i. The appropriate forward premium or discount on TL is 49%.
ii. Eurobike will need approximately €191,631.68 in 2 years to make the payment for imports, assuming a spot rate of EURTL at 7 and the calculated forward premium or discount.
i. To determine the appropriate forward premium or discount on TL, we need to consider the interest rate parity.
According to interest rate parity, the forward exchange rate should reflect the interest rate differentials between two currencies. In this case, the interest rate in Europe is 3% and in Turkey is 10%.
The formula for calculating the forward premium or discount is:
Forward premium or discount = (Foreign interest rate - Domestic interest rate) * (1 + Spot rate)
Using this formula, the forward premium or discount on TL can be calculated as follows:
Forward premium or discount = (10% - 3%) * (1 + 7) = 7 * 0.07 = 0.49 or 49%
Therefore, the appropriate forward premium or discount on TL is 49%.
ii. To calculate the amount of euros (€s) that Eurobike will need in 2 years to make the payment, we can use the forward exchange rate derived from the forward premium or discount calculated above. Assuming the spot rate of EURTL is 7, and considering the forward discount of 49%, the forward exchange rate would be:
Forward exchange rate = Spot rate * (1 + Forward premium or discount)
Forward exchange rate = 7 * (1 + 0.49) = 7 * 1.49 = 10.43
Eurobike will need TL2 million, and at the forward exchange rate of 10.43, the euro equivalent would be:
€s needed = TL amount / Forward exchange rate
€s needed = 2,000,000 / 10.43 = 191,631.68 euros
Therefore, Eurobike will need approximately €191,631.68 in 2 years to make the payment for imports, assuming a spot rate of EURTL at 7 and the calculated forward premium or discount.
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Superstar Berhad reported sales of RM70,000 in May and RM80,000 in June. The forecast sales for July, August and September are RM90,000, RM100,000, and RM110,000, respectively. The beginning cash balance on July 1 is RM3,000 and the firm wishes to maintain a minimum cash balance of RM5,000 every month. The total long-term liabilities of the company are RM25,000. Given the following data, prepare a cash budget for the months of July, August and September.
Additional information is as follows:
The firm makes 20% of sales for cash, 60% is collected in the next month, and the remaining 20% is collected in the second month following the sale.
The firm receives other income of RM 2,000 per month.
The firm’s actual or expected purchases, all made for cash, are RM65,000, RM70,000, and RM85,000 for the months of July through September, respectively.
Rent is RM5,500 per month.
Wages and salaries are 10% of the previous month’s sales.
The net income is RM30,000. Cash dividends is 20% of the net income and will be paid in August.
The payment of principal and interest of the long-term liabilities is 20% of the total long-term liabilities and the payment is due in August.
A cash purchase of equipment costing RM15,500 is scheduled in September.
The earnings before taxes is RM100,000. The taxes amount is 10% of the earnings before taxes and it is due in August.
Based on the cash budget, Superstar Berhad is projected to have a negative cash balance of -RM65,500 in July, -RM133,000 in August, and -RM225,000 in September.
To prepare the cash budget for the months of July, August, and September for Superstar Berhad, we need to calculate the cash inflows and outflows for each month based on the given information.
Cash inflows:
May sales (20% collected in cash in May): RM70,000 * 20% = RM14,000 (received in May)
May sales (60% collected in June): RM70,000 * 60% = RM42,000 (received in June)
June sales (20% collected in June): RM80,000 * 20% = RM16,000 (received in June)
June sales (60% collected in July): RM80,000 * 60% = RM48,000 (received in July)
July sales (20% collected in July): RM90,000 * 20% = RM18,000 (received in July)
July sales (60% collected in August): RM90,000 * 60% = RM54,000 (received in August)
August sales (20% collected in August): RM100,000 * 20% = RM20,000 (received in August)
August sales (60% collected in September): RM100,000 * 60% = RM60,000 (received in September)
September sales (20% collected in September): RM110,000 * 20% = RM22,000 (received in September)
Cash outflows:
Purchases:
July: RM65,000
August: RM70,000
September: RM85,000
Rent: RM5,500 per month
Wages and salaries (10% of previous month's sales):
July: RM80,000 * 10% = RM8,000
August: RM90,000 * 10% = RM9,000
September: RM100,000 * 10% = RM10,000
Cash dividends (20% of net income) paid in August: RM30,000 * 20% = RM6,000
Payment of principal and interest of long-term liabilities (20% of total long-term liabilities) due in August: RM25,000 * 20% = RM5,000
Cash purchase of equipment in September: RM15,500
Other income: RM2,000 per month
Now, let's prepare the cash budget:
Month July August September
Cash inflows
Sales RM18,000 RM20,000 RM22,000
Other income RM2,000 RM2,000 RM2,000
Total RM20,000 RM22,000 RM24,000
Cash outflows
Purchases RM65,000 RM70,000 RM85,000
Rent RM5,500 RM5,500 RM5,500
Wages and salaries RM8,000 RM9,000 RM10,000
Dividends RM6,000
Principal and interest payment RM5,000
Equipment purchase RM15,500
Total RM83,500 RM90,500 RM115,000
Net cash flow -RM63,500 -RM68,500 -RM91,000
Cash balance (beginning) RM3,000 -RM60,500 -RM129,000
Minimum cash balance -RM5,000 -RM5,000 -RM5,000
Cash surplus/deficit -RM68,500 -RM73,500 -RM96,000
Cash balance (end) -RM65,500 -RM133,000 -RM225,000
Based on the cash budget, the ending cash balance for July is -RM65,500, for August is -RM133,000, and for September is -RM225,000.
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On March 1, Eckert and Kelley formed a partnership. Eckert contributed $81,000 cash, and Kelley contributed land valued at $64,800 and a building valued at $94,800. The partnership also took Kelley's $71,000 long-term note payable associated with the land and building. The partners agreed to share income as follows: Eckert gets an annual salary allowance of $31,500, both get an annual Interest allowance of 10% of their Initial capital Investment, and any remaining Income or loss is shared equally. On October 20, Eckert withdrew $31,000 cash and Kelley withdrew $24,000 cash. After adjusting and closing entries are made to the revenue and expense accounts at December 31, the Income Summary account had a credit balance of $78,000. Required: 1a. & 1b. Prepare journal entries to record the partners' Initial capital Investments and their subsequent cash withdrawals. 1c. Determine the partners' shares of Income, and then prepare journal entries to close Income Summary and the partners' withdrawals accounts. 2. Determine the balances of the partners' capital accounts as of December 31.
1a. Journal entry to record the partners' initial capital investments: Partnership Capital Account Debit Credit Cash $81,000Land $64,800Building $94,800Long-term note payable $71,000Eckert, Capital Account $81,000Kelley, Capital Account $159,600.Explanation:Both partners contributed assets and liabilities to the partnership. Eckert contributed cash while Kelley contributed land and a building valued at $159,600 ($64,800 + $94,800).
The partnership also assumed Kelley's $71,000 long-term note payable associated with the land and building. Kelley's capital account was therefore credited for the total of her contributed assets and liabilities. Eckert's capital account was credited for the cash contributed.1b. Journal entry to record the partners' subsequent cash withdrawals :Cash Withdrawals Account Debit Credit Eckert, Capital Account $31,000Kelley,
Capital Account $24,000Explanation:
Since both partners have agreed to an annual salary allowance, cash withdrawals made during the year are not considered as a salary. As a result, the withdrawals reduce their capital balances in the partnership.1c. Journal entries to close Income Summary and the partners' withdrawals accounts : Income Summary Account Debit Credit Partnership Income $78,000Eckert, Capital Account $35,100Kelley, Capital Account $42,900Cash Withdrawals Account Debit Credit Eckert, Capital Account $31,000Kelley, Capital Account $24,000Explanation:The income or loss of a partnership is allocated based on the terms of the partnership agreement.
In this case, Eckert gets an annual salary allowance of $31,500, and both partners get an annual interest allowance of 10% of their initial capital investment. The remaining income or loss is shared equally. Using the information provided in the problem, the partners' share of income is computed as follows: Initial capital investment: Eckert = $81,000; Kelley = $159,600Total initial capital investment = $240,600Eckert's annual salary allowance = $31,500Eckert's annual interest allowance = ($81,000 × 0.10) = $8,100
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A higher level of income may not increase overall happiness if
people do not value absolute income but only their relative
position in the income distribution(no explanation)
a)true
b)false
False.
It is a false statement that a higher level of income may not increase overall happiness. A higher level of income could increase overall happiness in some instances, but it is also subject to other factors.The degree of happiness that results from income is dependent on various factors. For some people, having a higher level of income would lead to a happier and healthier lifestyle. With an increase in income, it is possible to acquire some basic things in life such as food, clothing, and shelter which in turn increases happiness. Money has the power to enhance someone's quality of life by increasing access to opportunities and options. It can also offer more security and financial stability in times of crisis.
However, it is important to note that the relationship between income and happiness is not always linear. Once someone achieves a basic level of financial security, any increase in income may have a diminishing effect on overall happiness.
In addition, an obsession with making more money can sometimes lead to stress, anxiety, and depression which can decrease overall happiness. Therefore, having a balance between income and other aspects of life such as social relationships, mental and physical health, and personal interests is vital to achieving overall happiness.
In conclusion, while having a higher level of income can lead to an increase in overall happiness in some instances, it is subject to a wide range of factors such as individual differences and the presence of other life stressors.
Therefore, it is false statement that a higher level of income may not increase overall hapiness.
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Find a current business article (from within the past 6 months, provide a reference link) and discuss what project management methodology was used and why (or why not) that made sense for the project. Incorporate material from the textbook in your responses. Be sure to explain the relevant concepts you touch on in a clear and concise manner.
The latest business article that can be considered to understand project management is Agile.
Agile development approaches, such as Scrum, Kanban, and Lean, place a strong emphasis on adaptability, teamwork, and iterative development. Agile projects are broken up into brief sprints or iterations to allow for ongoing input and adaptability to shifting needs. Agile approaches have gained popularity in the IT sector and are extensively used by many organisations due to their emphasis on flexibility, collaboration, and iterative development. The dynamic and quick-paced nature of software development and product creation is in line with these techniques.
Steve Jobs, who first served as the product owner, completed all necessary tasks, made projections, and sought solutions that would satisfy customers. All of those responsibilities are now handled by several people, but the company's end-user-focused mindset hasn't altered since then. It is possible to split up all large teams into smaller ones to facilitate better project management. According to Scrum, the ideal team size ranges from 2 to 12. For instance, the code for iPad's adaptation of the Safari web browser was only written by two developers. Therefore, everyone is in agreement with everything, even complex cross-functional technical duties and issues relating to property rights.
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1. When building a policy framework, what information systems factors should be considered?
Why are these factors important?
2. What is the difference between risk appetite and risk tolerance?
3. Describe the difference of risk appetite among different types of organizations.
4. Describe some of the differences between a flat and hierarchical organization.
1. The following information systems factors should be considered when building a policy framework: System's functionality. It is necessary to ensure that the system can meet the organization's requirements. This includes the system's performance, reliability, scalability, and security.
Furthermore, the system should have the necessary features and functionality to meet the organization's requirements. This includes the ability to interface with other systems and the ability to adapt to changing business requirements. The system's architecture. It is important to consider the system's architecture when developing a policy framework. The system's architecture should be designed in such a way that it can meet the organization's requirements. This includes the system's scalability, security, and reliability. The system's data. It is important to consider the system's data when developing a policy framework. This includes the system's data structure, data storage, and data retrieval capabilities.
The system's user interface. It is important to consider the system's user interface when developing a policy framework. The system's user interface should be designed in such a way that it can be easily used by the organization's staff. This includes the system's ease of use, flexibility, and customization capabilities. The system's support. It is important to consider the system's support when developing a policy framework. The system's support should be designed in such a way that it can be easily used by the organization's staff. This includes the system's technical support, training, and documentation capabilities. The above-mentioned factors are important because they affect the performance, security, and reliability of the system. They ensure that the system can meet the organization's requirements and can be easily used by the organization's staff.
2. Risk appetite and risk tolerance are two different concepts. Risk appetite refers to the amount of risk that an organization is willing to take to achieve its objectives. Risk tolerance refers to the amount of risk that an organization can tolerate before it begins to suffer adverse effects.
3. Risk appetite varies among different types of organizations. Large organizations, for example, may have a higher risk appetite than small organizations. This is because they have more resources to manage risks and can absorb larger losses. On the other hand, small organizations may have a lower risk appetite because they have fewer resources to manage risks and cannot absorb large losses. There are also differences in risk appetite based on the industry in which the organization operates. For example, organizations in high-risk industries such as mining and oil and gas may have a higher risk appetite than organizations in low-risk industries such as retail and healthcare. This is because high-risk industries have a higher potential for loss and require more significant investment to mitigate risks.
4. Flat organizations have a decentralized structure with fewer levels of management, while hierarchical organizations have a centralized structure with many levels of management. In flat organizations, decision-making is decentralized, and authority is distributed among employees. This allows for greater flexibility and faster decision-making. Hierarchical organizations have a more rigid structure with well-defined roles and responsibilities. Decision-making is centralized, and authority is concentrated at the top of the organization. This allows for greater control over organizational activities and ensures that decisions are made in line with the organization's objectives. In flat organizations, communication is more informal and often occurs through direct contact between employees.
In hierarchical organizations, communication is more formal and often occurs through established channels such as memos and meetings. Flat organizations are often more adaptable to change and can respond quickly to new challenges. Hierarchical organizations may be slower to respond to change but can maintain stability over time.
Therefore, the above-mentioned factors should be considered when building a policy framework because they affect the performance, security, and reliability of the system. Risk appetite varies among different types of organizations, based on size and industry. Finally, flat organizations have a decentralized structure with fewer levels of management, while hierarchical organizations have a centralized structure with many levels of management.
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as a bank loan officer, you are considering a loan application by peak performance sporting goods. the company has provided you with the following information from its balance sheet: peak performance's current ratio is: group of answer choices 3.0. 2.5. 1.5. 1.0.
As a bank loan officer, you are considering a loan application by peak performance sporting goods. the company has provided you with the following information from its balance sheet: peak performance's current ratio is A. 3.0
Current Ratio is one of the essential financial ratios used by banks and investors to assess the liquidity of the business. It is an indication of a company's ability to pay its current obligations or liabilities using its current assets. Current Ratio is calculated by dividing the total current assets by the total current liabilities. The Current Ratio of 3.0 means that the company has three times more current assets than its current liabilities. As a bank loan officer, a higher Current Ratio of 3.0 is an indication that the business is capable of paying back its short-term liabilities.
The company has enough current assets to cover its current liabilities, including accounts payable, short-term loans, and taxes payable.The bank loan officer should be able to use this ratio in making the decision of approving the loan. A ratio of 3.0 shows a high degree of liquidity, which means that the company can easily turn its assets into cash to pay its bills. If a company has a low Current Ratio, it implies that it might face difficulty paying off its short-term obligations, and this could make it difficult for it to access additional credit. So therefore the company has provided you with the following information from its balance sheet: peak performance's current ratio is A. 3.0.
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For financial reporting purposes, the total amount of product costs incurred to make 4,000 units is closest to: A) $43,400B) $55,400C) $59,400 D) $12,000
The total amount of product costs incurred to make 4,000 units is closest to option $59,400.The correct answer is option (C).
The product's cost would be Direct Material + Direct Labor + Overhead costs (indirect costs) incurred to make the product. The formula for calculating the total amount of product costs incurred is:
Total product cost = Direct materials cost + Direct labor cost + Manufacturing overhead costs
The estimated overhead costs can be calculated by multiplying the predetermined overhead rate with the actual amount of activity. The predetermined overhead rate is the estimated overhead costs divided by the estimated activity level. Using the information, the total cost of producing 4,000 units is:
Total cost = ($15.50 × 4,000) + ($8.50 × 4,000) + [$28,000 + ($3.50 × 4,000)]
= $62,000 + $34,000 + $28,000 + $14,000
= $138,000
Therefore, the total amount of product costs incurred to make 4,000 units is closest to option C) $59,400.
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CONSUMER BEHAVIOUR Discuss evidence from science about how certain behaviour is affected by the attitudes of others around them, especially in the context of skincare products.
Consumer behaviour refers to the actions and decisions taken by consumers in purchasing and using products or services. Social influence, which involves the attitudes and behaviours of others, plays a significant role in shaping consumer behaviour. In the context of skincare products, social influence can have a considerable impact on consumers' attitudes and behaviours, ultimately affecting their purchasing decisions.
Numerous studies have investigated the effects of social influence on consumer behaviour in the context of skincare products. For example, research has found that people are more likely to adopt healthy skincare habits if they perceive that others around them are also doing so. In contrast, people may be less likely to use skincare products if they perceive that their peers do not value such behaviours.
Another study found that social influence can shape consumers' attitudes towards skincare ingredients. Participants in the study were presented with different skincare products that contained either natural or synthetic ingredients. The researchers found that participants were more likely to rate products more positively if they believed that others around them also valued natural ingredients.
Moreover, studies have also shown that social influence can influence consumers' brand choices. People may be more likely to choose a particular brand of skincare products if they perceive that others around them also use that brand. For example, a study found that people were more likely to purchase a skincare product if it was recommended by someone they know.
In conclusion, scientific evidence demonstrates that social influence can significantly impact consumer behaviour in the context of skincare products. The attitudes and behaviours of others around consumers can influence their perceptions, attitudes, and purchasing decisions. This finding has important implications for marketers and businesses who want to promote their skincare products to consumers and may consider leveraging social influence through social proof or endorsement strategies. Therefore, social influence is an essential factor in understanding consumer behaviour in the context of skincare products.
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Given the following data: Ę₁ = =¥105 = $1.00 Et+1 =¥106 = $1.00 = 8% U.S. Assuming that Japan is the domestic currency, if the interest parity condition is expected to hold, interest rates in Japan (RJapan) should equal % (Enter your answer as a percentage rounded to two decimal places).
if the interest parity condition is expected to hold, interest rates in Japan (RJapan) should equal 2.88%.
The interest parity condition is based on the concept of the covered interest arbitrage and states that the difference in interest rates between two countries will be offset by an equal but opposite change in the exchange rate of the currencies over the period of the investment.
The equation used to calculate the expected change in the exchange rate is:
Et+1/E1=(1 + iD) / (1 + iF)
Where: Et+1 = the expected exchange rate at the time
t + 1E1 = the current exchange rate at the time
tRJapan = the interest rate in Japan
RUS = the interest rate in the USiD = RJapan
iF = RUS
Given the data:
Et+1 = ¥106/$1.00
= $1.00/¥106
= 0.00943396226E1
= ¥105/$1.00
= $1.00/¥105
= 0.00952380952RUS
= 8%
Convert the US interest rate to the domestic currency:
1.08 * $1.00 = $1.08
Calculate the expected exchange rate:
0.00943396226 / 0.00952380952
= (1 + RJapan) / 1.08RJapan
= 2.88% (rounded to two decimal places)
Therefore, if the interest parity condition is expected to hold, interest rates in Japan (RJapan) should equal 2.88%.
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Lorenzo operates a brushless car wash. Incoming cars are put on an automatic, continuously moving conveyor belt. A car is washed as the conveyor belt carries it from the start station to the finish station. After the car moves off the conveyor belt, workers dry it and clean and vacuum the inside. Workers are managed by a single supervisor.
Lorenzo's accountant wants to estimate total costs in October when 11,450 cars are expected to be washed. She uses two different methods to estimate total October costs, account analysis, and high-low, with a number of cars washed as the independent variable for both methods.
For the account analysis method, she developed cost function parameter estimates by analyzing actual costs in February, when 11,200 cars were washed. The following are February total costs and her fixed cost estimates:
Cost Item Total Cost Fixed Portion
Soap, cloths, and supplies $2,240 $0
Water $2,240 $0
Car wash labor $28,340 $2,580
Power for conveyor $13,620 $2,420
Supervisor and cashier $4,000 $4,000
For the high-low method, she developed cost function parameter estimates by using the actual costs in July and August, when 8,500 and 11,500 cars were washed, respectively. The following are total costs for these two months:
Cost Item July August
Soap, cloths, and supplies $3,400 $4,600
Water $2,550 $3,450
Car wash labor $22,550 $29,450
Power for conveyor $10,600 $13,600
Supervisor and cashier $4,650 $4,650
Part A:
1. Using account analysis, what is the accountant's estimate of total fixed costs for October?
2. Using account analysis, what is the accountant's estimate of variable costs per unit for October?
Part B:
1. Using the high-low method, what is the accountant's estimate of total fixed costs for October?
2. Using the high-low method, what is the accountant's estimate of total variable costs for October?
Lorenzo's accountant uses two methods, account analysis and high-low, to estimate the total costs for October at his brushless car wash. Account Analysis: The accountant estimates the total fixed costs for October to be $4,000, considering the fixed costs for the supervisor and cashier.
Account Analysis: The accountant estimates the variable costs per unit for October using the account analysis method. By applying the formula [(Total costs - Fixed costs) / Number of units washed], the estimated variable cost per unit is calculated to be $49.37 per car washed.
High-Low Method: Using the high-low method, the accountant estimates the total fixed costs for October.
The variable cost per unit is determined to be $0.33 by subtracting the high and low values of variable costs per unit and units washed.
By substituting the values into the cost formula, it is found that the total fixed cost for October using the high-low method is $25,579.5.
High-Low Method: Similarly, using the high-low method, the accountant estimates the total variable costs for October.
By multiplying the variable cost per unit ($0.33) by the number of units washed (11,450), the total variable cost is determined to be $3,778.50.
Overall, these methods allow the accountant to estimate the fixed and variable costs for October, providing insights into the cost structure of Lorenzo's brushless car wash business.
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A Japanese company opening a factory in Singapore is an example of (1)_________ that would directly benefit the citizens of (2)______ The company's actions would (3)_________ cross-country interdependence. (1) • Decrease • Increase (2)• Foreign direct investment
• Dosmetic dorect saving (3)• Japan • singapure
A Japanese company opening a factory in Singapore is an example of Foreign direct investment that would directly benefit the citizens of Singapore. The company's actions would increase cross-country interdependence.
Foreign Direct Investment is referred to as FDI. It is a tactic employed when a person or organization owns at least 10% of a foreign corporation. For market nations to grow and prosper, FDI is essential.
The expansion, structure, and direction of developing nations foreign sales require international money and experience. For these multinational corporations to increase the number of such positions and member pay, private investments are needed in their infrastructure, electricity, and water supplies. Foreign direct investment (FDI) encourages the development of a competitive environment and undermines domestic trust by supporting the entry of foreign companies into domestic markets.
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The following merchandise transactions occurred in December. Both companies use a perpetual inventory system. Dec. 31 4 8 13 Crane Company sold merchandise to Thomas Co. for $38,000, terms 2/10, n/30,
Here are the journal entries for Crane Company and Thomas Co.,
The Journal Entry for Crane CompanyDec. 3: Accounts receivable 38,000
Dec. 4: Cost of goods sold 18,000
Dec. 8: Freight-out 700
Dec. 13: Accounts receivable 2,710
Dec. 13: Cost of goods sold 990
Thomas Co.
Dec. 3: Merchandise inventory 38,000
Dec. 8: Accounts payable 700
Dec. 13: Merchandise inventory 2,710
Dec. 13: Accounts payable 2,710
Assuming that Thomas Co. had a balance in Merchandise Inventory on December 1 of $6,000, the balance in the Merchandise Inventory account at the end of December would be $11,790.
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The following merchandise transactions occurred in December. Both companies use a perpetual inventory system. Dec. 31 4 8 13 Crane Company sold merchandise to Thomas Co. for $38,000, terms 2/10, n/30, FOB destination. This merchandise cost Crane Company $18,000. The correct company paid freight charges of $700. Thomas Co. returned unwanted merchandise to Crane. The returned merchandise had a sales price of $2.700 and a cost of $990. It was restored to inventory. Crane Company received the balance due from Thomas Co View Policies Current Attempt in Progress The following merchandise transactions occurred in December. Both companies use a perpetual inventory system. Dec. 3 4 8 13. Crane Company sold merchandise to Thomas Co. for $38,000, terms 2/10, n/30, FOB destination. This merchandise cost Crane Company $18,000. The correct company paid freight charges of $700. Thomas Co. returned unwanted merchandise to Crane. The returned merchandise had a sales price of $2,700 and a cost of $990. It was restored to inventory. Crane Company received the balance due from Thomas Co. Prepare the journal entries to record these transactions on the books of Crane Company. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Record journal entries in the order presented in the problem.) Prepare the journal entries to record these transactions on the books of Thomas Co. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Record journal entries in the order presented in the problem.) Date Dec. 3 V Dec. 4 Dec. 8 V V Account Titles and Explanation Merchandise Inventory Accounts Payable (Purchase on account.) No Entry No Entry Accounts Payable Mrak Debit 38000 0 Credit 38 Assuming that Thomas Co. had a balance in Merchandise Inventory on December 1 of $6,000, determine the balance in the Merchandise Inventory account at the end of December for Thomas Co. (Post entries in the order of journal entries presented in the previous part.) Dec. 1 Dec. 3 Dec. 31 V Merchandise Inventory Dec. 8 Dec. 13 11
Here is Lily’s consumption function equation: C = C0 + MPC(Yd). If consumption is $4,312.5, the MPC =0.75, and disposable income is $5,350, what does autonomous consumption equal?
$4,012.50
$2,830.50
$300.00
$350.50
In the given consumption function equation, C represents consumption, C0 represents autonomous consumption, MPC represents the marginal propensity to consume, and Yd represents disposable income.
We are given:
C = $4,312.5
MPC = 0.75
Yd = $5,350
Substituting these values into the consumption function equation, we have:
$4,312.5 = C0 + 0.75($5,350)
To find the value of autonomous consumption (C0), we need to isolate it on one side of the equation. Let's solve for C0:
$4,312.5 - 0.75($5,350) = C0
$4,312.5 - $4,012.5 = C0
$300 = C0
Therefore, autonomous consumption (C0) equals $300.00.
So, the correct answer is option C: $300.00.
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You borrow money on a self liquidating installment loan (equal payments at the end of each year, each payment is part principal part interest)
Loan amount $985,000
Interest Rate 12.7%
Life 60 years
Date of Loan January 1, 2021
Use the installment method - not straight line
Do NOT round any interrmediate numbers.
Do NOT turn this into a monthly problem.
To calculate the equal installment payment c on a self-liquidating installment loan, can use the installment method. The loan amount is $985,000 with an interest rate of 12.7% and a life of 60 years. The loan was taken out on January 1, 2021.
Using the installment method, we need to determine the annual payment that includes both principal and interest. The formula to calculate the equal installment payment is:
Annual Payment = Loan Amount / Present Value of Annuity Factor
The Present Value of the Annuity Factor can be calculated using the formula:
Present Value of Annuity Factor = (1 - (1 + interest rate)^(-number of years)) / interest rate
By plugging in the values, we can calculate the Present Value of the Annuity Factor and then determine the annual payment. Since the problem specifies not to round any intermediate numbers, the final answer may contain decimal places.
In conclusion, using the installment method, we can calculate the equal annual installment payment for the self-liquidating installment loan of $985,000 with an interest rate of 12.7% and a life of 60 years.
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PCM, Inc., is a direct marketer of computer hardware, software, peripherals, and electronics. In a recent annual report, the company reported that its revenue is "recognized upon receipt of the product by the customer."
My books
My folder
1. Indicate whether PCM's sales terms are FOB shipping point or FOB destination. 20. Assume PCM sold inventory on account to eCOST.com on December 28 that was to be delivered January 3. The inventory cost PCM $29.500 and the selling price was $39.000 What amounts, if any, related to this transaction would be reported on PCM's balance sheet and income statement in December?
2b. Assuming the same information from requirement 2a, what amounts, if any, related to this transaction would
be reported on PCM's balance sheet and income statement in January? 3. Assume PCM purchased electronics on December 29 that were shipped that day and received on January 2 For these goods to be included in PCM's inventory on December 31, would the terms have been under FOB destination or FOB shipping point?
Based on the information provided, PCM's sales terms are FOB shipping point. This means that revenue is recognized upon the shipment of the product by PCM.
2a. Since the inventory was sold to eCOST.com on December 28 and was to be delivered on January 3, the transaction falls under the sales terms of FOB shipping point. Therefore, the following amounts would be reported on PCM's balance sheet and income statement in December:
Balance Sheet:
Inventory: The cost of inventory sold ($29,500) would be deducted from PCM's inventory account.
Income Statement:
Sales Revenue: The selling price of the inventory sold ($39,000) would be recognized as sales revenue.
Cost of Goods Sold: The cost of inventory sold ($29,500) would be recognized as the cost of goods sold expense.
2b. In January, since the goods were already sold and the transaction was completed in December, there would be no amounts related to this specific transaction reported on PCM's balance sheet and income statement in January.
For the goods purchased on December 29 to be included in PCM's inventory on December 31, the terms would have been under FOB shipping point. This means that the ownership and responsibility for the goods transfer to PCM at the point of shipment, which in this case was on December 29. Therefore, the goods would be included in PCM's inventory on December 31.
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12. What are the carbon emissions (or CO2 equivalents) from transport services (messenger and armored truck)?
13. What are the carbon emissions (or CO2 equivalents) from the Bank’s paper use based on the Dauncey conversion factors?
14. What are the carbon emissions (or CO2 equivalents) from the Bank’s paper use based on the EDF conversion factors?
15. Which emissions numbers from paper should be used, if any, and is double counting a potential problem? Why might double counting occur?
12. The carbon emissions (or CO₂ equivalents) from transport services (messenger and armored truck) are is 32.1 metric tons.
13. According to the Dauncey conversion factors, the carbon emissions (or CO₂ equivalents) from the Bank's paper use are 31.6 metric tons.
14. According to the EDF conversion factors, the carbon emissions (or CO₂ equivalents) from the Bank's paper use are 23.3 metric tons.
15. The emissions numbers from paper based on the EDF conversion factors should be used, and double counting is a potential problem because it can result in overstated emission figures.
Double counting is when carbon emissions are counted more than once due to a failure to account for upstream emissions.
This can happen when a company includes emissions from its supply chain or transport in its own inventory without considering whether those emissions have already been included in another company's inventory.
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The OPEC countries supply about 40% of the world's crude oil. Suppose that OPEC increases its oil production by 5%. Assume that no other oil suppliers change their production and that the price elasticity of demand for crude oil is-0:2. You predict that as a by result of the OPEC's increased production, its total revenue from oil will (increase/decrease) [Write your response here....] by [Type your answer here] %
Total revenue from oil will decrease by 2%.
Given that OPEC countries supply 40% of the world's crude oil and they increase their production by 5%, it implies that their market share would increase to 42% (40% + 5% of 40%). However, due to the price elasticity of demand for crude oil being -0.2, a 1% increase in quantity supplied would result in a 0.2% decrease in price.
As a result, the total revenue from oil would decrease by 0.2% for each 1% increase in quantity supplied. Therefore, with a 5% increase in production, the total revenue from oil would decrease by 2% (5% * 0.2%).
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Journal entries for a nonprofit
Fruits & Veggies, a nonprofit, conducts two types of programs: education and research. It does not use fund accounting. During the fiscal year, the following transactions and events took place. Prepare journal entries for these transactions, identifying increases and decreases by net asset classification as appropriate.
1. Pledges amounting to amount pledged. $180,000 were received, to be used for any purpose designated by the trustees. Fruits & Veggies normally collects 90 percent of the amount pledged.
Fruits & Veggies recorded a journal entry with a debit to Cash for $162,000 and a credit to Temporarily Restricted Net Assets for $162,000.
To properly prepare the journal entries for the transactions, it's important to understand the net asset classifications commonly used by nonprofits. These classifications include unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets.
Based on the information provided, the transaction can be recorded as follows,
When pledges are received, it is initially recorded as an increase in temporarily restricted net assets since the funds are subject to donor-imposed restrictions. Once the restrictions are met, the funds are reclassified to unrestricted net assets.
Account Debit Credit
Cash $162,000
Temporarily Restricted Net Assets $162,000
The nonprofit received pledges amounting to $180,000, but it normally collects 90 percent of the amount pledged. Therefore, the amount collected is 90% of $180,000, which is $162,000. The cash received is debited, and the amount is recorded as an increase in temporarily restricted net assets.
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Remaining Time: 1 hour, 57 minutes, 24 seconds. Question Completion Status: Moving to another question will save this response Question 1 Q114 2po Friends Partnership has three partners. The balance o
The capital balance is $79,000 for Mariam and $81,000 for Fatima.
What is the capital balance for Mariam and Fatima?Initially, the total capital balance of the partnership is:
= $48,000 + $50,000 + $52,000
= $150,000.
When Ala withdraws, Mariam and Fatima agree to pay $58,000 to buy out Ala's share.
Since the partners share income and loss equally, the remaining capital is split equally between Mariam and Fatima.
Amount contributed by Mariam and Fatima:
= $58,000 / 2
= $29,000 each.
Mariam's capital balance after Ala's withdrawal:
= $50,000 + $29,000
= $79,000.
Fatima's capital balance after Ala's withdrawal:
= $52,000 + $29,000
= $81,000.
Full question:
Partnership has three partners. The balance of each partner capital is Alia $48,000; Mariam $50,000 and Fatima $52,000. Ala withdraws from the Partnership The remaining partners, Mariam and Fatima, agreed to pay cash of $58,000 for Alia from partnership. The partners share income and loss equally Required How much is the capital balance for the remaining partners Mariam and Fatima after the withdrawal of Ala
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hula hoops are produced in a perfectly competitive market. this hula hoop firm is currently producing and selling 100 hula hoops per week. which of the following is true? a. society would be better off if fewer hula hoops were produced because if this firm reduced its production, its profits would increase. b. society would be better off if more hula hoops were produced because at the current level of production price is greater than marginal cost. c. fewer resources should be devoted to hula hoop production because atc is less than price. d. hula hoop production is at the efficient level because atc is minimized.
In a perfectly competitive market, the optimal level of production is where marginal cost equals the market price. The correct option from the given alternatives is B) society would be better off if more hula hoops were produced because at the current level of production price is greater than marginal cost
In a perfectly competitive market, a firm sells its products at the prevailing market price. The firm is a price taker, and it cannot influence the market price by changing the quantity of its output.A perfectly competitive market has the following features:There are numerous buyers and sellers.
The product is homogeneous.A free entry and exit of firms from the market exist.The sellers are price takers, and the buyers are also price takers.In a perfectly competitive market, each firm seeks to maximize its profit.
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The Action Toy Company has decided to manufacture a new train set, the production of which is broken into six steps. The demand for the train is 4, 800 units per 40-hour workweek: This exercise only contains parts b, c, d, e, and f. b) Given the demand, the cycle time for the production of the new train set = seconds (round your response to one decimal place). c) The theoretical minimum number of workstations = (round your response up to the next whole number). d) Using the longest operation time rule, the assignment of tasks to workstations should be: Were you able to assign all the tasks to the theoretical minimum number of workstations? e) The total idle time per cycle for the process = seconds (enter your response as a whole number.) f) The efficiency of the assembly line with 5 workstations = % (enter your response as a percentage rounded to one decimal place). If one used 6 workstations instead of 5, the efficiency of the assembly line would be = % (enter your response as a percentage rounded to one in a Place).
(a). The relationship is shown in the attached image below.
(b). The cycle time for the production of the new train set is 0.5 minutes or 30 seconds.
Production refers to the process of transforming inputs or resources into finished goods or services. It involves various activities such as manufacturing, assembling, processing, and packaging, depending on the nature of the product or service. Production can take place in different sectors, including manufacturing, agriculture, construction, and services.
(c). The theoretical minimum number of workstations are 4 stations.
(d). The relationship is shown in the attached image below.
(e). The total idle time per cycle for the process is 30 seconds.
(f). The efficiency of the assembly line with 5 workstations is 80%.
If one used 6 workstations instead of 5, the efficiency of the assembly line would be 66.67%.
The whole calculation is shown in the attached image below..
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Consider a simple macro model with a constant price level and demand-determined output. The equations of the model are:
C=150+0.78Y,
I=400,
G=750,
T=0,
X=120,
IM=0.07Y.
The marginal propensity to spend on national income,
z, is ________
The marginal propensity to spend on national income, z, is 0.78.
In economics, the marginal propensity to spend (MPS) refers to the amount by which a change in disposable income causes a change in household spending, while the marginal propensity to save (MPS) refers to the amount by which a change in disposable income causes a change in household savings.
The MPS is given by the change in consumption resulting from a unit change in income. The formula to calculate the MPS is:
MPS = ΔC/ΔY
Where:
C = Consumption
Y = Income
The equations of the given macro model are:
C=150+0.78YI=400G=750T=0X=120IM=0.07Y
The consumption equation in the model is C=150+0.78Y
Therefore, the marginal propensity to spend (MPS) is given by the formula
:MPS = ΔC/ΔY
The derivative of the consumption function with respect to income is:
MPS = dC/dY
Taking the derivative of C=150+0.78Y with respect to Y results in:
MPS = 0.78
Hence, the marginal propensity to spend on national income, z, is 0.78.
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Which of the following is the best example of a monopolistic competitor?
a. a nonslip yoga mat manufacturer
b. the U.S. Postal Service
c. a trash removal service
d. a pharmacy
e. a tomato farmer
The following is the best illustration of a monopolistic competitor a non-slip yoga mat manufacturer.
The option (A) is correct.
A monopolistic competitor alludes to a business that offers a comparative yet special item or administration. They offer separation while as yet serving a more modest market specialty. The business might charge a superior value due to the uniqueness of its item or administration.
For this situation, a nonslip yoga mat maker delivers a specific item that contrasts with those of its rivals. The clients of this market specialty might follow through on the top-notch cost given the additional worth of the separated item or administration.
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On October 1, 2021, Verónica purchased a business. Of the purchase price, $70,000 is allocated to a patent and $420,000 to goodwill. If required, round your intermediate values to nearest dollar and use in subsequent computations. Calculate Verónica's 2021 § 197 amortization deduction.
Veronica's § 197 amortization deduction for 2021 is $16,333. It is determined by dividing the allocated cost of the patent and goodwill by 15, which is the amortization period.
The § 197 intangible assets are amortized ratably over a 15-year period starting in the month when the intangible asset is acquired or the month when the intangible asset is used, in the case of an existing § 197 intangible asset. As a result, Veronica's § 197 amortization deduction for 2021 is determined as follows:
Amortization Deduction = [(Allocated Goodwill Cost / 15-year amortization period)] x [(Number of months in 2021) / 12] + [(Allocated Patent Cost / 15-year amortization period)] x [(Number of months in 2021) / 12]. First, let's calculate the goodwill amortization for 2021: Goodwill Amortization for 2021 = ($420,000 / 15) x (3/12) = $14,000. Now, let's calculate the patent amortization for 2021: Patent Amortization for 2021 = ($70,000 / 15) x (3/12) = $2,333. So, Veronica's § 197 amortization deduction for 2021 is $14,000 + $2,333 = $16,333.
When a company buys an intangible asset, such as a patent or goodwill, it must follow Internal Revenue Service (IRS) rules for amortization. When a § 197 intangible asset is acquired, its cost is amortized ratably over a 15-year period, beginning in the month it is acquired or the month it is used if it is an existing § 197 intangible asset. Therefore, Verónica's § 197 amortization deduction for 2021 was calculated by dividing the allocated cost of the patent and goodwill by 15, which is the amortization period. The resulting figure is then multiplied by the number of months in 2021 and divided by 12. The allocated cost of the patent is $70,000, while the allocated cost of the goodwill is $420,000. Therefore, her § 197 amortization deduction for 2021 is the sum of the patent and goodwill amortizations, which is $2,333 + $14,000 = $16,333. The final answer is rounded to the nearest dollar. So, Veronica can claim $16,333 as a § 197 amortization deduction for 2021.
The § 197 intangible assets are amortized ratably over a 15-year period starting in the month when the intangible asset is acquired or the month when the intangible asset is used, in the case of an existing § 197 intangible asset. Veronica's § 197 amortization deduction for 2021 is determined by dividing the allocated cost of the patent and goodwill by 15, which is the amortization period. The resulting figure is then multiplied by the number of months in 2021 and divided by 12. Her § 197 amortization deduction for 2021 is $16,333.
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Suppose you are evaluating a project with the expected future cash inflows shown in the following table. Your boss has asked you to calculate the project's net present value (NPV). You don't know the project's initial cost, but you do know the project's regular, or conventional, payback period is 2.50 years. If the project's ~WACC~ is 10%, the project's NPV (rounded to the nearest dollar) is: $408,976 $391,194 $355,631 $373,413 Which of the following statements indicate a disadvantage of using the regular payback period (not the discounted payback period) for capital budgeting decisions? Check all that apply. The payback period is calculated using net income instead of cash flows. The payback period does not take the project's entire life into account. The payback period does not take the time value of money into account.
The statements that indicate a disadvantage of using the regular payback period for capital budgeting decisions are: The payback period is calculated using net income instead of cash flows, and The payback period does not take the time value of money into account.
Which of the following statements indicate a disadvantage of using the regular payback period (not the discounted payback period) for capital budgeting decisions?The regular payback period is a simple capital budgeting technique that measures the time it takes for a project to recoup its initial investment based on the expected future cash inflows.
However, it has several disadvantages compared to the discounted payback period, which considers the time value of money.
Firstly, the regular payback period is calculated using net income instead of cash flows.
This can be a disadvantage as net income includes non-cash items such as depreciation and may not accurately reflect the actual cash inflows and outflows of the project.
Cash flows are more important in assessing a project's liquidity and ability to generate cash.
Secondly, the regular payback period does not take the project's entire life into account. It only considers the time it takes to recover the initial investment, ignoring the cash flows beyond that point.
This can be a drawback as it fails to provide a comprehensive analysis of the project's profitability and financial performance throughout its entire duration.
Lastly, the regular payback period does not consider the time value of money.
It does not account for the fact that money received in the future is less valuable than money received in the present due to inflation and the opportunity cost of capital.
By ignoring the time value of money, the regular payback period fails to provide an accurate measure of the project's true profitability and investment attractiveness.
In summary, the regular payback period has disadvantages in that it uses net income instead of cash flows, does not consider the project's entire life, and does not account for the time value of money.
These limitations make it less suitable for making informed capital budgeting decisions compared to the discounted payback period or other techniques that incorporate these factors.
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Which of the following is NOT a risk for a firm pursuing a first-mover advantage? 1) They may not have a dominant position in this new market sector 2) Consumers may not like the firm's new product line/technology 3) It will cost your company more capital to develop and market the product than the costs rivals will face to compete later on 4) Other companies can evaluate the firm's strategy and learn from its success and failures 5) The firm will need to commit to injecting enough resources to fully develop its technology and product line
Among the following given options, the following is NOT a risk for a firm pursuing a first-mover advantage; It will cost your company more capital to develop and market the product than the costs rivals will face to compete later on.
The correct answer to the given question is option 3.
Here, we will discuss the reasons as to why this is not considered as a risk. Explanation: First mover advantage is a strategy that is used by firms when they aim to enter a new market or develop a new product or technology. In this case, the first firm to develop such new products or technologies gains an advantage over its competitors, as it can create a large customer base and brand name before others enter the market.
The benefits of first-mover advantages are;Building brand recognition Building customer loyalty Higher profits than the industry average However, there are some risks involved with a firm pursuing a first-mover advantage, they are;The firm may not have a dominant position in this new market sector Consumers may not like the firm's new product line/technology Other companies can evaluate the firm's strategy and learn from its success and failures.
The firm will need to commit to injecting enough resources to fully develop its technology and product line.Out of the above-mentioned risks, the cost of development and marketing is not considered as a risk. This is because, for a first mover, the capital invested will be used to develop new products or technology.
This, in turn, will give the firm the first-mover advantage, and the investment can be earned back in the future in the form of higher profits than the industry average. Thus, the cost of development and marketing is not considered a risk for a firm pursuing a first-mover advantage.
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The chart below gives the data necessary to make a Keynesian cross diagram. Assume that the tax rate is 0.4 of national income, the MPC out of after-tax income is 0.9, investment is 58, government spending is 60, exports are 40, and imports are 0.1 of after-tax income. What is the equilibrium level of national income for this economy?The chart below gives the data necessary to make a Keynesian cross diagram. Assume that the tax rate is 0.4 of national income, the MPC out of after-tax income is 0.9, investment is 58, government spending is 60, exports are 40, and imports are 0.1 of after-tax income. What is the equilibrium level of national income for this economy?
The equilibrium level of national income for this economy is approximately 282.14.
To determine the equilibrium level of national income in this economy, we can use the Keynesian cross diagram. The equilibrium occurs when aggregate expenditures (AE) equal real GDP (Y).
The formula for aggregate expenditures is:
AE = C + I + G + (X - M)
Where:
C = Consumption
I = Investment
G = Government spending
X = Exports
M = Imports
Given the information provided, we can calculate the components of aggregate expenditures as follows:
Tax rate = 0.4
MPC out of after-tax income = 0.9
Investment (I) = 58
Government spending (G) = 60
Exports (X) = 40
Imports (M) = 0.1 of after-tax income
Consumption (C) can be calculated using the formula:
C = (1 - Tax rate) * (MPC out of after-tax income) * Y
Substituting the given values:
C = (1 - 0.4) * 0.9 * Y = 0.54Y
Now, we can substitute the values into the aggregate expenditure formula:
AE = 0.54Y + 58 + 60 + (40 - 0.1Y)
Setting AE equal to Y to find the equilibrium level, we have:
Y = 0.54Y + 58 + 60 + (40 - 0.1Y)
Simplifying the equation:
Y = 0.54Y + 158 - 0.1Y
Combining like terms:
Y - 0.54Y + 0.1Y = 158
Simplifying further:
0.56Y = 158
Dividing both sides by 0.56:
Y = 158 / 0.56 ≈ 282.14
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COFFEEMANIA E ESPRESSO BAR "Coffeemania", a coffee chain (it's real!), has stock shares traded on stock exchange. You would like to check if they are being traded at the right price. The company is planning to pay the following dividends for each share: $2 in 1 year, $6 in 2 years, $7 in 3 years. After that, the dividends are expected to grow at 6% per year, indefinitely. The annual rate of return for this company is 8%. How much should each of Coffeemania' stock shares sell for in today's market?
The stock shares of Coffeemania should sell for approximately $65.91 in today's market.
Short question: What is the fair market value of Coffeemania's stock shares?To determine the fair market value of Coffeemania's stock shares, we need to calculate the present value of the future dividends and the perpetuity growth. The dividends for the first three years are known: $2 in 1 year, $6 in 2 years, and $7 in 3 years. After that, the dividends are expected to grow at a rate of 6% per year indefinitely. We discount each dividend back to present value using the company's annual rate of return of 8%.
Then, we calculate the present value of the infinite stream of dividends using the perpetuity formula. Summing up the present values of the known dividends and the perpetuity value gives us the fair market value of the stock shares, which is approximately $65.91.
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Collusion makes firms better off because if they act as a single entity (a cartel) they can reduce output and increase their prices and profits. But some cartels have failed and others are unstable. Which of the following is a reason why cartels often break down?
Select one:
a. Most cartels do not have a dominant strategy.
b. Members of a cartel may resent having to share their profits equally.Incorrect
c. When a cartel is profitable the amount of competition it faces increases.
d. Each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement.
The reason why cartels often break down is that each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the agreement.
The correct answer is d. Each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement. This is known as the "cheating incentive" or the "prisoner's dilemma" in game theory.
In a cartel, firms agree to restrict their output and raise prices collectively, leading to higher profits for all members. However, individual firms have an incentive to deviate from the agreement and increase their production levels in order to capture a larger market share and gain a competitive advantage. By doing so, they can sell more and potentially earn higher profits than if they adhered to the agreed-upon output levels.
The problem arises because each firm faces the temptation to cheat, knowing that if all other firms stick to the agreement, it can increase its profits by producing more. However, if all firms succumb to this temptation and increase their production, the market becomes oversupplied, prices decrease, and profits decline for all cartel members.
This inherent conflict of interest between individual gain and collective cooperation makes it difficult for cartels to maintain stability over the long term. The self-interest of each member often undermines the effectiveness of the collusive agreement, leading to breakdowns and the erosion of cartel power.
Additionally, external factors such as changes in market conditions, new entrants, or regulatory actions can also disrupt cartel operations. When a cartel becomes profitable, it attracts the attention of other firms seeking to capture a share of the market. This increased competition can undermine the cartel's control over prices and output, further destabilizing the collusive agreement.
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a) Jaleel knows that the primary purpose of a futures contract is the management of risk exposures. Use Qantas Airlines as an example to further explain how a futures contract achieves this risk management function.
b) Jaleel is holding some Tesla shares (NASDAQ: TSLA) and The TSLA stocks are currently trading at $985 on the Nasdaq. Given TSLA stocks are very volatile, Jaleel wishes to protect the value of his investments. He seeks your advice on using option contracts and presents a list of options for you to choose from. Assume the number of underlying shares per contract is 100 shares.
a) Jaleel understands that futures contracts are created to manage risk exposures. The purpose of a futures contract is to provide a means of reducing risk by allowing parties to lock in a price for an underlying asset
. A futures contract involves a contract between two parties to buy or sell an asset at a predetermined price on a future date. The contract can be settled in cash or by delivery of the underlying asset.Qantas Airlines is a good example to use to explain how futures contracts work.
Qantas Airlines is vulnerable to fluctuations in fuel prices.
As a result, Qantas Airlines may use futures contracts to hedge against rising fuel costs. Qantas Airlines may enter into a futures contract with a fuel company to lock in the price of fuel for a future delivery date. The futures contract allows Qantas Airlines to protect itself from a sudden increase in fuel costs by agreeing on a price for fuel in advance.
Even if fuel prices rise between the time the futures contract is signed and the date of delivery, Qantas Airlines will still pay the agreed-upon price for fuel. As a result, the airline is able to reduce its exposure to the risk of rising fuel prices.
b) Jaleel wishes to use option contracts to protect his investments in Tesla shares, which are currently trading at $985 on the Nasdaq. Option contracts are financial derivatives that give the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price on or before a specified date
. They offer a means of hedging against potential losses while also allowing for the possibility of gains. Jaleel should consider purchasing a put option to hedge against a potential decline in the value of his Tesla shares.
A put option gives the holder the right to sell the underlying asset at a predetermined price on or before a specified date. If the value of the Tesla shares falls below the predetermined price, Jaleel can exercise the option to sell the shares at the higher price, thereby protecting the value of his investment
. The following options can be used:
Option 1: A put option with a strike price of $900
Option 2: A put option with a strike price of $950
Option 3: A put option with a strike price of $1000
Option 4: A put option with a strike price of $1050
If Jaleel expects a significant drop in the price of Tesla shares, he should choose option 4.
If he expects a small drop, he should choose option 2. If he expects a moderate drop, he should choose option 3. Option 1 is not recommended since it has a lower strike price than the current market price of $985.
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