B. Revenue is recognized when payment is received is true about the accrual based method. When the payment is received then only it is recorded.
What is the accrual accounting?
A corporation can use accrual accounting, a financial accounting technique, to record revenue before receiving payment for goods or services sold and expense data as it is incurred.
In other words, regardless of when money changes hands, the revenue made and expenses incurred are recorded in the company's journal. Cash basis of accounting, which records revenue when the products and services are actually purchased, is sometimes contrasted with accrual accounting.
According to the accrual accounting technique, revenue or expenses are recorded when a transaction takes place rather than when a payment is paid or received.The matching principle, which states that revenues and expenses should be recognized in the same period, is followed by the approach.Double-entry accounting is used in accrual accounting.Companies having average annual revenues of $25 million or more over three years are required to use accrual accounting.The alternative accounting approach is called cash accounting, and it only records transactions when money is exchanged.To know more about accrual accounting, refer:
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You are a newspaper publisher. You are in the middle of a one-year factory rental contract that requires you to pay $500,000 per month, and you have contractual salary obligations of $1,000,000 per month that you can’t get out of. You also have a marginal printing cost of $0.35 per paper as well as a marginal delivery cost of $0.10 per paper.
please look at the attached image, I would love some help because I'm confused!
If sales fall by 20 % from 1,000,000 papers per month to 800,000 papers per month, the AFC per paper will rise from $1.5 per paper to $1.875 per paper.
Since the marginal printing cost is $0.35 per paper and the marginal delivary cost is $0.10 per paper.It will not be affected with a decrease in the sales of paper per month
If the sales decrease from 1,000,000 to 800,000 then for break-even point, the minimum price charged will increase from $1.95 per paper to $2.325 per paper
How to calculate the value?Total fixed cost = 500,000+ 1,000,000
=$ 1,500,000 per month
If the sales of paper falls from 1,000,000 per month to 800,000 paper per month.
AFC= total cost / quantity of paper
if salesis 1000,000
AFC=1,500,000/1,000,000
=$1.5 per paper
If sales is 800,000
AFC=1,500,000/800,000
=$1.875 per paper
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does the achievement of goals in an organisation depend on how it is managed?
The achievement of goals in an organization depends mainly on how it is managed because effective management leads to the attainment of organizational goals.
What are organizational goals?Organizational goals are described as objectives that are highly strategic for an organization, it allows the management to carry out activities, and tasks in a manner that will allow the attainment of the objectives. It is important to mention that the goals of an organization include the expected results and objectives that are to be achieved.
Achievement of the goals in an organization is entirely dependent on how effectively the organization is managed. When the top-level managers, the middle-level managers, and the employees work cohesively, the work can be managed and completed with more efficiency. This will collectively allow an organization will progress and achieve its goals.
It can be concluded that the achievement of goals in an organization depends mainly on how it is managed because effective management leads to the attainment of organizational goals.
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What company was sued in 2004 for claiming that their products were made in the
United States when components of the finished products actually came from China,
Austria, and Denmark?
Rawlings
Craftsman
Beats
Stetson
Craftsman was the company that was sued in the year 2004 due to the claims that they made their products in USA while it was made in other nations.
Why was Sears Craftsman sued?This business was known to be hit by a lawsuit in the year 2004. The case was based on the fact that the business had conducted false advertising at the time in the nation. This was the Craftsman tool line that was said to be made in America.
The lawsuit had that the people that went on to buy the tools did so because they were being patriotic since it was said to have been made in America.
The pictures that were attached in the lawsuit went on to show that hthe parts of the product were made in different areas of the world such as India, Austria, Denmark and also in places such as Mexico.
The plaintiffs that were the ones making the case at the time were people such as Sidney Hyatt and Elaine Hyatt in this court case.
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I’m ancient times, memory was a vital component in public speaking because?
Rhetoric was the primary element of composition and speaking speech delivery in classical Greece and Rome, both of which were essential abilities for individuals to utilise in both ancient public and private life.
Citizens in ancient Greece spoke for themselves rather than having experts, such as modern lawyers, speaking on their behalf. One can better understand the present by studying history. Consider studying ancient history if you're interested in learning how the art of public speaking has changed over time. About 2,500 years ago, in ancient Athens, public speaking was invented. Men were expected to speak as part of their civic responsibilities, which included doing so in legislative bodies and in court.
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Mars Electronic Company receives cash from a stockholder, John Tilden, and issues common stock to him. The two accounts involved in this transaction are ________.
Select one:
A.
Common Stock and Accounts Payable
B.
Common Stock and Accounts Receivable
C.
Accounts Payable and Cash
D.
Cash and Common Stock
The two accounts involved in this transaction are Cash and Common Stock. Thus the correct option is D.
What is Stockholder?A stockholder is referred to as an individual who purchases the stock of any company and holds the authority of selling that stock. The stockholders who own a higher percentage in any company will receive voting rights.
A remaining right to a company's present and future earnings is represented by its common stock. In the account of this, shareholders are referred to as co-owners of a business.
In the given case, Mars electronic companies receive cash from the stockholder and issue common stock to him refer as a transaction of Cash and Common Stock
Therefore, option D is appropriate.
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The company, where you are working, wants to implement a quality management system based on the standard of ISO 9001:2015. As a quality consultant to the company, elaborate on the steps that you will undertake to achieve its implementation.
Include in your answer the different types of documentations required.
The steps which i will take will be as followed - i will Identify the Responsibilities, Policies, and Objectives, clear and Develop the Documents, Launch the Quality Management System, review the Performance, Assess and Register for Certification and maintain Continual Improvement.
How to keep your company's ISO 9001 certification ?Determine the best implementation strategy for your business.Conduct planning and diagnostics.Run training sessions. .Include your staff in this upkeep. Conducting internal audits. Think about using a software planning and development company's support.How is the Quality Management System maintained?Suggestions for enhancing your Quality Management SystemSubstitute processes for procedures. .Change the system so that more people, not fewer, control it. Remove Extraneous Documents. Investigate Using Lean Management Principles. Utilize software that can save archival data.To know more about ISO 9001 here-
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what would be the most important factors to consider for the network channel design
The most important factors to consider for the network channel design would be network resilience and redundancy; software and hardware standards; and integrated security mechanisms.
There are four crucial factors in network design that you must take into account if you want a network that is dependable, secure, and efficient. Solid network architecture will be more durable and provide overall higher performance. The ideal platform for all the apps you want to utilize is provided by effective networks, which operate swiftly and effectively.
Network design is the process of organizing and putting into place a computer network architecture. The majority of the time, network designers, engineers, IT administrators, and other relevant staff members do network design. It is carried out prior to the installation of a network infrastructure.
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Mbale Ktwame has cumulative wages for the year of $113,300 prior to the current payroll. His current monthly salary = $7,250. Calculate the HI portion of FICA taxes on his current wages.
a.$322.40
b.$210.26
c.$27.55
d.$105.13
If Mbale Ktwame has cumulative wages for the year of $113,300 prior to the current payroll. His current monthly salary = $7,250. the HI portion of FICA taxes on his current wages is: d.$105.13
FICA taxesUsing this formula to determine or find the his Health Insurance (HI) portion of FICA taxes.
FICA taxes = Current monthly salary × 1.45%
Where:
Fica taxes = 1.45%
Current monthly salary = $7,250
Let plug in the formula
FICA taxes =($7,250 × 1.45%)
FICA taxes = $105.125
FICA taxes = $105.13 (Approximately)
Therefore the correct option is d.
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According to the U.S. Department of homeland security what is an essential worker
Essential workers are those who do a variety of tasks and provide services that are often required to maintain critical infrastructure operations, according to the US Department of Homeland Security.
What is homeland security?Enhancing American security is a goal of the Department of Homeland Security. Customs, border, and immigration enforcement, disaster relief for both natural and man-made disasters, counterterrorism activities, and cybersecurity are all tasks carried out by the Department.The DHS Strategic Plan creates a consistent framework for the Department's management decisions, including strategic direction, operational requirements, budget formulation, yearly performance reporting, and mission implementation.These powers are used by HSI to look into a variety of transnational crimes, such as terrorism, threats to national security, the trafficking of controlled substances, international gang activities, the exploitation of children, and the illicit export of technology.Learn more about homeland security here:
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Which of the following is not an advantage of using Macabacus’ Export to PowerPoint/Word features in the Excel add-in?
Answer: Exported object/text in PowerPoint/Word are linked to Excel data and can be refreshed within the Excel add-in when the data is modified
Explanation:When refreshing links to reflect updated Excel workbook content, it can be directly done in the PowerPoint add-in by simply clicking the Refresh button. Neither the source workbook nor Excel need to be open to refresh linked shapes.
A coin sold at auction in 2019 for $1,965,500. The coin had a face value of $5 when it
was issued in 1794 and had been previously sold for $305,000 in 1971.
b.
At what annual rate did the coin appreciate from its first minting to the 1971 sale?
(Do not round intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
What annual rate did the 1971 buyer earn on his purchase? (Do not round
intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
At what annual rate did the coin appreciate from its first minting to the 2019 sale?
(Do not round intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
Answer is complete but not entirely correct.
At the annual rate of 0.0642 or 6.42% the coin did appreciate from its first minting to the 1971 sale.
Given,
Coin sold at auction in 2019 for - $1,965,500
Face value - $5
Previously sold for - $305,000
Annual rate - ?
The period 't' between the year when the coin was issued, 1794, and 1971 is:
t = 1971 - 1794
t = 177 years
So, if the coin had a value of $5 and after a period of t=177 years it was worth $305,000, the annual rate by which the coin appreciated from its first minting to the 1971 sale is determined by:
[tex]305, 000 = 5 * (1+r)^{177} \\r = \sqrt[177]{61,000} - 1\\r = 0.0642\\r = 6.42%[/tex]
Hence, the annual rate is 0.0642 or 6.42%.
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Which one of the following accounts will not appear in a balance sheet?
a.) accounts payable.
b.) accounts receivable.
c.) retained earnings.
d.) Owners' equity.
e) utility expanse.
Answer: Owners' Equity
Explanation: Assets=Liabilities+Shareholders’ Equity
Technically owner's equity is an asset of the business owner—not the business itself
You are currently paying off a $5,000 car loan with a 5% fixed interest rate. Is inflation helping you or hurting you? Why?
If you are paying off a car loan with a fixed interest rate, then it can be inferred that inflation is helping you.
How does inflation affected fixed interest payers?Inflation refers to the general rise in the prices of goods and services over time. It therefore leads to the value of money reducing. For instance, thanks to inflation, the value of a dollar in 1988 is more than the value of a dollar in 2023.
If one is paying a fixed interest rate on a loan, it means that they are paying the same amount in interest regardless of inflation. This means that they are actually paying less because inflation has reduced the value of the amount they pay. There are therefore being helped.
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Most businesses follow a logical process when performing the planning function. it is important
to understand ____________ before embarking upon creating future long term goals,
objectives, and strategies.
An income statement compares: a) revenue and sales. b) sales and expenses. c) expenses and assets. d) assets and liabilities
The purpose of an income statement is to compare b) sales and expenses.
What is an income statement?An income statement is a financial statement that a company uses to find out how much profit they have made over the course of an operating period which is often a year.
The first entry into an income statement is sales. This can also be called service revenue for service providing companies. Expenses are then deducted from this revenue to find out the net income. This means that an income statement compares revenue / sales and expense.
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A sports car traveled a distance of 312 miles in 6 hours. Traveling at the same speed, what distance would this sports car travel in 8 hours? (5 points)
a
234 miles
b
360 miles
c
416 miles
d
474 miles
A sports car traveled a distance of 312 miles in 6 hours. Traveling at the same speed, distance that this sports car would travel in 8 hours will be 416 miles
It is calculated as below:
Calculation of miles per hour= total distance/total hours taken
=312/6
= 52 miles per hour
Calculation of total distance= Distance travelled in one hour* No. of hours
= 52 x 8 = 416 miles
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A target return profit pricing objective implies that a company chooses to
A target return profit pricing objective implies that a company chooses to select a profit target, which is frequently decided by its board of directors.
A target return is a pricing strategy that is tightly linked to an investment in a particular project or product. The target return is determined using the total amount invested in a certain project, as well as the profit the investor expects to get in return, and adjusting for the time value of money. Target return pricing is a method for determining a product's price based on the anticipated rate of return on investment.
Target return pricing is a pricing approach used by e-commerce specialists to assist them to establish the price of a product based on the projected rate of return of their business. In other words, it is the profit that the firm may expect in the future from a specific investment.
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Rebecca Siddoway own and operate Country Candies. Siddoway specializes in making rich, creamy toffees that she packages in attractive gift boxes and sells through the mail. What would be the advantage to Siddoway if she decides to incorporate her business?
1) Corporations have fewer government restrictions and regulations.
2) Corporations have guaranteed loans for expansion.
3) Corporations pay lower and fewer taxes.
4) Corporations have an enhanced ability to attract financing.
5)Customers and suppliers would treat her with greater respect if she operated her business as a corporation instead of a sole proprietorship.
The advantage to Siddoway if she decides to incorporate her business is Corporations have an enhanced ability to attract financing.
A Corporations is an organization (usually a group of people or a legal entity) authorized by the State to act as a single entity and legally recognized as such for a specific purpose. Early incorporated entities were established by charter. Most jurisdictions now permit the formation of new companies by registration.
The company is managed and supervised by its directors and officers. Directors are appointed by shareholders and are responsible for the overall management and corporate governance of the company. The directors appoint officers who are responsible for the day-to-day management and operations of the company.
A Corporations company consists of shareholders, a board of directors and officers. When incorporating a company, owners and managers must be organized and given responsibilities and rights according to the rules laid down in the state corporate law.
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Which of the following statements about the taxation of partnerships is true?
1) Both the partnership and the individuals are taxed for any profits earned.
2.) Partnerships file tax returns but pass profits and losses on to partners who report them on their tax returns.
3) Partnerships use corporate tax rates in filing returns.
4) Partnerships are limited in taxes depending on number of partners.
5) None of the above about the taxation of partnerships is true.
Answer:
answer is choice #2
- Partnerships file tax returns but pass profits and losses on to partners who report them on their tax returns.
The following statements about the taxation of partnership are true Partnerships file tax returns but pass profits and losses on to partners who report them on their tax returns. The correct option is B.
What happens to losses in a partnership?If a partner's share of partnership losses exceeds its outside basis in a given taxable year, the losses are allowed to the extent of the basis, with any excess amount carried over to the next taxable year in which the partner has an outside basis available.
A partnership does not pay tax on capital gains or losses, and they are not reported on an income tax and benefit return. Members of the partnership, on the other hand, report their portion of the partnership's capital gains or losses on their personal returns.
Thus, the ideal selection is option B.
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Hay, Bee and Cee are partnership sharing profits in the ratio of 5:3:2.
Before Bee's salary of $17,000, the firm's profit is $97,000. How much in
total will Bee receive from the firm as his share of profit?
Ratio of profit sharing:
Hay: Bee: Cee=5:3:2
5/10 is Hay's Share.
Bee's Share equals 3/10.
2/10 is Cee's Share.
Salary plus Share of Profit is the total amount Bee will receive from the company as his Share of Profit.
Bee's salary is $17,000.
Before Bee's compensation, the company's profit was $97,000.
• Profit after salary:
= 97,000 - 17,000
= 80,000
Profit after salaries: 80,00
• Bee's Share:
= 80,000 × (3/10)
= 24,000
The sum Bee got was calculated as follows: Salary + Profit Share.
= 17,000 + 24,000
= 41,000
Bee has received $41,000 in total.
Therefore Bee will be paid $41,000 by the company
What is profit sharing ratio?
The new profit sharing ratio is the ratio in which the old and new partners concur to split the profit and loss proportion in the future following the addition of the new partner. A new partner only gets a few things when joining an established partnership company.
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Two countries, the United States and the United Kingdom, produce only one good, saying wheat. Suppose the price of wheat is $2 in the United States and is £1 in England.
b) Suppose the price of wheat over the next year is expected to rise to $3.50 in the United States and to £1.5 in the United Kingdom. What should the one-year $:£ forward rate be? (8marks)
The one-year $:£ forward rate is 2.33 between the United States and the United Kingdom.
What is the price?The amount of compensation that a person is willing to pay for the goods or services that they are acquiring can be referred to as the price. The amount of money being supplied or needed to be paid for a good or service is as the price.
Next year change in the price will be
the United States expected rise in the upcoming year will be $3.50
the United Kingdom is expected to rise in the upcoming year will be £1.5
If there is no ambiguity, the forward rate, will be The price of the united states with respect to the price of the united kingdom will be $3.50/ £1.5
This will result in 2.33 which will be changed in the next year in the price change of the wheat.
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A decrease in the Supply of Loanable
Funds increases the interest rate. With
which of the following does this
correlate?
A. leftward shift in supply
B. rightward shift in supply
C. no shift in supply
A decrease in the supply of loanable funds causes a leftward shift in the supply curve.
Hence, Option A is CorrectA movement to the left on the demand curve indicates a decline in the demand for loanable funds. The amount of loanable money will decline, and real interest rates will rise, as a result of these two changes.
The actual interest rate will decline as loanable funds become more plentiful.
The actual interest rate will rise as the availability of loanable money declines.
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Describe the impact of the COVID-19 pandemic on the PESTE environment/s and on
The accommodation industry
The COVID-19 situation is mostly having a severe impact on service-oriented industries like the hospitality sector.
Describe the COVID-19 pandemic's effects on the PESTEL settings.The current COVID-19 epidemic has also raised concerns about the state of the world's healthcare systems. The COVID-19 outbreak has affected more than 48 million people worldwide, and roughly 1.2 million people have already died as a result (Health Bulletin, WHO, 06th Nov 2020). Therefore, health emergencies have placed a particularly heavy load on daily tasks and commercial enterprises.
Dimensions of sustainable HCWM using PESTEL
In this study, the microenvironment surrounding the COVID-19 pandemic's sustainable HCWM has been examined from six key perspectives: political, economic, social, technological, environmental, and legal.
Political aspects- Political interventions are necessary through the regulatory authority to establish and oversee the constitutional framework for managing the HCW during the COVID-19 epidemic.
Financial aspects- As part of the economic sustainability of HCWM, the current study has found the following factors: I Government investment policies during the COVID-19 outbreak; ii) Relaxed taxation during disease outbreaks; and iii) HCW disposal/treatment expenses.
Social aspects- The following sustainable HCWM dimensions have been taken into account in the current study to ensure social well-being during the COVID-19 outbreak: I Community displacements and disturbances during the COVID-19 outbreak; ii) Social awareness about infectious HCW; and iii) Compensation for the local community.
Technology-related aspects- During the COVID-19 outbreak, the following technological aspects were taken into account for sustainable HCWM: I cutting-edge incineration technology to treat infectious HCW; ii) tracking-based supply chain (collection, storage, and transportation) of HCW; and iii) routine contact point sanitization.
Aspects of the environment- The following aspects of a sustainable environment have been taken into consideration in this study for managing HCW during the COVID-19 outbreak: I Modified environmental policy for containing the outbreak; ii) Effluents and emissions management at treatment facilities.
Legal measurements- To ensure the sustainability of the HCWM system during the COVID-19 outbreak, the current study has taken into account the following legal aspects: I design a unique environmental policy for COVID-19 hospitals, and ii) comply with environmental legislation.
Give examples of how the lodging sector has been affected by the COVID-19 outbreak.The hotel industry is among the most severely impacted by COVID-19, which has had an impact on every industry worldwide. According to our research, it might take until 2023 or later for recovery to pre-COVID-19 levels. The underperformance of US lodging real estate investment trusts indicates that investors have similar perspectives on the future of hotel companies (REITs). The hospitality sector will experience changes in the post-pandemic era, both small-scale and significant. Today, some of them are already obvious.
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2. Find the single equivalent discount for the series discount 25/5/5.
The single equivalent discount for the given series is 32.32%
Single discounts are commonly called as “one-off” discounts that the business offers to customers or clients when their buying meet a specific condition that would trigger that discount.
Calculating:Let the market price of the article be 100
Then , a single discount equivalent to discount series is
= (100 - [tex]\frac{100-25}{100}[/tex] × [tex]\frac{100- 5 }{100}[/tex] × [tex]\frac{100 - 5 }{100}[/tex] × 100)%
=( 100- [tex]\frac{75}{100}[/tex] ×[tex]\frac{95}{100}[/tex] × [tex]\frac{95 }{100}[/tex] × 100)%
=(100- 0.75× 0.95× 0.95× 100) %
=(100 - 67.68) %
= 32.32%
The discount equivalent is 32.32%
What is trade discount with example?
Trade discount is a reduction in the published price of the product. For instance , a high-volume wholesaler might be entitled to a higher discount in comparison to a medium or low-volume wholesaler. Usually, a retail customer will not get any discount and must pay all the published price.
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Employment assessments are only used during the hiring phase of employment.
Please select the best answer from the choices provided
T
F
Employment assessments are only used during the hiring phase of employment. The given statement is true.
Why is pre-employment assessment important?Without conducting an interview, you will be able to forecast a candidate's success on the job and how they will fit into the company culture. Because they are standardized, you may use them to assess both personality traits and a wider range of skills.
Saves a lot of money compared to having the exam done in person. Multiple candidates may take the tests in different places. As it is done by a computer, the outcomes are more accurate. Online tests have the advantage of allowing test-takers to take the exam whenever and wherever they'd like.
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High Step Shoes had annual revenues of $204,000, expenses of $113,200, and paid dividends of $25,600 during the current year. The retained earnings account
before closing had a balance of $316,000. The Net Income for the year is:
Based on the annual revenues to High Step Shoes and the expenses, the net income for the year can be found to be $90,800
Find out more below.
What is net income?The net income that a company gets refers to the revenue that it gets to keep after the various expenses have been accounted for and then deducted from this revenue.
The net income to High Step Shoes is therefore:
= Annual revenues - Expenses
= 204,000 - 113,200
= $90,800
In conclusion, the net income for the year will be $90,800.
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Two kinds of type style include ________ and ________.
Two kind of type style( typeface ) include serif and sans serif
Serifs determines the small features at the end of strokes within the letters. The printing industry means to typeface without serifs and sans serif
Typeface :
A typeface is that the design of lettering that can include variations in size, weight (e.g. bold), slope (e.g. italic), width (e.g. condensed), and so on. Each of those variations of the typeface is a font. There are thousands of various typefaces in existence, with new ones being developed constantly.
Serif typeface :Typefaces with serifs are also considered to be easier to read in long passages than those without. Studies on the term are ambiguous, suggesting that the majority of this effect is due to the greater familiarity of serif typefaces.
Sans serif typeface :
Sans serif typefaces are taken more modern than serif typefaces. They lack the strokes that differentiate a serif typeface, hence the utilization of the French word "sans," which suggests “without.” Helvetica typefaces are also used to signify something clean, minimal, friendly, or modern.
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The effect of COVID 19 are felt in the households as many loses their jobs, businesses have decline of incomes and there are a lot of restrictions in movements which cause the consumption of goods and services to reduced. Along this premise, how can the financial system help the households and businesses in this time of pandemic?
Banks decreased loan rates to 1% to boost economic activity in reaction to the economic effects of COVID-19. These actions benefit consumers and companies.
How COVID 19 affected economy?During the coronavirus pandemic in 2020, 6.0 percent of businesses postponed some of their budgeted capital expenditures, 9.7 percent delayed them, 8.2 percent cut them, and 1.5 percent raised them. An overall 1.7% of businesses made new, unplanned capital investments.The COVID-19 pandemic has had a substantial impact on the world economy. According to the International Monetary Fund (IMF), the global economy suffered its worst economic downturn since the Great Depression between 2019 and 2020, with a 3.9% decline in median GDP worldwide.Know more about COVID 19 :
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Earnings (net income) $ 189,000
Preferred stock (13,100 shares at $30 par, 4%) $ 393,000
Common stock (43,700 shares no par, market value $52) 514,000
Retained earnings 581,500
$ 1,488,500
Less: Treasury stock
Preferred (1,700 shares) $ 55,000
Common (1,700 shares) 30,000 85,000
Total stockholders’ equity $ 1,403,500
Required
a. Calculate the Stuart Company’s earnings per share ratio, price-earnings ratio and return on equity ratio
The computation of the Stuart Company’s earnings per share ratio, price-earnings ratio, and return on equity ratio is as follows:
The earnings per share ratio are $4.17.The price-earnings ratio is 12.5x.The return on equity ratio is 16.45%.What are the earnings per share ratio?The earnings-per-share ratio is the net income after deducting the preferred dividends divided by the number of common stock shares outstanding.
What is the price-earnings ratio?The price-earnings ratio shows the relationship between the current market price and the earnings per share for the current period.
To compute the price-earnings ratio, which shows the market value of the shares or how much investors can pay for them, obtain the earnings per share and the current share price.
What is the return on equity?The return on equity is the percentage of the returns available for common stockholders and the equity value at the beginning of the period.
Earnings (net income) $ 189,000
Preferred stock (13,100 shares at $30 par, 4%) $ 393,000
Common stock (43,700 shares no par, market value $52) 514,000
Retained earnings 581,500
$ 1,488,500
Less: Treasury stock
Preferred (1,700 shares) $ 55,000
Common (1,700 shares) 30,000 85,000
Total stockholders’ equity $ 1,403,500
Earnings (net income) = $189,000
Preferred Dividend = $13,680 (13,100 - 1,700 x $30 x 4%)
Net income after preferred = $175,320
Earnings per share ratio = Net income/Number of common shares outstanding
= $175,320/(43,700 - 1,700)
= $4.17
Price-earnings ratio = Current market price/Earnings per share
= $52/$4.17
= 12.5x
Return on equity ratio = Net income after preferred dividend/Equity
= $175,320/$1,065,500 x 100
= 16.45%
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Suppose that a company has a beta of 1.25, the current dividend is 6 euros per share, the
risk-free rate is 5% and the equity market risk premium is 4%. The stock is currently trading at 94 euros.
Determine the constant dividend growth rate that would be required to justify the market price of 94
euros.
The constant dividend growth rate that would justify the market price of 94 euros is 3.4%.
What is the growth rate?The Gordon constant growth formula can be used to determine the value of a stock given its dividend, growth rate and the required rate of return.
Value of the stock = next dividend / (required return - growth rate)
V = D1 / r - g
Where:
D1 = current dividend x (1 + growth rate)
V = D0 / (r - g)
The first step is to determine the required return. The required return can be determined using the capital asset pricing model.
Required return = risk free rate of return + (beta x risk premium)
5% + (4 x 1.25)
5 + 5 = 10%
Substitute for r V and D0 in the constant growth formula:
94 = 6 (1 + g) / (0.1 - g)
94(0.1 - g) = 6(1 + g)
9.4 - 94g = 6 + 6g
9.4 - 6 = 94g + 6g
3.4 = 100g
g = 3.4 / 100
g = 0.034
g = 3.4%
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