
According to Euler's theorem, if competitive firms pay each factor its marginal product and the production function has constant returns to scale, the sum of all factor payments will equal: OA. total output. B. total investment. C. total profits. D. total saving.
According to Euler's theorem, if competitive firms pay each factor its marginal product and the production function has constant returns to scale, the sum of all factor payments will equal the total output. So the right option is (A) Total output .
Euler's Theorem states that if a production function has constant returns to scale and if competitive firms pay each factor its marginal product, then the sum of factor payments is equal to total output.
When factor prices are equal to marginal products, the total payment to all factors of production is equal to the total value of the output.
Therefore the, total output is the correct answer.
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Before the financial crisis of 2008, when the Federal Reserve Banks decided to buy government bonds from commercial banks and the general public, the supply of reserves in the federal funds market Multiple Choice a decreased and the Federal funds rate increased. b increased and the Federal funds rate increased.
c increased and the Federal funds rate decreased. d decreased and the Federal funds rate decreased.
Before the financial crisis of 2008, when the Federal Reserve Banks decided to buy government bonds from commercial banks and the general public, the supply of reserves in the federal funds market decreased and the Federal funds rate increased.
The answer is option (a) decreased and the Federal funds rate increased.
The Federal Reserve System, also known as the Federal Reserve, is the United States' central banking organization. It is the United States' quasi-public bank, which was formed in 1913. The Federal Reserve's key function is to provide the nation with a stable and reliable financial system.
The Federal Funds Rate is the interest rate at which depository institutions (banks) lend and borrow funds with other banks overnight on an uncollateralized basis. As a result, it is referred to as the overnight rate. The Federal Funds Rate is one of the most crucial interest rates in the US economy because it is frequently utilized as a benchmark for other short-term interest rates in the financial system.
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You purchased a machine for $1.11 million three years ago and have been applying straight-line depreciation to zero for a seven-year life. Your tax rate is 35%. If you sell the machine today (after three years of depreciation) for $723,000, what is your incremental cash flow from selling the machine?
The incremental cash flow from selling the machine is $692,550.
The Steps to takeHere are the steps to calculate the incremental cash flow from selling the machine:
Calculate the accumulated depreciation after three years: $1.11 million * 3/7 = $444,000
Solve for the book value of the machine: $1.11 million - $444,000 = $666,000
Find the gain on sale: $723,000 - $666,000 = $57,000
Calculate the tax on the gain: $57,000 * 35% = $20,450
Calculate the net cash flow from selling the machine: $723,000 - $20,450 = $692,550
Therefore, the incremental cash flow from selling the machine is $692,550.
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Bolivia has about 50% of the world's reserves of lithium. It is also a major producer of zinc. Suppose that Bolivia produced only those two goods and that its linear production possibilities frontier had the following end points: 20,000 tons of lithium and zero zinc, or 10,000 tons of zinc and no lithium. A combination of 12,000 tons of lithium and 5,000 tons of zinc would be_________________. A. Attainable and efficient. B. Attainable, but not efficient. C. Efficient but not attainable. D. Unattainable
A combination of 12,000 tons of lithium and 5,000 tons of zinc would be B. Attainable, but not efficient
How to explain the informationGiven that Bolivia's PPF has the endpoints of 20,000 tons of lithium and zero zinc, or 10,000 tons of zinc and no lithium, any combination of lithium and zinc that lies within this range is attainable. So, the combination of 12,000 tons of lithium and 5,000 tons of zinc is attainable.
Since Bolivia's PPF is linear, we can assume that the opportunity cost of producing lithium and zinc is constant. If the combination of 12,000 tons of lithium and 5,000 tons of zinc were efficient, it would mean that no other combination on the PPF could produce more of one good without giving up some quantity of the other.
Therefore, the correct answer is B. Attainable, but not efficient.
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who is responsible for estimating how much revenue will be available for the texas budget
The Texas Comptroller of Public Accounts is responsible for estimating how much revenue will be available for the Texas budget.
The Texas Comptroller of Public Accounts is an elected state executive official who serves as Texas's chief financial officer. The comptroller is in charge of collecting state revenue, managing the state's fiscal affairs, and certifying the budget for state agencies and the legislature. The Comptroller is also responsible for estimating how much revenue will be available for the Texas budget.
As a result, the Texas Comptroller of Public Accounts plays a critical role in the state's budgetary process. The comptroller's revenue projections are utilized to develop the state's biennial budget, which directs state funding to a wide range of programs and services, including education, healthcare, transportation, and public safety. As a result, the comptroller's forecasts are a critical factor in determining the amount of money that is allocated to specific programs and services.
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just need the last one!
Exercise 15-4 Financial Ratios for Debt Management [LO15-4] Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company
The following are the Debt to Equity Ratios for Weller Corporation for 2018 and 2019:2018: 2.4:1.02019: 1.8:1.0Explanation:Debt to Equity Ratio is a financial ratio used in measuring the financial risk of a business by calculating the proportion of owner's equity and debt.
Debt to Equity Ratio is computed by dividing total liabilities by stockholder's equity.In the case of Weller Corporation, the company's Debt to Equity Ratios for the years 2018 and 2019 were 2.4:1.0 and 1.8:1.0 respectively.The Debt to Equity Ratio of a company shows how much debt a company has for each dollar of shareholders' equity.
A high Debt to Equity Ratio could indicate that the company has a lot of debt and may be at risk of defaulting on its loans. On the other hand, a low Debt to Equity Ratio could suggest that a company is not making use of leverage to maximize its returns on equity.In the case of Weller Corporation, the company's Debt to Equity Ratio decreased from 2.4:1.0 in 2018 to 1.8:1.0 in 2019. This suggests that the company may have reduced its debt level relative to its shareholders' equity. This could indicate that the company is in a better position to meet its debt obligations.
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Your company has been doing well, reaching $1.13 million in earnings, and i considering launching a new product. Designing the new product has already cost $468,000. The company estimates that it will
The company has an earning of $1.13 million, and designing a new product has already cost $468,000. The company estimates that it will cost $762,000 to manufacture and launch the new product. Should the company launch the new product, taking into consideration the expenses, and earnings so far?
To begin with, we must first add the cost of designing and manufacturing the new product, which totals $468,000 + $762,000 = $1,230,000. Next, we must determine the net profit earned by subtracting the total cost from the total earning. Net profit = $1.13 million - $1.23 million = -$100,000 The net profit is negative, indicating that the company will lose money if it launches the new product. As a result, the company should not launch the new product.
To determine whether a company should launch a new product or not, it is necessary to take into account several factors, including the cost of designing and manufacturing the product, the cost of marketing and launching the product, and the potential earnings from the product. In this scenario, the company has already invested $468,000 in designing the new product, and it estimates that it will cost $762,000 to manufacture and launch the product. However, the total cost of designing and manufacturing the new product comes out to be $1,230,000. The company's earning so far is $1.13 million. Therefore, we can determine that the net profit earned will be negative, -$100,000 if the company decides to launch the new product. Hence, the company should not launch the new product, as it will result in a loss. In this case, it is better to avoid launching the new product, as it will result in a net loss. It is better to concentrate on making improvements in the existing products and services that the company offers.
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