Carla Vista Co. is preparing a contract to lease a machine to Martinez Corp. for a period of 25 years. Carla Vista has an investment cost of $368,000 in the machine, which has a useful life of 25 years and no salvage value at
the end of that time.The valuation model that is being used by Carla Vista in the measurement of this lease is the Capital Asset Pricing Model (CAPM).The capital asset pricing model (CAPM) is a tool used to measure the amount of expected return on an investment, and it uses the systematic risk of the investment in relation to the market return, as well as the risk-free rate of return, to determine this expected return.
In order to find out the amount of each of the 25 rental payments that will yield a 10% return on investment, we can use the present value of an annuity formula:Present value of an annuity formula = P * [1 - (1+r)-n]/rHere,P = $368,000r = 10% (since Carla Vista wants a 10% return on its investment)n = 25The value of P can be determined by dividing the present value of the investment ($368,000) by the present value of an annuity of $1 per year for 25 years at a discount rate of 10%.This gives us:P = $368,000 / 13.789 = $26,688.44Therefore, the amount of each of the 25 rental payments that will yield a 10% return on investment is $26,688.44.
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The CFO of Foodie Inc. is continually receiving capital funding requests from its division managers. These requests are seeking funding for positive net present value projects. The CFO continues to deny all funding requests due to the financial situation of the company. Apparently, the company is: Multiple Choice operating at maximum capacity. operating at the accounting break-even point. operating with zero leverage. facing hard rationing. operating at the financial break-even point.
Answer:
facing hard rationing.
Explanation:
Since the CFO continues to deny the request related to the funding because of the financial situation of the company so this represent that the company is facing high rationing that means there is a high demand but the supply is less
So according to the given situation, the last 2nd option is correct
And, the same would be relevant
Question 24 Explain the relationship between total, average and marginal product in the short run and how this is linked to the law of diminishing returns AND analyse and evaluate the extent to which
The relationship between total, average, and marginal product in the short run is closely tied to the law of diminishing returns. In the short run, a firm can vary its level of input (such as labor) to increase its output (such as the quantity of goods produced).
Total product (TP) represents the total output produced by a given level of input. As the level of input increases, total product initially rises at an increasing rate due to increasing specialization and efficiency. However, at a certain point, total product starts to rise at a diminishing rate, indicating diminishing returns to the variable input. This is because additional units of the variable input start to experience diminishing marginal returns, meaning that each additional unit contributes less to total output than the previous unit.
Average product (AP) is calculated by dividing total product by the quantity of the variable input. Initially, as total product rises at an increasing rate, average product also increases. However, once diminishing returns set in, average product starts to decline because the additional units of the variable input are less productive.
Marginal product (MP) represents the additional output produced by adding one more unit of the variable input. Marginal product initially increases as long as each additional unit of input is more productive than the previous unit. However, once diminishing returns occur, marginal product starts to decline because the additional unit of input contributes less to total output.
The law of diminishing returns states that as more units of a variable input are added to a fixed input, the marginal product of the variable input will eventually diminish. This is because the fixed input, such as capital or land, imposes limitations on the effectiveness of additional units of the variable input.
In terms of analysis and evaluation, the extent to which diminishing returns occur and its impact on production efficiency depends on various factors such as the nature of the production process, the quality of inputs, and technological advancements. It is important for firms to carefully analyze their production processes and determine the optimal level of input to achieve maximum efficiency. Additionally, technological advancements and innovation can help overcome the limitations imposed by diminishing returns and lead to increased productivity.
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Wine monopoly and duopoly. Note that parts f) and g) do not depend on the other parts and could be completed before or after parts a) to e). Two different boutique wineries supply two towns: town A and town B. Winery 1 supplies town A and Winery 2 supplies town B. Both wineries have a constant marginal cost c = 20. Assume that consumers are indifferent between the wines from different wineries and that they purchase wine only in the town they live. Demand for wine in town A is given by PA = 409A; the demand for wine in town B is given by PB = 70 - 9B. = a) [3 points] Find the price p₁, quantity sold q₁, and profit ₁ of Winery 1 in town A. b) [3 points] Find the price p2, quantity sold q2, and profit 2 of Winery 2 in town B. c) [3 points] Assume that the two wineries decide to merge (i.e. to unite) and become Winery Co. The Winery Co sells wine in both towns at the same price (i.e. the price of wine in town A is the same as the price of wine in town B). The marginal cost is still equal to 20. What is the total demand for wine from the residents of both towns? Find the price PM, quantity soid in each town (qA and qB) and the total profit TM of Winery Co. d) [1 points] Compare profits made by Winery Co to the sum of profits of both wineries before merger. Is it a successful merger? Why or why not? What is the economic reason for this result? Explain.
a) Winery 1: p₁ = 409, q₁ = A, Profit ₁ = (p₁ - c) * q₁
b) Winery 2: p₂ = 70 - 9B, q₂ = B, Profit ₂ = (p₂ - c) * q₂
c) Winery Co: Total demand = Demand in town A + Demand in town B, PM = Same price, qA, qB, TM = (PM - c) * (qA + qB)
d) Compare TM with the sum of profits of Winery 1 and Winery 2 before merger, Successful merger if TM > sum of profits, Due to cost savings, economies of scale, and increased market power.
a) In town A, the demand equation is given as PA = 409A, where PA is the price and A is the quantity. To find the price p₁, we substitute A with the quantity supplied by Winery 1 in town A. The quantity sold q₁ is equal to A. The profit ₁ is calculated by subtracting the marginal cost c from the price p₁ and multiplying it by the quantity sold q₁.
b) In town B, the demand equation is given as PB = 70 - 9B, where PB is the price and B is the quantity. To find the price p₂, we substitute B with the quantity supplied by Winery 2 in town B. The quantity sold q₂ is equal to B. The profit ₂ is calculated by subtracting the marginal cost c from the price p₂ and multiplying it by the quantity sold q₂.
c) After the merger, Winery Co sells wine in both towns at the same price. The total demand for wine is the sum of the demand in town A and town B. The price PM is the same in both towns. The quantities sold in each town, qA and qB, are determined by the total demand and are equal. The total profit TM is calculated by subtracting the marginal cost c from the price PM and multiplying it by the sum of the quantities sold in town A and town B.
d) To evaluate the success of the merger, we compare the total profit TM of Winery Co with the sum of the profits of Winery 1 and Winery 2 before the merger. If TM is greater than the sum of profits, the merger is considered successful. This result is driven by cost savings, economies of scale, and increased market power that come with the merger, allowing Winery Co to generate higher profits compared to the individual profits of the separate wineries.
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a bond has years to maturity, a face value, and a oupon rate with annual coupons. what is its yield to maturity if it is currently trading at ?
The amount that the issuer pays to the bondholder up to the bond's maturity date is known as the coupon rate. The yield of maturity, on the other hand, represents the investor's entire return up until maturity. The interest rate is paid yearly in a coupon rate.
The yield to maturity of a bond is equal to its coupon rate if it is bought at par, or face value. The yield to maturity of the bond will be greater than its coupon rate if the investor buys it at a discount. The yield to maturity of a bond acquired at a premium will be lower than the coupon rate.
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Total assets will be decreased by stock dividends. stock splits.
cash dividends. all of the answer choices are correct.
The statement "Total assets will be decreased by stock dividends, stock splits, and cash dividends" is not accurate. This is because stock splits and stock dividends do not impact the total assets of a company.
However, cash dividends do have an impact on total assets. Let's take a closer look at each term: Stock dividends: When a company issues a stock dividend, it is distributing additional shares of its own stock to its existing shareholders. This has no impact on the total assets of the company, but it does decrease retained earnings.
Stock splits: A stock split is when a company increases the number of shares outstanding by issuing additional shares to its current shareholders. This also has no impact on total assets. Cash dividends: When a company distributes cash dividends to its shareholders, it is reducing its cash balance and therefore decreasing total assets. So the correct answer to your question is Cash dividends.
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Gertrude Kelp owns three boats that participate in commercial fishing for fresh Pacific salmon off the coast of Alaska. As part of her business she hires a captain and several crew members for each boat. In the market for fresh Pacific salmon, there are thousands of firms like Gertrude's. While Gertrude usually catches a significant number of fish each year, her contribution to the entire harvest of salmon is negligible relative to the size of the market. When Gertrude participates in the labor market to hire crew members for her boats, she is most likely considered a
Answer:
demander of labor services.
Explanation:
Labor is mandatory when producing goods and services. Businesses, companies and others require labor and capital as basic and important inputs to their production process. An increase in the demand for a firm's output will lead to more demand for labor, thereby lead to them hiring more staff.
Labor Force is simply defined as all non military people who are employed or unemployed.
_____ helps marketers develop marketing programs tailored to prospective buyers who live in small regions or who have very specific lifestyle characteristics.
Geographic segmentation helps marketers develop marketing programs tailored to prospective buyers who live in small regions or who have very specific lifestyle characteristics.
What is a Geographic segmentation?Geographic segmentation is a marketing strategy that involves dividing a target market into smaller, more manageable segments based on geographic factors such as location, region, climate, population density, and other relevant geographical characteristics.
It recognizes that consumer preferences, behaviors, and needs can vary based on their geographic location.
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Question 3 Aseem is a retailer and the following balances were extracted from his book on 31 December 2017: RM Stock, 1 January 2017. -12,400 Office equipment -17,900 Trade debtors. 14,670 Trade creditors 26.700 Capital 30.000 Drawings .800 Sales. 49,600 Purchases 34,040 Carriage inwards. 393 Carriage outwards 465 Returns inwards 440 Returns outwards 550 Rent and Rates 8,800 Wages and salaries 9,600 Cash at bank... ...6,960 Cash in hand... 392 You are required to prepare a Trial Balance as at 31 December 2017. Below is the account balances of Moosy, extracted after one year trading ended 31 December 2017. RM 210,420 Sales. Purchases. 108,680 Carriage outwards 1,115 Carriage inwards. 840 Returns inwards 4,900 Returns outwards 3720 Salaries and wages. 41,800 Motor expenses. 912 Rent 6,800 Sundry expenses. 318 Motor vehicles. 14,400 Fixtures and fittings. 912 Debtors 23,200 Creditors 14,100 Cash at bank 4,100 Cash in hand. 240 Drawings 29,440 Capital.. 18,827 Opening Stock 9,410 Closing Stock 11,290 You are required to prepare a) Income Statement for the year ended 31 December 2017. b) Balance Sheet as at 31 December 2017
The Income Statement for the year ended 31 December 2017 is 62,935 and Balance Sheet as at 31 December 2017 is Total capital and reserves 62,935 Total equity and liabilities 62,350
a) Income statement for the year ended 31 December 2017
Calculation of cost of goods sold (COGS)
Beginning Inventory (1 January 2017) = RM 9,410
Purchases = RM 108,680
Add:
Carriage Inwards = RM 840
Freight Inwards = RM 1,115
Less:
Returns inwards = RM 4,900
Cost of goods available for sale = RM 105,225
Less:
Ending Inventory (31 December 2017) = RM 11,290
Cost of goods sold = RM 93,935
Gross profit Sales = RM 210,420
Less:
COGS = RM 93,935
Gross profit = RM 116,485
Expenses Carriage Outwards = RM 3,720
Rent = RM 6,800
Salaries and wages = RM 41,800
Motor expenses = RM 912
Sundry expenses = RM 318
Total Expenses = RM 53,550
Net profit before interest and tax = Gross profit - Total expenses = RM 62,935
b) Balance Sheet as at 31 December 2017
The balance sheet of Moosy would be calculated as shown below:
Assets RM
Current assets
Cash in hand 240
Cash at bank 4,100
Debtors 23,200
Closing stock 11,290
Total current assets 38,830
Non-current assets Motor vehicles 14,400
Fixtures and fittings 9,120
Total non-current assets 23,520
Total assets 62,350
Equity and Liabilities
Current liabilities
Creditors 14,100
Total current liabilities 14,100
Capital and reserves Capital 29,440
Add:
Net profit before interest and tax 62,935 92,375
Less:
Drawings 29,440
Total capital and reserves 62,935
Total equity and liabilities 62,350
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XYZ Co has 1500 units of bonds outstanding. Each unit has $100 face value. 8% coupon rate with semi annual payments, and 15 years to maturity. The risk free rate is 3%, default risk premium for its bond is 2%, maturity risk premium for 15 year maturity is 1.5%, XYZ has a tax rate of 20%.
1. a. Determine the required rate of return for its bonds, b. the amount of tax savings, c. the after tax cost of debt.
2. Determine a. value per unit of bond, B. determine total market value of all bonds outstanding.
3. If risk free rate goes up from 3% to 4% due to inflation, a. what is the new value of each unit of bond? b. what is the rate of change in the value of bond? c. what is the duration of the bond?
1. The required rate of return for the bonds The required rate of return is calculated by adding all the premiums together:
RRR = Risk-Free Rate + Default Risk Premium + Maturity Risk Premium= 3% + 2% + 1.5% = 6.5%
After-tax cost of debt The after-tax cost of debt is calculated using the following formula:
ATCOD = RRR × (1 - t)= 6.5% × (1 - 0.2)= 5.2%Tax Savings per Bond
The tax savings per bond is calculated using the following formula:Tax Savings = Coupon Rate × Tax Rate × Face Value / 2= 8% × 20% × $100 / 2= $8
Total Tax SavingsTotal Tax Savings = Tax Savings per Bond × Number of Bonds= $8 × 1500= $12,0002.
Value per unit of bond and Total market value of all bonds outstanding Value per unit of bondThe value per unit of bond is calculated using the following formula:
Value per Unit = (Coupon Payment / 2) × (1 - (1 / (1 + r) ^ n)) + (Face Value / (1 + r) ^ n)= (4% × $100) × (1 - (1 / (1 + 6.5%) ^ 30)) + ($100 / (1 + 6.5%) ^ 30)= $31.16 Total Market Value
The total market value of all bonds outstanding is calculated using the following formula:
Total Market Value = Value per Unit × Number of Units= $31.16 × 1500= $46,7403.
New value of each unit of bond, rate of change in the value of bond, and duration of the bond New Value of Each Unit of Bond
The new value of each unit of bond is calculated using the following formula:
New Value per Unit = (Coupon Payment / 2) × (1 - (1 / (1 + r) ^ n)) + (Face Value / (1 + r) ^ n)= (4% × $100) × (1 - (1 / (1 + 7.5%) ^ 30)) + ($100 / (1 + 7.5%) ^ 30)= $28.64 Rate of Change in the Value of Bond
The rate of change in the value of the bond is calculated using the following formula:
Rate of Change = (New Value - Old Value) / Old Value= ($28.64 - $31.16) / $31.16= -8.1%Duration of the Bond
The duration of the bond is calculated using the following formula:
Duration = [Σ (t * CFt) / V]where,t = timeCFt = cash flow at time tV = total present value= [Σ (t * CFt) / V]= {[1 × ($4 × 2)] + [2 × ($4 × 2)] + [3 × ($4 × 2)] + ... + [30 × ($4 × 2 + $100)]} / $46,740= 12.82 years
Therefore, the duration of the bond is 12.82 years.
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Crawford Corporation incurred the following transactions. 1. Purchased raw materials on account $52,800. 2. Raw Materials of $45,500 were requisitioned to the factory. An analysis of the materials requisition slips indicated that $9,600 was classified as indirect materials. 3. Factory labor costs incurred were $68,000, of which $51,500 pertained to factory wages payable and $16.500 pertained to employer payroll taxes payable. 4. Time tickets indicated that $55,100 was direct labor and $12,900 was indirect labor. 5. Manufacturing overhead costs incurred on account were $84,700. 6. Depreciation on the company's office building was $8,600. 7. Manufacturing overhead was applied at the rate of 150% of direct labor cost. 8. Goods costing $95,500 were completed and transferred to finished goods. 9. Finished goods costing $81,400 to manufacture were sold on account for $105,600.
The Crawford Corporation incurred the following transactions:
The company purchased raw materials on account for $52,800.
Raw materials totaling $45,500 were requisitioned for use in the factory. An analysis of the materials requisition slips revealed that $9,600 was classified as indirect materials.
The company incurred factory labor costs amounting to $68,000. Out of this amount, $51,500 pertained to factory wages payable, while $16,500 pertained to employer payroll taxes payable.
Time tickets indicated that $55,100 was attributed to direct labor, while $12,900 was attributed to indirect labor.
Manufacturing overhead costs of $84,700 were incurred on account.
The company recorded depreciation expenses of $8,600 for its office building.
Manufacturing overhead was applied at a rate of 150% of direct labor cost.
Completed goods, with a total cost of $95,500, were transferred to finished goods.
Goods costing $81,400 to manufacture were sold on account for $105,600.
The Crawford Corporation made a purchase of raw materials on credit for $52,800. This transaction indicates an increase in the raw materials inventory and an increase in accounts payable.
Raw materials worth $45,500 were requisitioned from the inventory for use in the factory. Among these materials, $9,600 was classified as indirect materials, which are not directly incorporated into the final product but still necessary for the manufacturing process.
The company incurred factory labor costs totaling $68,000. Out of this amount, $51,500 represents factory wages payable, which will be paid to the workers, and $16,500 represents employer payroll taxes payable, which are taxes borne by the company based on its employees' wages.
The time tickets showed that $55,100 was direct labor cost, which is the labor directly involved in the production process, and $12,900 was indirect labor cost, which includes labor not directly involved in production, such as supervisors or maintenance staff.
The company incurred manufacturing overhead costs of $84,700 on account. Manufacturing overhead includes various indirect costs related to the production process, such as rent, utilities, and indirect materials.
The company recorded depreciation expenses of $8,600 for its office building. Depreciation represents the systematic allocation of the building's cost over its useful life, as it is considered an expense incurred in the production process.
Manufacturing overhead was applied at a rate of 150% of direct labor cost. This means that for every dollar of direct labor cost, an additional $1.50 was allocated as manufacturing overhead to cover indirect costs associated with production.
Goods costing $95,500 to manufacture were completed and transferred to finished goods. This transaction involves the transfer of products from the production stage to the finished goods inventory, indicating that the goods are ready for sale.
Finished goods costing $81,400 to manufacture were sold on account for $105,600. This transaction represents the sale of finished products to customers on credit, resulting in an increase in accounts receivable and revenue.
These transactions provide an overview of the financial activities and costs incurred by the Crawford Corporation during the specified period.
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Eddie's attitude toward work is that each worker should consistently put forth his or her best effort to do the job well. How might Eddie best convey this attitude when applying for a job?
a. Discussing all of his core values in depth during the interview
b.
Customizing his résumé to highlight skills relevant to the position
c.
Sending his standard résumé and cover letter promptly
d. Avoiding too much preparation for the interview so his responses sound natural
Eddie's attitude is that workers should always do their job to the best of their ability. To convey this, Eddie should customize his résumé with relevant skills to the position.
When applying for a job, it is important to show your potential employer that you are the best candidate for the position. Eddie's attitude towards work is that each worker should put forth their best effort to do the job well. Therefore, he should demonstrate this attitude when applying for a job by showing his potential employer that he is the best candidate for the position and that he will consistently put forth his best effort to do the job well.To convey his attitude, Eddie should customize his résumé with relevant skills to the position. This will demonstrate to his potential employer that he is a good fit for the position and that he has the skills necessary to do the job well. By customizing his résumé, he can highlight his strengths and show how they relate to the position he is applying for. This will make him stand out from other candidates who may not have customized their résumé.To sum up, Eddie's attitude towards work is that each worker should consistently put forth his or her best effort to do the job well. To convey this attitude when applying for a job, Eddie should customize his résumé to highlight skills relevant to the position. This will demonstrate to his potential employer that he is a good fit for the position and that he has the skills necessary to do the job well.
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please answer detailly, I will give a like
3. FORMULATION Edwards Manufacturing Company purchases two component parts from three different supplier Component price data (in price per unit) are as follows: Component 1 2 1 $12 $10 Supplier 2 $13
Supplier 2 charges $13 for Component 1 per unit.
What is Supplier 2 Component 1 price?Edwards Manufacturing Company procures two component parts from three different suppliers. The price per unit for each component from the respective suppliers is as follows:
Component 1:
Supplier 1: $12 per unitSupplier 2: $13 per unitComponent 2:
Supplier 1: $10 per unitSupplier 2: Information not providedThe information provided does not specify the price for Component 2 from Supplier 2. Therefore, we are unable to provide a specific answer for that particular component from that supplier. However, based on the given data, Component 1 is available from both suppliers, with Supplier 2 offering a slightly higher price of $13 per unit compared to Supplier 1's price of $12 per unit.
To provide a more detailed answer or further assistance, please provide additional information or clarify any specific requirements or concerns you have regarding Edwards Manufacturing Company's purchases.
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The Rich and Creamy Edibles Factory manufactures and distributes chocolate products. Rich and Creamy Edibles buys raw chocolate and processes it into three joint products: dark chocolate (DC), milk chocolate (MC), and white chocolate (WC). The dark chocolate is further processed into sugar-free dark chocolate (SFDC) and sold to health food stores. The milk chocolate and white chocolate are sold at the splitoff point without further processing to food processors who use them as raw materials in their operations.
During the current month, raw chocolate costing $40,000 was processed at an additional cost of $90,000 into the three joint products. There were no beginning inventories of raw materials or work in process, and all raw material purchased this month was fully processed. Data regarding output and selling prices at the splitoff point are as follows:
Product
Quantity
Produced
Selling Price per kg
at Splitoff Point
DC
MC
WC
80,000
100,000
50,000
$1.60
$1.20
$0.60
The dark chocolate (DC) was processed into sugar-free dark chocolate (SFDC) at an additional cost of $41,600. This resulted in 75,000 kg of SFDC which can be sold for $2.40/kg.
REQUIRED:
Allocate the current month's joint costs to the products using:
1. Sales value at splitoff method.
2. Physical measures method (as produced at splitoff point).
3. Constant Gross Margin Percentage NRV Method.
Round all allocations to the nearest dollar.
Joint cost allocated for a. chocolate powder = $21,336, milk chocolate = $62,664. b. to chocolate powder = $62,664, to milk chocolate = $21,336. c, to chocolate powder = -$42,000, to milk chocolate = -$42,000. d. to chocolate powder = $38,163, to milk chocolate = $45,837.
To allocate the joint costs of $84,000 between chocolate powder and milk chocolate using the given information, we will calculate the allocations based on the provided methods:
a. Sales value at splitoff:
Total sales value at splitoff = (7,100 pounds x $12/pound) + (17,850 pounds x $14/pound) = $85,200 + $249,900 = $335,100
Proportionate sales value of chocolate powder = $85,200 / $335,100 ≈ 0.254
Proportionate sales value of milk chocolate = $249,900 / $335,100 ≈ 0.746
Joint cost allocated to chocolate powder = 0.254 x $84,000 ≈ $21,336
Joint cost allocated to milk chocolate = 0.746 x $84,000 ≈ $62,664
b. Physical measure (gallons):
Gallons of chocolate-powder liquor base = 13,800 pounds / 300 pounds per 12 gallons = 460 gallons
Gallons of milk-chocolate liquor base = 13,800 pounds / 300 pounds per 36 gallons = 153.33 gallons (rounded to the nearest gallon)
Total gallons produced = 460 gallons + 153.33 gallons = 613.33 gallons
Joint cost allocated to chocolate powder = (460 gallons / 613.33 gallons) x $84,000 ≈ $62,664
Joint cost allocated to milk chocolate = (153.33 gallons / 613.33 gallons) x $84,000 ≈ $21,336
c. NRV (Net Realizable Value):
NRV of chocolate powder = $12/pound - $560/pound = -$548/pound
NRV of milk chocolate = $14/pound - $560/pound = -$546/pound
Joint cost allocated to chocolate powder = (-$548/pound / (-$548/pound + -$546/pound)) x $84,000 = -$42,000
Joint cost allocated to milk chocolate = (-$546/pound / (-$548/pound + -$546/pound)) x $84,000 = -$42,000
d. Constant gross-margin percentage NRV:
Constant gross-margin percentage of chocolate powder = (-$548/pound - -$560/pound) / -$548/pound = 0.0219
Constant gross-margin percentage of milk chocolate = (-$546/pound - -$560/pound) / -$546/pound = 0.0256
Total constant gross-margin percentage = 0.0219 + 0.0256 = 0.0475
Joint cost allocated to chocolate powder = (0.0219 / 0.0475) x $84,000 ≈ $38,163
Joint cost allocated to milk chocolate = (0.0256 / 0.0475) x $84,000 ≈ $45,837
The negative values in the NRV allocation indicate that the costs allocated exceed the NRV of the products. In practice, adjustments may be made to align the allocations properly.
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--The given question is incomplete, the complete question is given below " The Rich and Creamy Edibles Factory manufactures and distributes chocolate products. It purchases cocoa beans and processes them into two intermediate products: chocolate-powder liquor base and milk-chocolate liquor base. These two intermediate products become separately identifiable at a single splitoff point. Every 300 pounds of cocoa beans yields 12 gallons of chocolate-powder liquor base and 36 gallons of milk-chocolate liquor base. The chocolate-powder liquor base is further processed into chocolate powder. Every 12 gallons of chocolate-powder liquor base yield 480 pounds of chocolate powder. The milk-chocolate liquor base is further processed into milk chocolate. Every 36 gallons of milk-chocolate liquor base yield 720 pounds of milk chocolate. Production and sales data for August 2021 are as follows (assume no beginning inventory): Cocoa beans processed: 13,800 pounds Costs of processing cocoa beans to splitoff point (including purchase of beans): $84,000 Production Sales Selling Price Separable Processing Costs Chocolate powder 13,248 pounds 7,100 pounds $12 per pound $51,000 Milk chocolate 19,872 pounds 17,850 pounds $14 per pound $87,000 Rich and Creamy Edibles Factory fully processes both of its intermediate products into chocolate powder or milk chocolate. In August 2021, Rich and Creamy Edibles Factory could have sold the chocolate-powder liquor base for $30 a gallon and the milk-chocolate liquor base for $50 a gallon. 1. Calculate how the joint costs of $84,000 would be allocated between chocolate powder and milk chocolate under the following methods: a. Sales value at splitoff b. Physical measure (gallons) c. NRV d. Constant gross-margin percentage NRV. "--
What are sources of funds for venture capital firms? Check all that apply: University endowments Pension funds Rich individuals The stock market Large corporations
Sources of funds for venture capital firms include university endowments, pension funds, rich individuals, and large corporations.
Venture capital firms raise funds from various sources to invest in startups and small businesses. One of the main sources of funding for venture capital firms is university endowments. Universities have significant amounts of money invested in various funds and use some of that money to invest in venture capital. Pension funds are another common source of funding for venture capital firms. These funds pool together money from individual investors to make investments. Rich individuals also invest in venture capital firms. They have the resources to make large investments and are often looking for high returns. Large corporations are also a source of funding for venture capital firms. They invest in startups and small businesses as a way to stay ahead of the competition and gain a foothold in emerging markets. The stock market is not typically a source of funding for venture capital firms as they typically invest in private companies.
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What is the nominal annual rate of interest compounded
semi-annually if deposits of $178 made each month for 5.5 years
accumulate to $13,300?
The nominal annual rate of interest compounded semi-annually if deposits of $178 made each month for 5.5 years accumulate to $13,300 is 1.12%.
To find the nominal annual rate of interest compounded semi-annually if deposits of $178 made each month for 5.5 years accumulate to $13,300, we need to use the formula for compound interest which is given as;[tex]P = A / (1 + r/n)^(^n^*^t^)[/tex] Where;P is the principal amount,A is the amount of money accumulated,r is the annual interest rate,n is the number of times the interest is compounded in a year,t is the number of years.
Firstly, let's calculate the principal amount;The total amount deposited over 5.5 years = $178 * 12 * 5.5 = $11,814. Therefore, the principal amount, P = $11,814.
Next, let's calculate the interest rate compounded semi-annually.The amount, A = $13,300n = 2 (since interest is compounded semi-annually)P = $11,814t = 5.5 years.
Substituting these values in the compound interest formula we get;[tex]13300 = 11814 / (1 + r/2)^(^2^ * ^5^)1 + r/2[/tex] = [tex](11814 / 13300)^(^1^/^(^2^*^5^.^5^))1 + r/2 = 1.00561 r = (1.00561 - 1) * 2r = 0.01122 or 1.12%.[/tex]
Therefore, the nominal annual rate of interest compounded semi-annually if deposits of $178 made each month for 5.5 years accumulate to $13,300 is 1.12%.
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Suppose that in a country the total holdings of banks were as follows: total reserves (required reserves + excess reserves) = unknown, loans = $855 million, deposits = $900 million These are the only assets and liabilities Assume that people hold no currency. Based on the required reserve ratio in the previous question, what is the maximum amount of total money supply that can be created from the deposit? O 45,000 million 90,000 million 22,500 million O 30,000 million
In this scenario, the maximum total money supply that can be created from the deposit is $90 million.
To determine the maximum amount of total money supply that can be created from the deposit, we need to calculate the total reserves, which consist of required reserves and excess reserves.
The required reserve ratio represents the portion of deposits that banks are legally required to hold as reserves. If we assume a required reserve ratio of 10% (0.10), we can calculate the required reserves:
Required reserves = Deposits * Required reserve ratio
Required reserves = $900 million * 0.10
Required reserves = $90 million
Now, to calculate the total reserves, we need to consider both required reserves and excess reserves. Excess reserves are the amount of reserves held by banks beyond the required reserves. We don't have the exact information on excess reserves, so let's assume that there are no excess reserves in this scenario.
Total reserves = Required reserves + Excess reserves
Total reserves = $90 million + $0 million
Total reserves = $90 million
The maximum amount of total money supply that can be created from the deposit is equal to the total reserves:
Maximum money supply = Total reserves
Maximum money supply = $90 million
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Choose an option that is expiring in August. Look at the puts and calls that are nearest
the market price of the stock.
In Excel, graph the option price (y) vs Strike Price (x) for the 10 strike prices nearest the
current stock price (5 above and 5 below). Your graph should have 1 line for call options and
one line for put options
To graph the option price vs. strike price, plot the 10 strike prices nearest the current stock price, with one line for calls and another for puts.
To diagram the choice cost versus strike cost at the 10 strike costs closest the ongoing stock value, you would have to get the choice cost information for both call and put choices. The strike costs ought to be picked to such an extent that there are five above and five underneath the ongoing stock cost.
When you have the choice cost information, you can make a Succeed diagram. Follow these means:
1. Make two sections in Succeed: one at the strike costs and one at the relating choice costs.
2. Enter the strike costs in rising request, beginning from five beneath the ongoing stock cost and finishing with five above it.
3. Enter the comparing choice costs for both call and put choices in the particular segments.
4. Select the information in the two segments, including the section headers.
5. Click on the "Supplement" tab in Succeed and pick the kind of diagram you need to make, for example, a line graph.
6. Modify the outline on a case by case basis, including adding pivot marks, titles, and organizing choices.
7. Your diagram ought to have two lines: one addressing the call choice costs and the other addressing the put choice costs.
By plotting the choice costs against the strike costs, you can outwardly dissect the connection between the two and recognize any examples or patterns. This chart can assist you with surveying the evaluating and valuation of choices at various strike costs comparative with the ongoing stock cost.
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What factors are key in achieving entrepreneurial success? The world is changing, are there new talents and skills, not evident in the readings or videos that may now play a role for up-and-coming entrepreneurs? Is entrepreneurship changing, if so, how?
Factors key in achieving entrepreneurial success: Vision, innovation, persistence, networking, adaptability.
The world is changing, and new talents and skills are emerging for up-and-coming entrepreneurs, such as digital literacy, data analysis, agility, resilience, sustainability, and social impact.
Entrepreneurship is changing due to technology disruption, remote work, globalization, the rise of the sharing economy, social entrepreneurship, and increased ecosystem support for startups.
Key factors in achieving entrepreneurial success include vision, innovation, persistence, adaptability, and networking. Entrepreneurs with a clear vision of their goals and the ability to innovate and differentiate themselves in the market have a higher chance of success.
Persistence is crucial in the face of challenges and setbacks, while adaptability enables entrepreneurs to navigate the changing business landscape.
The changing world has brought about new talents and skills that are important for up-and-coming entrepreneurs. Digital literacy has become essential, with proficiency in utilizing digital tools, platforms, and technologies. Data analysis skills are valuable for making informed business decisions.
Agility and resilience are necessary to adapt to rapid changes and bounce back from setbacks. Sustainability and social impact have gained prominence, with an increasing focus on environmentally and socially responsible business practices.
Entrepreneurship is indeed changing. Technology disruption has opened up new business opportunities and transformed industries. The rise of remote work and globalization has expanded the reach of entrepreneurs.
Collaborative economy models and platforms have reshaped traditional business models. There is also a growing emphasis on social entrepreneurship and addressing societal challenges alongside profitability. Increased support through startup incubators, accelerators, and funding options has created a more vibrant entrepreneurial ecosystem.
Overall, entrepreneurs must embrace digitalization, prioritize sustainability, leverage collaborative networks, and adapt to the evolving entrepreneurial landscape.
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jackie contributed $60,000 in cash to a partnership for a 50% interest. this year, the partnership earned $200,000 ordinary business income, made a $20,000 contribution to the united way, and distributed $25,000 cash to jackie. her tax basis in the partnership at year end is: multiple choice $215,000 $125,000 $110,000 $85,000
Jackie's tax basis in the partnership at year-end is $125,000. Option b is the correct answer.
Jackie's tax basis in the partnership at year-end is $125,000. Her initial contribution of $60,000 increased her basis in the partnership. The partnership's ordinary business income of $200,000 also increases her basis. However, the $20,000 contribution to the United Way and the $25,000 cash distribution reduce her basis. Therefore, the net effect on her basis is an increase of $65,000 ($60,000 + $200,000 - $20,000 - $25,000), resulting in a final tax basis of $125,000. Therefore, option (b) $125,000 is the correct answer.
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How many securities do you need to hedge three factors(level,slope,curv)? Why?
To hedge three factors (level, slope, and curve), you would need at least three securities. This is because each security is used to hedge a single factor, and three factors are involved in this scenario.
In the fixed-income securities market, there are three primary risk factors: level, slope, and curve. The level is the constant yield across all maturities, the slope is the yield spread between two maturities, and the curve is the curvature of the yield curve. The securities that are employed to hedge these risks include Treasury bills, notes, and bonds. To hedge a single factor, such as level, an investor can use Treasury bills or notes.
To hedge the slope risk, the investor can use two securities: a short-term bond and a long-term bond. The curvature risk is hedged by using Treasury securities with different maturities. The purchase of three securities, one for each risk factor, would result in a complete hedge against interest rate fluctuations. Hence, to hedge three factors (level, slope, and curve), an investor needs to buy at least three securities.
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Clue #6- Cash Disbursements for Selling and Administrative Expenses Monthly selling and administrative expenses are budgeted as follows: . • . salaries and wages, $13,125 per month; shipping, 6% of sales; advertising, $10,500 per month; other expenses, 4% of sales; Depreciation, including depreciation on new assets acquired during the quarter, will be $10,500 for the quarter. What are total expected cash disbursements for selling and administrative expenses for June? 32025 Clue #1- Sales Budget The marketing department has estimated sales in units as follows: March (actual) 21,000 April 24,500 May 29,750 June 31,500 July 17,500 I The selling price of each unit is $5. What are the total sales budgeted for the second quarter? Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following the sale. The accounts receivable at March 31 are a result of March credit sales. What is the expected amount of cash to be collected in June? (Hint: You may want to calculate April and May also to help you later in the race.) Assets Liabilities & Owners' Equity Liabilities. Owners' Equity . Cash Accounts Receivable Inventory Buildings & equipment (net) Accounts Payable Nordic Company Balance Sheet March 31, 2020 Capital Stock Retained earnings Total liab. & Owners' equity IMPORTANT instructions! When entering your answers, make sure you format them in WITHOUT the $. For example: Total Assets Positive Numbers: 123,000 NOT $123,000. Negative Numbers: (123,000) NOT ($123,000) $15,750 $84,000 $22,050 $374,675 $496,475 $32,025 $332,500 $131,950 $496,475
To calculate the total expected cash disbursements for selling and administrative expenses for June, we need to consider the different expense categories and their respective budgeted amounts.
The given budgeted amounts for selling and administrative expenses are as follows:
- Salaries and wages: $13,125 per month
- Shipping: 6% of sales
- Advertising: $10,500 per month
- Other expenses: 4% of sales
- Depreciation: $10,500 for the quarter
To determine the total expected cash disbursements for June, we need to calculate the specific amounts for each expense category and sum them up.
1. Salaries and wages: The budgeted amount is $13,125 per month, so the amount for June would be the same, which is $13,125.
2. Shipping: The shipping expense is calculated as 6% of sales. To determine the sales for June, we can use the given sales budget for the second quarter. The total sales for the quarter can be calculated as follows:
- March: 21,000 units
- April: 24,500 units
- May: 29,750 units
- June: 31,500 units
Total sales for the second quarter = 21,000 + 24,500 + 29,750 + 31,500 = 106,750 units
Since 20% of the sales are for cash, we need to calculate the credit sales:
Credit sales = Total sales for the quarter - Cash sales = 106,750 - (0.2 * 106,750) = 85,400 units
The shipping expense for June would be 6% of the credit sales:
Shipping expense = 0.06 * 85,400 = $5,124
3. Advertising: The budgeted amount is $10,500 per month, so the amount for June would be the same, which is $10,500.
4. Other expenses: The other expenses are calculated as 4% of sales. We already have the credit sales for June, which is 85,400 units. The other expenses for June would be:
Other expenses = 0.04 * 85,400 = $3,416
5. Depreciation: The given depreciation amount for the quarter is $10,500. Since we are calculating the disbursements for June, we need to divide this amount by 3 (quarterly depreciation is evenly spread over three months):
Depreciation for June = $10,500 / 3 = $3,500
Now, we can sum up all the individual expense amounts for June:
Total cash disbursements for selling and administrative expenses for June = Salaries and wages + Shipping + Advertising + Other expenses + Depreciation
= $13,125 + $5,124 + $10,500 + $3,416 + $3,500
= $35,665
Therefore, the total expected cash disbursements for selling and administrative expenses for June are $35,665.
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Carla Vista Industries has purchased equipment from a Brazilian firm for a total cost of 295,000 Brazilian reals. The firm has to pay in 30 days. Citibank has given the firm a 30-day forward quote of $0.3102/real. Assume that on the day the payment is due, the spot rate is $0.3418/real. How much would Carla Vista save by hedging with a forward contract?
Carla Vista Industries would not save anything by hedging with a forward contract.
Given:
Cost of Equipment = 295,000
Brazilian reals Forward Quote of Citibank = $0.3102/real
Spot Rate at the time of payment = $0.3418/real
Formula Used: Amount Saved = Forward Rate - Spot RateCalculation:
Amount of cost in USD, without hedging = 295,000 Brazilian reals * $0.3102/real = $91,329
Without Hedging, the company will pay $91,329 at the time of payment
Amount of cost in USD, with hedging = 295,000
Brazilian reals * $0.3102/real = $91,329
Amount Saved = Forward Rate - Spot Rate
= $0.3102/real - $0.3418/real
= -$0.0316/real
The forward rate is less than the spot rate, which means the company is not saving any amount, rather it has to bear the loss of $0.0316/real for the transaction if hedged.
Therefore, Carla Vista Industries would not save anything by hedging with a forward contract.
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Which of the following is most likely to be included in a client's representation letter?
No events have occurred subsequent to the balance sheet date.
The company has complied with all aspects of all corporate laws.
Management is responsibility for fraudulent actions committed by employees.
Management has made available all information of which it is aware is relevant to the financial statements.
The following is most likely to be included in a client's representation letter management has made available all information of which it is aware is relevant to the financial statements.
The option (D) is correct.
A client's portrayal letter is a record ready by the board and given to the inspector. It contains composed portrayals made by the board regarding different issues connected with the budget reports and the review cycle.
The motivation behind this letter is to affirm specific realities and portrayals, as well as to recognize the board's liability regarding the budget reports. It underscores the executives' liability to uncover all appropriate data that could affect the budget reports.
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This question is not complete, Here I am attaching the complete question:
Which of the following is most likely to be included in a client's representation letter?
(A) No events have occurred subsequent to the balance sheet date.
(B) The company has complied with all aspects of all corporate laws.
(C) Management is responsibility for fraudulent actions committed by employees.
(D) Management has made available all information of which it is aware is relevant to the financial statements.
A company finances its operations with 60 percent debt. Its net income is $120 million. The required rate of return on company’s debt is 8% and the cost of equity is 12%. The company’s tax rate is 40 percent. What is the company’s WACC?
A.
7.68%
B.
8.4%
C.
9.16%
D.
13%
If a company finances its operations with 60 percent debt. Its net income is $120 million. the company's WACC is 7.68%.
What is WACC?To find the after-tax cost of debt, we need to adjust the cost of debt for the tax shield:
After-tax cost of debt = Cost of debt x (1 - Tax rate)
After-tax cost of debt = 8% x (1 - 0.4)
After-tax cost of debt = 4.8%
Now let calculate the WACC using the formula:
WACC = (Weight of debt x After-tax cost of debt) + (Weight of equity x Cost of equity)
WACC = (0.60 x 4.8%) + (0.40 x 12%)
WACC = 2.88% + 4.8%
WACC = 7.68%
Therefore the correct option is A.
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Who determines your credit score?
Answer:
Credit karma
Explanation:
Answer:
Your credit scores are determined by credit scoring models that analyze one of your consumer credit reports and then assign a score using complex calculations.
Explanation:
The five pieces of your credit score
Your payment history accounts for 35% of your score. How much you owe on loans and credit cards makes up 30% of your score. The length of your credit history accounts for 15% of your score. The types of accounts you have made up 10% of your score. Recent credit activity makes up the final 10%.Match each job example with its career cluster.
Israel is a Cashier
Science, Technology, Engineering, and
Mathematics
Rakhee is an Aircraft Structure
Assembler
Manufacturing
Arie is a Chemist
Information Technology
Jake is a Flight Attendant.
Transportation and Logistics
Deb is a Video Game Designer.
Marketing, Sales, and Service
Answer:
Israel is a Cashier ⇒ Marketing, Sales, and ServiceAs a cashier, Israel is involved in the sales industry.
Rakhee is an Aircraft Structure Assembler ⇒ ManufacturingAssembling the structure of an airplane is a process in airplane manufacturing so this falls under manufacturing.
Arie is a Chemist ⇒ Science, Technology, Engineering, and Mathematics.Arie is a chemist which is a science related field as it involves chemistry and biology.
Jake is a Flight Attendant ⇒ Transportation and LogisticsJake as a flight attendant is in the transportation and logistics industry because planes transport people and goods.
Deb is a Video Game Designer ⇒ Information TechnologyDeb as a video game designer is in the IT industry which deals with software and computer related ventures.
Global Coffee exports coffee from Brazil to all the world. John Lopez, their most recently hired talent, is in charge of reviewing the costs related to one of their biggest clients, Moonbucks, an Australian chain of coffeehouses. Moonbucks’ annual demand of coffee is normally distributed with an average of 1114 containers and standard deviation of 186 containers. One container of coffee is worth $60 thousands of dollars. The company’s holding charge is 18% per year and the company includes the transportation cost when calculating inventory costs. It costs $1.7 thousands of dollars to process the required paperwork to export the goods, independently of the volume shipped. The company’s cycle service level target is 95%. John noticed that Global Coffee has been exporting through the port of Santos and wants to compare if exporting through the port Rio Grande could reduce costs. It takes on average 1.7 months to transport the coffee from Santos to Moonbucks in Australia through the port of Santos. The total transportation cost of this route is $4.5 thousands of dollars per container. Similarly, it takes 2.1 months to ship the coffee through the port of Rio Grande. The transportation cost of this route is $4 thousands of dollars per container. In both scenarios the company would ship an economic order quantity of containers. Global Coffee owns the coffee until it is delivered at the Moonbucks premises.
John Lopez is comparing costs of exporting coffee through ports Santos and Rio Grande to determine the most cost-effective option for Global Coffee.
John Lopez, accountable for checking on costs for Worldwide Espresso's client Moonbucks, considers sending out through the port of Rio Grande rather than Santos to lessen costs possibly.
Moonbucks' yearly espresso request follows an ordinary conveyance with a normal of 1114 compartments and a standard deviation of 186 holders. Every compartment is esteemed at $60,000.
To ascertain the absolute stock holding cost of Brazil exports, the organization's holding charge of 18% each year is applied to the worth of the espresso. Furthermore, the transportation cost and desk work handling cost are thought of.
It requires 1.7 months to ship espresso from Santos to Australia through Santos port, with a transportation cost of $4.5 thousand for every compartment. On the other hand, it requires 2.1 months through the port of Rio Grande, with a transportation cost of $4 thousand for each compartment.
By contrasting expenses, John means to improve the organization's costs while meeting a cycle administration level objective of 95%. The monetary request amount of not set in stone to limit stock and conveying costs.
The choice to trade through the port of Rio Grande relies upon the examination of complete expenses, including transportation, holding, and administrative work handling. John will assess the expected expense investment funds and consider different variables to decide the most financially savvy choice for Worldwide Espresso.
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This is a
that shows
.
According to the map, each dot represents
.
The part of the country with the highest population is the
.
Answer:
This is a
✔ dot-density map
that shows
✔ numbers of people
According to the map, each dot represents
✔ 7500 people
The part of the country with the highest population is the
✔ Northeast
Explanation:
A bond has a $1,000 par value, 8 years to maturity, and a 7% annual coupon and sells for $980. a.What is its yield to maturity (YTM)? Round your answer to two decimal places. b.Assume that the yield to maturity remains constant for the next 2 years. What will the price be 2 years from today? Round your answer to the nearest cent.
The yield to maturity (YTM) of a bond is calculated using a formula that considers the bond's coupon rate, par value, time to maturity, and current market price. The formula is used to compute the rate at which the bond's future cash flows (coupons and principal) are discounted to their present value to determine the market price.
The yield to maturity is the rate that equates the market price of a bond to its present value of cash flows.
Therefore, to calculate the yield to maturity of the bond, we use the following formula:
YTM = (C + (F - P) / n) / ((F + P) / 2)
where:
C = coupon payment F = face value P = price of the bond n = years to maturity of the bond, In this case, C = $70, F = $1,000, P = $980, and n = 8 years.
Using the above formula, the yield to maturity of the bond is calculated as follows:
YTM = (70 + (1000 - 980) / 8) / ((1000 + 980) / 2)YTM = (70 + 20 / 8) / 990YTM = 0.0809 or 8.09%.
Therefore, the yield to maturity of the bond is 8.09%.
The price of a bond is influenced by several factors, including market conditions, interest rates, credit quality of the issuer, and time to maturity. When interest rates rise, bond prices generally fall because new bonds with higher yields become more attractive to investors, reducing the demand for existing bonds with lower yields. In this case, the bond is currently selling below its par value, indicating that the market interest rate is higher than the bond's coupon rate of 7%. When the yield to maturity is less than the coupon rate, the bond sells at a premium (above par value), and when the yield to maturity is greater than the coupon rate, the bond sells at a discount (below par value). Since the yield to maturity of the bond is 8.09%, it is selling at a discount. The current market price of the bond is $980, which is below the face value of $1,000.
Assuming that the yield to maturity remains constant for the next 2 years, we can calculate the price of the bond using the present value formula as follows:
PV = C / (1 + r) + C / (1 + r)² + ... + C / (1 + r)^n + F / (1 + r)^n
where: C = coupon payment F = face valuer = yield to maturity n = years to maturity of the bond In this case, C = $70, F = $1,000, r = 8.09%, and n = 6 years (2 years from today).
Using the above formula, the present value of the bond is calculated as follows:
PV = 70 / (1 + 0.0809) + 70 / (1 + 0.0809)² + ... + 70 / (1 + 0.0809)^6 + 1000 / (1 + 0.0809)^6PV = $1,017.45
Therefore, the price of the bond 2 years from today, assuming a constant yield to maturity, will be $1,017.45.
The yield to maturity of the bond is 8.09%, and the price of the bond 2 years from today, assuming a constant yield to maturity, will be $1,017.45.
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a) the approximate yield to maturity (YTM) of the bond is 7.32%. b) the price of the bond 2 years from today would be approximately $756.96.
How to calculate the the price be 2 years from todaya. To calculate the yield to maturity (YTM) of the bond, we need to find the discount rate that equates the present value of the bond's cash flows (coupon payments and par value) to its current price.
We can use a financial calculator or an Excel spreadsheet to calculate the YTM. However, I will provide you with the approximate calculation using a financial formula.
YTM = (Annual coupon payment + (Par value - Current price) / Years to maturity) / ((Par value + Current price) / 2)
= (70 + (1,000 - 980) / 8) / ((1,000 + 980) / 2)
≈ (70 + 2.5) / (990) ≈ 72.5 / 990 ≈ 0.07323 or 7.32%
Therefore, the approximate yield to maturity (YTM) of the bond is 7.32%.
b. To calculate the price of the bond 2 years from today, we need to discount the bond's future cash flows (coupon payments and par value) at the YTM.
Given that the YTM remains constant for the next 2 years, the price of the bond can be calculated using the following formula:
Price = (Annual coupon payment / (1 + YTM)^2) + (Par value / (1 + YTM)^8)
Using the YTM calculated in part a (0.07323 or 7.32%), we can calculate the price:
Price = (70 / (1 + 0.07323)^2) + (1,000 / (1 + 0.07323)^8)
≈ 62.46 + 694.50
≈ $756.96
Therefore, the price of the bond 2 years from today would be approximately $756.96.
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When capital can be used as a signal of project quality, a good borrower is charged a low-interest rate. The reason that a high-risk borrower is unwilling to put up more equity despite this low rate is...
a. the high-risk borrower can lose most of its capital when a low rate is charged
b. none of these
c. low rate induces the high-risk borrower to take on less risky project
d. the high-risk borrower is more interested in getting a debt tax shield and, therefore, would like as large a loan as possible
When capital can be used as a signal of project quality, a good borrower is charged a low-interest rate. The correct answer is option D.The reason that a high-risk borrower is unwilling to put up more equity despite this low rate is because the high-risk borrower is more interested in getting a debt tax shield and, therefore, would like as large a loan as possible.
The capital can be used as a signal of project quality, indicating that the borrower has something at risk and is, therefore, committed to the project's success. A borrower with good credit and a reputation for success may be charged a lower interest rate than a borrower with less experience or a less successful track record.
This is because lenders believe that a good borrower is more likely to repay the loan and less likely to default, resulting in a lower risk for the lender. As a result, a good borrower is rewarded with a lower interest rate.When a high-risk borrower is unwilling to put up more equity despite the low-interest rate, it is because they are more interested in obtaining a debt tax shield.
By taking on a larger loan, the high-risk borrower can reduce their taxable income by deducting interest payments from their income, resulting in lower taxes owed. This is more valuable to the high-risk borrower than reducing the interest rate they are charged, making it more attractive to obtain as large a loan as possible despite the risks involved.
Therefore, the high-risk borrower is less likely to put up more equity and is more interested in obtaining a debt tax shield.
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