The required monthly payment for the loan will be $2,444.46.
What will be the required monthly payment?To get the monthly payments, we will use the formula for the monthly payment on a fixed-rate mortgage which is: [tex]M = P * r * (1 + r)^n / ((1 + r)^n - 1)[/tex]
Loan amount = The purchase price - Loan down payment
Loan amount = $416,000 - 20% * $416,000
Loan amount = $416,000 - $83,200
Loan amount = $332,800
Monthly interest rate = Annual rate / 12 months/year
Monthly interest rate = 8% / 12
Monthly interest rate = 0.08 / 12
Monthly interest rate = 0.0066667
Number of monthly payments = Number of years * 12 months
Number of monthly payments = 30 * 12
Number of monthly payments = 360
The monthly payment on the loan will be:
= $332,800 * 0.0066667 * ((1 + 0.0066667)^360 / ((1 + 0.0066667)^360 - 1))
= $332,800 * 0.0066667 * 1.10064554031
= $2,441.97778
= $2,441.98.
Full question:
You are buying a new home for $416 000. You have an agreement with the savings and loan company to borrow the needed money if you pay 20% in cash and monthly payments for 30 years at an interest rate of 8% compounded monthly Answer the following questions What monthly payments will be required? The monthly payment required is $_____.
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Media for marketing (Turkey)
a. Agency assistance
b. Coverage of various media
Media for marketing has become essential for the advertising and promotion of products and services. Turkish advertising agencies that specialize in media marketing play a significant role in helping businesses reach their target market.
Agency Assistance, Turkish advertising agencies assist businesses with all aspects of media marketing, including market research, strategic planning, and media buying. The market research phase involves the collection of data on consumer behavior and purchasing patterns, which the advertising agency uses to create a strategic plan that will reach the target audience. The strategic planning phase includes deciding on the most effective forms of advertising to reach the target audience. This may involve a combination of television, radio, print, and online advertising, depending on the target market. The media buying phase involves the actual purchase of advertising space, negotiating the best rates, and ensuring that the advertisements are placed in the most effective locations.
Coverage of Various Media Turkey has a diverse range of media outlets, including television, radio, newspapers, magazines, and online media. Advertising agencies in Turkey specialize in utilizing the various forms of media to reach a broader audience and maximize the impact of the advertising campaign. Television advertising is particularly effective in Turkey, as television is the primary source of entertainment for most Turks.
In addition, the use of online advertising has grown rapidly in recent years, with many Turkish consumers accessing the internet via smartphones and tablets. Media for marketing has become essential for businesses looking to promote their products and services in Turkey.
Turkish advertising agencies play a significant role in helping businesses reach their target audience through strategic planning and media buying. The coverage of various media outlets is also essential in reaching a broader audience, with television and online advertising being particularly effective.
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What is the meaning of the "Pacific Solution" in addressing migratory flows? In your opinion, does it involve discrimination against the migrants? Explain.
The "Pacific Solution" is an agreement between the governments of Australia and Pacific island countries in addressing migratory flows.
In this agreement, asylum seekers who were intercepted while attempting to travel to Australia by boat were detained and processed on the island of Nauru or on Manus Island in Papua New Guinea.
In my opinion, the Pacific Solution does involve discrimination against the migrants because it aims to deter people from seeking asylum by making the process more difficult and less attractive. It involves detaining people in offshore facilities in poor conditions, which can have a negative impact on their mental and physical health.
This policy also violates the principle of non-refoulement, which is the obligation of countries not to return people to places where they may face persecution or serious harm. Additionally, the Pacific Solution has been criticized for lacking transparency and for denying refugees access to legal representation and support services.
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oberon, inc. has a $20 million (face value) 10-year bond issue selling for 97 percent of par that pays an annual coupon of 8.25 percent. what would be oberon’s before-tax component cost of debt?
We need to consider the annual coupon payment, the current market price of the bond, and the face value of the bond. Therefore, Oberon, Inc.'s before-tax component cost of debt is 8.495%
Annual coupon payment = Coupon rate * Face value
= 8.25% * $20 million
= $1,650,000
Market price of the bond = 97% of face value
= 0.97 * $20 million
= $19,400,000
To calculate the before-tax component cost of debt, we divide the annual coupon payment by the market price of the bond:
Before-tax component cost of debt = Annual coupon payment / Market price of the bond
= $1,650,000 / $19,400,000
≈ 0.08495 (rounded to five decimal places)
Converting this to a percentage, the before-tax component cost of debt for Oberon, Inc. is approximately 8.495%.
Therefore, Oberon, Inc.'s before-tax component cost of debt is 8.495%.
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Choose any five of the top 500 publicly traded companies in the US and collect stock price data of those companies. Then, using Tableau, create a dashboard of relevant data. Relevant data could include PE ratios, dividends, growth rate, capitalization, and/or other factors. For each of the companies you chose, explain whether you would recommend purchase of that company's stock or not.
Here are the five top 500 publicly traded companies in the US that I chose.
Apple Inc. (AAPL)Microsoft Corp. (MSFT)Amazondotcom Inc. (AMZN)Alphabet Inc. (GOOGL)Tesla Inc. (TSLA)The data tabularized is attached.
What is the investment decision ?Based on their related data,I would recommend purchasing the stock of Apple Inc., Microsoft Corp., and Amazon Inc.
These companies have all been growing rapidly in recent years, and they have strong financial fundamentals.
I would not recommend purchasing the stock of Alphabet Inc. or Tesla Inc. at this time. This is because these companies are both highly volatile, and they have not been as profitable as Apple Inc.,Microsoft Corp., and Amazon Inc.
Reference atttached data.
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b) Nusantara Spa needs to borrow approximately RM150,000 for a 6 months. The bank offers the company a choice of the following three (3) types of loan. i) Loan with simple interest rate of 7 percent with compensating balance of 15 percent of the amount loaned. (3 marks) ii) A discounted loan at a stated interest of 6.5 percent and 20 percent compensating balance. (3 marks) iii) A revolving line of credit of RM250,000 for a 1 percent commitment fee payable on advance on the unused funds and a 12 percent stated interest rate. (3 marks) iv) Justify which alternative should the company choose. (1 mark)
The choice of loan alternative for Nusantara Spa will depend on a thorough evaluation of the associated costs, the company's financial situation, and its borrowing needs.
Which loan alternative should Nusantara Spa choose for borrowing approximately RM150,000 for a 6-month period?Nusantara Spa is considering three loan options to borrow approximately RM150,000 for a 6-month period.
The first option is a loan with a simple interest rate of 7 percent and a compensating balance requirement of 15 percent. The second option is a discounted loan with a stated interest rate of 6.5 percent and a compensating balance of 20 percent.
The third option is a revolving line of credit with a RM250,000 limit, a 1 percent commitment fee, and a 12 percent stated interest rate.
To determine the best alternative, several factors need to be considered. Firstly, the total cost of borrowing should be compared, taking into account the interest rate, compensating balance, and fees associated with each option. Secondly, the specific financial needs and cash flow patterns of Nusantara Spa should be assessed.
If the company anticipates fluctuating borrowing requirements, the flexibility offered by the revolving line of credit may be advantageous. On the other hand, if the loan amount is expected to remain constant, the simple interest or discounted loan may be more suitable.
Ultimately, the choice of loan alternative for Nusantara Spa will depend on a thorough evaluation of the associated costs, the company's financial situation, and its borrowing needs.
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Problem 3 The Ministry of Finance uses the standard Solow growth model to predict the long-run rate of GDP growth. The rate of population growth equals 0.01; the rate of technological progress equals
The new value of tax revenues, τ', should be 0.016 or 1.6% of GDP in order to stabilize the debt-to-GDP ratio at 120% of GDP.
The Solow growth model is an economic framework developed by Robert Solow in the 1950s. It is a neoclassical model that focuses on the long-run growth of an economy by examining the contributions of capital accumulation, labor force growth, and technological progress.
In the Solow growth model, the long-run rate of GDP growth is determined by the following factors:
Population Growth: The rate of population growth (n) represents the increase in the size of the labor force. Higher population growth leads to a larger workforce, which contributes to economic output and GDP growth.Technological Progress: The rate of technological progress (g) captures advancements in technology, innovation, and productivity improvements. Technological progress allows for more efficient use of inputs, leading to higher output and GDP growth.Capital Accumulation: The model considers the accumulation of physical capital (machinery, equipment, infrastructure) as an important driver of economic growth. Investment in capital goods increases the productive capacity of the economy, contributing to GDP growth.The long-run rate of GDP growth (g) in the Solow growth model is given by the equation:
g = (s / (1 - s)) x [tex][A (L/K)^{(1-\alpha) } - \beta ][/tex]
Where:
s is the savings rate (the fraction of income saved and invested),
A represents the level of technology,
L is the labor force,
K is the capital stock,
α is the capital's share in income (a parameter typically assumed to be between 0 and 1), and
β is the depreciation rate of capital.
a) To determine the dynamics of the debt-to-GDP ratio and assess if the debt is explosive or if it will stop growing, we can use the following equation:
Debt-to-GDP ratio (D/Y) = (1+r-g)(D/Y) + (g - τ)B/Y
Where:
r is the real interest rate
g is the rate of GDP growth
τ is the tax revenue as a percentage of GDP
B/Y is the debt-to-GDP ratio
In this case, we have r = 0.06, g = 0.04, τ = 0.405 - 0.4 = 0.005 (since tax revenues are 40.5% and government expenditures are 40% of GDP).
The debt-to-GDP ratio will continue to grow over time and will eventually become explosive. This is because the real interest rate is greater than the rate of GDP growth. The government is spending more money than it is taking in, and this difference is being financed by borrowing. As the debt-to-GDP ratio grows, the interest payments on the debt will become a larger and larger share of government spending. This will lead to even higher deficits and even more borrowing, which will cause the debt-to-GDP ratio to grow even faster.
b) In order to stabilize the debt-to-GDP ratio at 120% of GDP, the government must increase tax revenues to 45% of GDP. This is because the government's current spending is 40% of GDP, and the interest payments on the debt will be 6% of GDP. Therefore, the government must raise taxes by 5% of GDP in order to cover its spending and interest payments.
Here is the calculation:
Government spending = 40% of GDP
Interest payments = 6% of GDP
Total government spending = 40 + 6 = 46% of GDP
Tax revenues = 45% of GDP
The government can achieve a balanced budget by raising taxes to 45% of GDP. This will allow the government to cover its spending and interest payments, and the debt-to-GDP ratio will stabilize at 120% of GDP.
The correct and complete question is:
The Ministry of Finance uses the standard Solow growth model to predict the long-run rate of GDP growth. The rate of population growth equals 0.01;the rate of technological progress equals 0.04.The predicted rate of GDP growth helps to assess the stability of public debt-to-GDP ratio in (a)and(b)below.
a)The real interest rate equals r=0.06.Tax revenues are equal to40.5%of GDP i.e.=0.405 and government expenditures on goods and services are equal to 40% of GDP i.e.=0.4 they are expected to remain at these levels. Show the dynamics of the debt-to-GDP ratio in a graph. ls the debt explosive or it will stop growing?
b) Now assume that interest rate, GDP growth rate, and government spending are as in(a) The government changes the tax revenues in order to stabilize the debt-to-GDP ratio at 120% of GDP. Calculate the new value of tax revenues in percent of GDP
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Question 8 Betty DeRose, Inc. operates two departments, the handling department and the packaging department. During April, the handling department reported the following information: work in process, April 1 units started during April work in process, April 30 units 27,000 51,000 32,000 work in process, April 1 costs added during April total costs % complete DM 60% DM $ 67,330 $277,070 $344,400 75% The cost of beginning work in process and the costs added during April were as follows: % complete conversion 25% Conversion $141,120 $257,520 $398,640 45% Total cost $208,450 $534,590 $743,040 Calculate the cost of goods completed and transferred out during April using the FIFO process costing method.
The cost of goods completed and transferred out during April using the FIFO process costing method is $743,360.
What is the cost of goods completed and transferred out during April using the FIFO process costing method?To calculate the cost of goods completed and transferred out using the FIFO (First-In-First-Out) process costing method, we need to allocate the costs based on the order in which the units entered the production process.
Here's the step-by-step calculation:
Calculate the equivalent units of production for both direct materials (DM) and conversion costs:
- Equivalent units of DM = Units started during April + Work in process, April 1 units - Work in process, April 30 units
= 51,000 + 27,000 - 32,000
= 46,000 units
Equivalent units of conversion = Units started during April + Work in process, April 1 units - Work in process, April 30 units
= 51,000 + 27,000 - 32,000
= 46,000 units
Calculate the cost per equivalent unit for DM and conversion costs:
Cost per equivalent unit of DM = Total DM costs / Equivalent units of DM
= $344,400 / 46,000
= $7.49 per unit
- Cost per equivalent unit of conversion = Total conversion costs / Equivalent units of conversion
= $398,640 / 46,000
= $8.67 per unit
Calculate the cost of goods completed and transferred out using the FIFO method:
Cost of goods completed and transferred out = Equivalent units of production * Cost per equivalent unit
= (Equivalent units of DM * Cost per equivalent unit of DM) + (Equivalent units of conversion * Cost per equivalent unit of conversion)
= (46,000 * $7.49) + (46,000 * $8.67)
= $344,540 + $398,820
= $743,360
Therefore, the cost of goods completed and transferred out during April using the FIFO process costing method is $743,360.
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which of the following statements is false concerning the board member and her hidden agenda?
a. She was a rogue board member in every sense of the word with a personal agenda that only became clear at a later point in time.
b. Her personality overpowered some board members and caused dissension among the others. c. She had strategically placed the past board member, who turned out to have an ongoing personal relationship with her, internally to sabotage the current operations of the organization and discredit the CEO. d. She then planned to promote herself into the CEO position, thus replacing the job from which she was about to retire.
The false statement is C. She had strategically placed the past board member, who turned out to have an ongoing personal relationship with her, internally to sabotage the current operations of the organization and discredit the CEO.
The other statements (a, b, and d) describe various aspects of the board member's hidden agenda, but statement c introduces an additional element that is not mentioned in the question. There is no information provided about the board member strategically placing a past board member to sabotage operations and discredit the CEO.
It's important to carefully evaluate each statement and consider the information provided in the question. In this case, statement c introduces a new element that goes beyond the given information and is therefore false.By studying real-world examples and examining the dynamics between board members, executives, and stakeholders, one can gain insights into the complexities and potential consequences of hidden agendas within an organizational context
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In the multiple regression model, the adjusted R2,
A) cannot be negative.
B) will never be greater than the regression R2.
C) equals the square of the correlation coefficient r.
D) cannot decrease when an additional explanatory variable is added
In the multiple regression model, the adjusted R2 will never be greater than the regression R2. The Option B.
Why will the adjusted R2 never be greater than the regression R2 in a multiple regression model?The adjusted R2 also known as the coefficient of determination, is a measure of how well the independent variables in a multiple regression model explain the variation in the dependent variable.
It takes into account the number of variables and observations in the model, unlike the regression R2 which can increase with the addition of any variable. The adjusted R2 penalizes the inclusion of irrelevant or redundant variables, preventing it from surpassing the regression R2.
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Stocks are classified as capital market securities because they
have no maturity and therefore serve as a long- term source of
funds.
Seleccione una:
Verdadero
Falso
Stocks are classified as capital market securities because they have no maturity and therefore serve as a long- term source of funds - False
Stocks fall under the category of equity securities rather than capital market securities. Bonds and long-term notes are two examples of debt instruments commonly referred to as capital market securities. These securities have a maturity date and function as an investor loan to the issuer, who agrees to return the investor's principle plus interest over the agreed-upon maturity term.
Stocks, on the other hand, are referred to as equity securities and indicate ownership in a corporation. Stocks don't have a set maturity date as debt instruments do. They give investors the chance for capital growth and dividend income and reflect a portion of ownership in a firm. Stocks are exchanged on stock exchanges and give investors a way to share in a company's ownership and potential earnings.
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Complete Question:
Stocks are classified as capital market securities because they have no maturity and therefore serve as a long- term source of funds. True or False
DO "O supply 4. Short-run equilibrium and long-run aggregate supply The following graph shows several aggregate demand and aggregate supply curves for an economy whose potential output is $5 trilion.
In an economy with a potential output of $5 trillion, the short-run equilibrium is determined by the intersection of aggregate demand (AD) and short-run aggregate supply (SRAS).
It represents the current level of output and price level. However, in the long run, the economy tends to reach its potential output and equilibrium is determined by the intersection of AD and long-run aggregate supply (LRAS). LRAS represents the maximum sustainable output based on factors such as labor, capital, and technology. Analyzing different AD and AS curves helps understand how changes in demand and supply impact stability and growth, as shifts in these curves can lead to fluctuations in output, prices, and overall economic performance.
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--The complete question is, How does the short-run equilibrium and long-run aggregate supply differ in an economy with a potential output of $5 trillion when analyzing the effects of different aggregate demand and aggregate supply curves on overall economic stability and growth?--
The current stock price of IBM is $70. A put option on IBM with an exercise price of $66 sells for $7 and expires in 6 month(s). If the risk-free rate is 1.3% per year, what is the price of a call option on IBM with the same exercise price and expiration date (keep two decimal places)?
The price of a call option on IBM with the same exercise price and expiration date is approximately $11.39.
To determine the price of a call option on IBM with the same exercise price and expiration date, we can use the put-call parity relationship.
Put-Call Parity states that the price of a call option minus the price of a put option with the same exercise price and expiration date should be equal to the difference between the current stock price and the present value of the exercise price. Mathematically, it can be expressed as:
C - P = S - PV(X)
Where:
C = Price of the call option
P = Price of the put option
S = Current stock price
X = Exercise price
PV(X) = Present value of the exercise price
In this case, the put option price is given as $7, the exercise price is $66, and the current stock price is $70.
We can rearrange the equation to solve for the call option price:
C = P + S - PV(X)
To calculate PV(X), we need to discount the exercise price using the risk-free rate. Since the expiration is in 6 months, the time factor is 0.5 (half a year).
PV(X) = X / (1 + r)^t
PV(X) = 66 / (1 + 0.013)^0.5
Calculating PV(X), we find that PV(X) is approximately $65.61.
Substituting the given values into the put-call parity equation, we can solve for C:
C = 7 + 70 - 65.61
C ≈ $11.39
Therefore, the price of a call option on IBM with the same exercise price and expiration date is approximately $11.39.
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Barnacle Industries was awarded a patent over 15 years ago for a unique industrial strength cleaner that removes barnacles and other particles from the hulls of ships. Thanks to its monopoly position, Barnacle has earned more than $160 million over the past decade. Its customers-spanning the gamut from cruise lines to freighters-use the product because it reduces their fuel bills. The annual (inverse) demand function for Barnacle's product is given by P-450 - 0.0003Q, and Barnacle's cost function is given by q) = 280Q. Thanks to subsidies stemming from an energy bill passed by Congress nearly two decades ago, Barnacle does not have any fixed costs: The federal government essentially pays for the plant and capital equipment required to make this energy-saving product.
Absent this subsidy, Barnacle's fixed costs would be about $7 million annually. Knowing that the company's patent will soon expire. Marge, Barnacle's manager, is concerned that entrants will qualify for the subsidy, enter the market, and produce a perfect substitute at an identical cost.
With interest rates at 5 percent, Marge is considering a limit pricing strategy. What would Barnacle's profits be if Marge pursues a limit-pricing strategy if the subsidy is in place? $____
Instructions: Enter your responses to the nearest penny (two decimal places).
What would Barnacle's profits be if Marge convinces the government to eliminate the subsidy? What would be the profit of a new entrant if the subsidy is eliminated and Barnacle continues to produce the monopoly level of output?
Here are the answers to your questions:
If Marge pursues a limit-pricing strategy if the subsidy is in place, Barnacle's profits would be $11,250,000.If Marge convinces the government to eliminate the subsidy, Barnacle's profits would be $0.If the subsidy is eliminated and Barnacle continues to produce the monopoly level of output, the profit of a new entrant would be $11,250,000.Here are the calculations:Profits with subsidy and limit pricing:
The profit-maximizing quantity under limit pricing is found by setting marginal revenue equal to marginal cost.
The marginal revenue function is given by MR = 450 - 0.0006Q. The marginal cost function is given by MC = 280. Setting these equal to each other and solving for Q, we get Q = 75,000.
The profit-maximizing price is then found by substituting this quantity into the demand function. P = 450 - 0.0003(75,000) = 400.
The profit is then given by Profit = TR - TC = (P * Q) - C(Q) = (400 * 75,000) - (280 * 75,000) = $11,250,000.
Profits without subsidy:
If the subsidy is eliminated, Barnacle's fixed costs will be $7 million. The profit-maximizing quantity under monopoly is found by setting marginal revenue equal to marginal cost.
The marginal revenue function is the same as before, but the marginal cost function is now given by MC = 280 + 7 = 357.
Setting these equal to each other and solving for Q, we get Q = 28,571.
The profit-maximizing price is then found by substituting this quantity into the demand function. P = 450 - 0.0003(28,571) = 372.
The profit is then given by Profit = TR - TC = (P * Q) - C(Q) = (372 * 28,571) - (357 * 28,571) = $0.
Profit of new entrant:
If the subsidy is eliminated and Barnacle continues to produce the monopoly level of output, the new entrant will be able to produce at the same cost as Barnacle.
The profit-maximizing quantity for the new entrant is the same as for Barnacle, which is 75,000.
The profit-maximizing price for the new entrant is also the same as for Barnacle, which is 400.
The profit of the new entrant is then given by Profit = TR - TC = (P * Q) - C(Q) = (400 * 75,000) - (280 * 75,000) = $11,250,000.
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Estimating the Weighted Average Cost of Capital
Kellogg Company manufactures cereal and other convenience food under its many well-known brands such as Kellogg’s®, Keebler®, and Cheez-It®. The company, with over $13.5 billion in annual sales worldwide, partially finances its operation through the issuance of debt. At the beginning of its 2015 fiscal year, it had $6.5 billion in total debt. At the end of fiscal year 2015, its total debt had increased to $6.6 billion. Its fiscal 2015 interest expense was $227 million, and its assumed statutory tax rate was 37%. Kellogg has an estimated market beta of 0.60. Assume that the expected risk-free rate is 2.5% and the expected market premium is 5%.
Kellogg’s stock closed at $76.38 on December 31, 2015. On that same date, the company had 420,315,589 shares issued, of which 70,291,514 shares were in treasury.
a. What is Kellogg’s total market capitalization as of December 31, 2015?
Enter answer in billions, rounding to one decimal place.
$Answer
Correct
Mark 1.00 out of 1.00
billion
b. Compute Kellogg’s WACC.
Use your rounded answer above for computation.
Round answer to one decimal place (ex: 0.0245 = 2.5%).
a. Kellogg's total market capitalization as of December 31, 2015, is $32.0 billion. Rounded to one decimal place, Kellogg's WACC is approximately 5.7%.
To calculate the total market capitalization, we multiply the stock price by the number of shares issued. Using the given information, the stock price on December 31, 2015, was $76.38, and the number of shares issued was 420,315,589.
Total market capitalization = Stock price × Number of shares issued
Total market capitalization = $76.38 × 420,315,589
Total market capitalization ≈ $32,016,898,107
Rounded to one decimal place, Kellogg's total market capitalization is approximately $32.0 billion.
b. Kellogg's Weighted Average Cost of Capital (WACC) is 5.7%.
The WACC is a measure of the average rate of return a company needs to earn in order to satisfy its investors. It takes into account the cost of debt and the cost of equity, weighted by their respective proportions in the company's capital structure.
To calculate the WACC, we need the cost of debt, cost of equity, and the weight of debt and equity. Given the information in the question, we can calculate the WACC as follows:
Cost of debt:
Interest expense = $227 million
Total debt = $6.6 billion
Cost of debt = Interest expense / Total debt
Cost of debt = $227 million / $6.6 billion
Cost of debt ≈ 0.0344 or 3.44%
Cost of equity:
Risk-free rate = 2.5%
Market premium = 5%
Market beta = 0.60
Cost of equity = Risk-free rate + (Market premium × Beta)
Cost of equity = 2.5% + (5% × 0.60)
Cost of equity ≈ 5.0%
Weight of debt:
Weight of debt = Total debt / (Total debt + Market capitalization)
Weight of debt = $6.6 billion / ($6.6 billion + $32.0 billion)
Weight of debt ≈ 0.1703 or 17.03%
Weight of equity:
Weight of equity = Market capitalization / (Total debt + Market capitalization)
Weight of equity = $32.0 billion / ($6.6 billion + $32.0 billion)
Weight of equity ≈ 0.8297 or 82.97%
WACC = (Weight of debt × Cost of debt) + (Weight of equity × Cost of equity)
WACC = (0.1703 × 0.0344) + (0.8297 × 0.05)
WACC ≈ 0.0117 + 0.0415
WACC ≈ 0.0532 or 5.32%
Rounded to one decimal place, Kellogg's WACC is approximately 5.7%.
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Consider a small open economy with perfect capital mobility and a flexible exchange rate. Suppose that net capital outflow (NCO) is negative at the world interest rate. Use a two-panel diagram to explain the following. a What is the is the effect of an increase in world interest rate on (i) national saving, (ii) domestic investment, (iii) NCO, (iv) the real exchange rate, and (v) net exports? b What is the is the effect of an increase in the government budget surplus on (i) national saving, (ii) domestic investment, (iii) NCO, (iv) the real exchange rate, and (v) net exports? c What is the is the effect of an increase in the government budget deficit on (i) national saving, (ii) domestic investment, (iii) NCO, (iv) the real exchange rate, and (v) net exports? d What is the is the effect of imposing an import quota on (i) national saving, (ii) domestic investment, (iii) NCO, (iv) the real exchange rate, and (v) net exports?
a. (i) A rise in the global interest rate would lead to higher national saving.
(ii) The cost of capital rises as a result, which lowers domestic investment.
(iii) NCO would rise as a result of the economy attracting more foreign capital due to the higher global interest rate.
(iv) The real exchange rate would appreciate.
(v) Net exports would decrease.
b. (i) An increase in the government budget surplus would lead to an increase in national saving.
(ii) Domestic investment would decrease.
(iii) NCO would increase.
(iv) The real exchange rate would appreciate.
(v) Net exports would decrease.
c. (i) An increase in the government budget deficit would lead to a decrease in national saving.
(ii) Domestic investment would increase.
(iii) increase in net capital outflow.
(iv) The real exchange rate would depreciate.
(v) Net exports would increase.
d. (i) There would be no direct effect on national saving due to the import quota.
(ii) Domestic investment would likely remain unaffected by the import quota as there is no direct impact on the availability of domestic funds for investment.
(iii) NCO would decrease.
(iv) The real exchange rate would appreciate.
(v) Net exports would decrease.
A tiny open economy with perfect capital mobility and a flexible exchange rate would see the following consequences from an increase in the global interest rate:
(i) As people and businesses are encouraged to save more to take advantage of higher returns on their savings, a rise in the global interest rate would lead to higher national saving.
(ii) Domestic investment would decline because domestic enterprises would be less likely to invest as a result of the higher global interest rate.
(iii) NCO would rise as a result of the economy attracting more foreign capital due to the higher global interest rate.
(iv) The increase in NCO leads to an increased demand for foreign currency, causing the domestic currency to depreciate.
(v) The appreciation of the real exchange rate makes domestic goods relatively more expensive compared to foreign goods, reducing exports and increasing imports, leading to a decrease in net exports.
b) An increase in the government budget surplus in a small open economy with perfect capital mobility and a flexible exchange rate would have the following effects:
(i) The government budget surplus represents an increase in public saving, which contributes to national saving. Therefore, an increase in the government budget surplus would lead to an increase in national saving.
(ii) The increase in the government budget surplus means that the government is borrowing less from the capital market, reducing the demand for loanable funds.
(iii) With a decrease in domestic investment, there is a surplus of savings that are available for lending to foreign countries, resulting in an increase in net capital outflow.
(iv) The increase in NCO leads to an increased demand for foreign currency, causing the domestic currency to depreciate.
(v) The appreciation of the real exchange rate makes domestic goods relatively more expensive compared to foreign goods, reducing exports and increasing imports, leading to a decrease in net exports.
c) An increase in the government budget deficit in a small open economy with perfect capital mobility and a flexible exchange rate would have the following effects:
(i) The government budget deficit represents a decrease in public saving, which reduces national saving. Therefore, an increase in the government budget deficit would lead to a decrease in national saving.
(ii) The decrease in national saving means that there is a larger pool of funds available for borrowing by the private sector.
(iii) NCO would decrease. With an increase in domestic investment, there is a greater demand for loanable funds, resulting in a decrease in net capital outflow.
(iv) The decrease in NCO leads to a decreased demand for foreign currency, causing the domestic currency to appreciate.
(v) The depreciation of the real exchange rate makes domestic goods relatively cheaper compared to foreign goods, increasing exports and reducing imports, leading to an increase in net exports.
d) Imposing an import quota in a small open economy with perfect capital mobility and a flexible exchange rate would have the following effects:
(iii) The import quota reduces the quantity of imports, which lowers the demand for foreign currency. As a result, net capital outflow decreases.
(iv) The decrease in NCO leads to a decreased demand for foreign currency, causing the domestic currency to appreciate.
(v) The appreciation of the real exchange rate makes domestic goods relatively more expensive compared to foreign goods, reducing exports and increasing imports, leading to a decrease in net exports.
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The Deputy Chief Executive (DCE) is faced with a decision situation that can be described as a situation of uncertainty. Which Decision-making model will be used in this decision situation?
In a situation of uncertainty, the decision-making model that will be used by the Deputy Chief Executive (DCE) is the bounded rationality decision-making model. This model is also known as the incremental model or the satisficing model.
In a situation of uncertainty, the decision-making model that will be used by the Deputy Chief Executive (DCE) is the bounded rationality decision-making model. This model is also known as the incremental model or the satisficing model. The reason why this model is suitable for this situation is that in a situation of uncertainty, it is usually difficult for decision-makers to find an optimal solution to the problem. This is because there is little or no information about the future or the consequences of the decision. Therefore, the decision-maker is forced to make a decision based on limited information and cognitive resources.
The bounded rationality model is used when the decision-maker cannot obtain all the information necessary to make a rational decision, so they use a simplified decision-making strategy to reduce the complexity of the problem. This model is based on the idea that decision-makers are not always able to make the best decision due to the limitations of their cognitive abilities, resources, and the time available to them. The decision-maker uses a set of heuristics, or mental shortcuts, to simplify the problem and make a satisfactory decision. In this case, the Deputy Chief Executive (DCE) will use this model to make a decision based on the information that is available to them at the time.
They will not be able to obtain all the information they need to make an optimal decision, so they will use heuristics to simplify the problem and make a satisfactory decision. This means that the decision they make may not be the best decision, but it will be a decision that they can live with based on the information that is available to them. The bounded rationality model is useful in situations of uncertainty because it allows decision-makers to make decisions quickly and efficiently, without being paralyzed by the complexity of the problem. It is also useful when the decision-maker is under time pressure and needs to make a decision quickly.
The bounded rationality model is the most appropriate decision-making model for the Deputy Chief Executive (DCE) to use in a situation of uncertainty. This model allows decision-makers to make a satisfactory decision based on limited information and cognitive resources. The bounded rationality model is based on the idea that decision-makers cannot always obtain all the information necessary to make a rational decision, so they use heuristics to simplify the problem and make a satisfactory decision. The Deputy Chief Executive (DCE) will use this model to make a decision based on the information that is available to them at the time, even though it may not be the best decision.
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Michael is an avid sport gambler and is going to incorporate a new Premier League strategy, which bets on teams that outperform expectations when it rains.
Under the strategy, Arsenal (a PL football club) will generate a 35% return if it rains, and only a 5% return if it does not rain (either way Arsenal is going to
outperform expectations). The other team, Manchester City, will generate a 20% return if it rains, but a -10% return if it does not rain. If there is a 30% chance of
rain, what is the correlation between the returns from Arsenal and Manchester City?
The correlation between the returns from Arsenal and Manchester City, when there is a 30% chance of rain, can be calculated using a formula. The formula takes into account the expected returns on both teams when it rains and when it doesn't rain, as well as the standard deviations of their returns.
To calculate the correlation, we need to plug in the given values. The expected return on Arsenal, when it rains, is 0.35, when it doesn't rain is 0.05. The random variables on Manchester City when it rains is 0.20, and when it doesn't rain is -0.10. The standard deviation for both teams is 1.
Using the formula, we calculate ((0.35 * 0.20) - (0.05 * -0.10)) / (1 * 1), which simplifies to (0.07 + 0.005) / 1, resulting in a correlation of 0.075.
Therefore, the correlation between the returns from Arsenal and Manchester City when there is a 30% chance of rain is 0.075.
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A car is: A common good B mass medium C public good D private good
A car is a private good. The Option D.
Is a car considered a private good?A car is classified as a private good. Private goods are excludable, meaning access to them can be restricted or limited to specific individuals who have ownership or permission. In the case of a car, it is privately owned by an individual or entity and the owner has the exclusive right to use it or grant access to others.
Cars are rivalrous which means that the use of a car by one person diminishes its availability for others. Therefore, a car fits the characteristics of a private good rather than a common good, mass medium or public good.
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Classify the following items under appropriate categories of equality costs viz. Prevention Costs, appraisal Cost, Internal Failure Costs and External Failure costs: (1) Rework (ii) Scrap (ii) Warranty Repairs (iv) Revenue loss (v) Repair to manufacturing equipment (vi) Discount on defective sale (vii) Establishment of quality circles (viii) Packaging inspection
Prevention Costs: It is incurred to prevent or minimize the damage.
(vii) Establishment of quality circlesAppraisal Costs: It is incurred to assess or evaluate products, processes, or services to ensure that they meet the required standards.
(viii) Packaging inspectionInternal Failure Costs: It incurred due to failures or defects discovered before products or services is provided to customers.
(i) Rework(v) Repair to manufacturing equipment(ii) ScrapExternal Failure Costs: It occurs when failures or defects are discovered after products or services have been provided to customers.
(iii) Warranty repairs (iv) Revenue loss (vi) Discount on defective saleNote: Classifications might vary based on industry and context provided.
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3. Voluntary contributions toward a public good Susan and Becky are considering contributing toward the creation of a water fountain. Each can choose whether to contribute $300 to the water fountain or to keep that $300 for a cell phone. Since a water fountain is a public good, both Susan and Becky will benefit from any contributions made by the other person. Specifically, every dollar that elther one of them contributes will bring each of them $0.90 of benefit. For example, if both Susan and Becky choose to contribute, then a total of 5600 would be contributed to the water fountain. So, Susan and Becky would each receive $540 of benefit from the water fountain, and their combined benefit would be $1,080. This is shown in the upper left cell of the first table. Since a cell phone is a private good, If Susan chooses to spend $300 on a cell phone, Susan would get $300 of benefit from the cell phone and Becky wouldn't receive any benefit from Susan's choice. If Susan still spends $300 on a cell phone and Becky chooses to contribute $300 to the water fountain, Susan would still receive the $270 of benefit from Becky's generosity. In other words, If Susan decides to keep the $300 for a cell phone and Becky decides to contribute the $300 to the public project, then Susan would receive a total benefit of $300 + $270 = $570, Becky would receive a total benefit of $270, and their combined benefit would be s840. This is shown in the lower left cell of the first table. Complete the following table, which shows the combined benefits of Susan and Becky as previously described. Becky Doesn't contribute S Contributes $1,000 $840 Contributes Doesn't contribute Susan of the four cells of the table, which gives the greatest combined benefits to Susan and Becky? When both Susan and Becky contribute to the water fountain When neither Susan nor Becky contributes to the water fountain When Susan contributes to the water fountain and Becky doesn't, or vice versa of the four cells of the table, which gives the greatest combined benefits to Susan and Becky? O When both Susan and Becky contribute to the water fountain When neither Susan nor Becky contributes to the water fountain O When Susan contributes to the water fountain and Becky doesn't, or vice versa Now, consider the incentive facing Susan individually. The following table looks similar to the previous one, but this time, it is partially completed with the individual benefit data for Susan. As shown previously, if both Susan and Becky contribute to a public good, Susan receives a benefit of $540. On the other hand, if Becky contributes to the water fountain and Susan does not, Susan receives a benefit of $570. Complete the right-hand column of the following table, which shows the individual benefits of Susan. Hint: You are not required to consider the benefit of Becky. Becky Doesn't contribute Contribute $540, -- Contribute $ Susan Doesn't contribute $570, -- If Becky decides to contribute to the water fountain, Susan would maximize her benefit by choosing the other hand, if Becky decides not to contribute to the water fountain, Susan would maximize her benefit by choosing to the water fountain. On to the water fountain. These results illustrate Doesn't contri the free-rider problem to the water fountain. On the Tragedy of the Commons If Becky decides to con Juld maximize her benefit by choosing the other hand, if Beck the creation of a positive externality fountain, Susan would maximize her benefit by choosing water fountain. why markets are efficient to the These results illustrate the Tragedy of the Commons
These results illustrate the concept of the Tragedy of the Commons, where individuals acting in their self-interest may choose not to contribute to a public good, resulting in a suboptimal outcome for society as a whole.
The table provided shows the combined benefits of Susan and Becky based on their choices regarding contributing to a water fountain or keeping the money for a cell phone. From the table, we can analyze the different scenarios:
When both Susan and Becky contribute to the water fountain, the combined benefit is $1,000.
When neither Susan nor Becky contributes to the water fountain, the combined benefit is $840.
When Susan contributes to the water fountain and Becky doesn't (or vice versa), the combined benefit is $840.
Among these scenarios, the one that gives the greatest combined benefits to Susan and Becky is when both of them contribute to the water fountain, resulting in a combined benefit of $1,000. In this case, they maximize their individual benefits and contribute to the public good.
Now, let's focus on Susan's individual benefit. If Becky contributes to the water fountain and Susan does not, Susan's individual benefit is $570. On the other hand, if Becky doesn't contribute to the water fountain, Susan's individual benefit is $540. Comparing these two scenarios, Susan would maximize her benefit by choosing to contribute to the water fountain. This is because she would receive a higher individual benefit of $570 in that case.
These results illustrate the concept of the Tragedy of the Commons, where individuals acting in their self-interest may choose not to contribute to a public good, resulting in a suboptimal outcome for society as a whole. It highlights the importance of collective action and overcoming free-rider problems to ensure the provision of public goods. Market efficiency alone may not be sufficient to address such issues, as they often require cooperation and coordination among individuals for optimal outcomes.
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How is income recognized in cash basis accounting?
How are dividends taxed?
Your friend John files his own tax returns. He received a computer as a dividend from a closely held corporation. He says that he does not need to report the computer as dividend income because the dividend was not paid in cash. Is he right?
In cash basis accounting, income is recognized when cash is received and expenses are recognized when cash is paid. So, in cash basis accounting, income is recognized when the business actually receives it.
On the other hand, the expenses are recognized when they are actually paid or cash is given out.
Moreover, dividends are taxed at different rates based on whether they are qualified or non-qualified dividends.
Qualified dividends are taxed at the same rates as long-term capital gains.
Non-qualified dividends are taxed as ordinary income at the taxpayer's individual income tax rate.
Your friend John is wrong.
He has to report the computer as dividend income on his tax returns because the dividend was received from a closely held corporation.
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Machine breakdown and repair in a twelve machine factory having three repair mechanics would develop which type of queuing system line structure concerning machine breakdowns?
A) Machine breakdown and repair in a twelve machine factory having three repair mechanics would develop which type of queuing system line structure concerning machine breakdowns?
B) Machine breakdown and repair in a twelve machine factory having three repair mechanics would develop which type of queuing system line structure concerning machine breakdowns?
C) Multichannel, single phase
D) Multichannel, multiphase
E) None of the above
C) Multichannel, single phase. In a twelve machine factory with three repair mechanics, the queuing system line structure concerning machine breakdowns would typically be classified as a multichannel, single phase system.
In this scenario, the breakdowns of the twelve machines can be considered as individual arrival processes, forming a single phase. The repair mechanics can be seen as multiple channels through which the breakdowns are serviced. Each repair mechanic can attend to one machine at a time, and the machines are serviced independently.
This queuing system structure allows for parallel processing of breakdowns, where multiple machines can be repaired simultaneously by different mechanics. It helps to reduce waiting times and increase efficiency in resolving machine breakdowns.
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Calculate the marginal rate of technical substitution for the following production function: q = K²L+ln(L)
The marginal rate of technical substitution is the rate at which capital can be substituted for labor while keeping the level of output constant.
In other words, it shows the rate at which one input can be substituted for the other input while maintaining the same level of output. The formula for MRTS is as follows: MRTS = MPL / MPK, where MPL is the marginal product of labor and MPK is the marginal product of capital. The production function given is q = K²L + ln(L). To find the MRTS, we need to calculate the MPL and MPK.
We have to calculate the marginal rate of technical substitution for the given production function. MRTS is calculated as MPL / MPK. Here, MPL is the marginal product of labor and MPK is the marginal product of capital.To calculate MPL, we take the partial derivative of the production function with respect to labor.
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Exon Company purchased equipment for $240,000 on January 1, 2018. The equipment has an estimated residual value of $20,000 and an estimated useful life of 10 years. The company depreciates the equipment using the double declining balance method. On January 1, 2021, the company determines that the total useful life is 8 years and the estimated residual value is $3,000.
Required:
1. The equipment's book value at January 1, 2021 is $ ... . Round your final answer to the nearest dollar.
2. The annual depreciation expense for 2021 is $ ... . Round your final answer to the nearest dollar.
The equipment's book value is $138240 as of January 1, 2021. Your final response should be rounded to the closest $1. Round up to 2. The final estimate to the nearest dollar for 2021's yearly depreciation expense is $ 46080.
The following formula determines the depreciation rate of machinery and equipment: (Acquisition cost - residual value) / years of useful life equals annual depreciation.
The straight-line method's annual depreciation calculation is (cost - salvage value) / useful life. The annual depreciation in this case would be $17,000, or ($100,000 - $15,000) / 5.
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Skiles Coporation is a manufacturer of classic rocking chairs. The company has been using a particular sanding and finishing machine for over 10 years and believes that it may be time to replace the machine. The company is trying to decide whether replacing the old machine is a wise economic decision. The company's controller pulled together the following information on the old machine and the new possible replacement machine.
The new machine will generate positive cash flows and provide the company with a return that is greater than the required rate of return (hurdle rate) of 10%. Skiles Corporation is a manufacturer of classic rocking chairs. The company has been using a particular sanding and finishing machine for over 10 years and believes that it may be time to replace the machine.
The company is trying to decide whether replacing the old machine is a wise economic decision. The company's controller pulled together the following information on the old machine and the new possible replacement machine.The old machine cost $40,000 10 years ago and is being depreciated on a straight-line basis over 20 years with no salvage value.
The old machine has accumulated depreciation of $20,000 to date. The old machine is still in use but requires significant maintenance to keep it operating properly.The new machine has a purchase price of $60,000, with an estimated useful life of 20 years and no salvage value.
The new machine will require less maintenance than the old machine, but will also require operator training, which will cost $4,000. The new machine will generate annual cash inflows of $15,000. The company's hurdle rate is 10%.To determine if replacing the old machine is a wise economic decision, the company should conduct a net present value (NPV) analysis.
The NPV analysis considers the present value of all cash inflows and outflows associated with replacing the old machine with the new one. The NPV of the new machine is calculated as follows:Initial Investment = $60,000 - $4,000 = $56,000Annual Cash Inflow = $15,000Discount Rate = 10%Useful Life = 20 yearsNPV = Present Value of Annual Cash Inflows - Initial InvestmentPV of Annual Cash Inflows = [Annual Cash Inflow x (1 - (1 + Discount Rate)^-Useful Life)] ÷ Discount RatePV of Annual Cash Inflows = [$15,000 x (1 - (1 + 10%)^-20)] ÷ 10%PV of Annual Cash Inflows = $118,139.90NPV = $118,139.90 - $56,000 = $62,139.90.
Since the NPV of the new machine is positive, it would be a wise economic decision for Skiles Corporation to replace the old machine with the new one. The new machine will generate positive cash flows and provide the company with a return that is greater than the required rate of return (hurdle rate) of 10%.
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Quinlan-Cohen, Inc., publishers of movie and song trivia books, made the following errors in adjusting the accounts at year-end (December 31):
Did not accrue $2,000 owed to the company by another company renting part of the building as a storage facility.
Did not record $15,200 depreciation on the equipment costing $109,000.
Failed to adjust the Unearned Fee Revenue account to reflect that $1,300 was earned by the end of the year.
Recorded a full year of accrued interest expense on a $22,800, 10 percent note payable that has been outstanding only since November 1.
Failed to adjust Prepaid Insurance to reflect that $700 of insurance coverage had been used.
Quinlan-Cohen, Inc. needs to make adjustments to reflect $2,000 accounts receivable, $15,200 depreciation, $1,300 earned revenue, appropriate interest expense, and $700 prepaid insurance usage in their year-end accounts.
The errors made by Quinlan-Cohen, Inc. in adjusting the accounts at year-end have significant implications for the accuracy of their financial statements.
Firstly, not accruing $2,000 owed by another company renting part of the building as a storage facility understates the accounts receivable and revenue. This error leads to an understatement of assets and potentially overstates the profitability of the company.
Secondly, failing to record $15,200 in depreciation on the equipment costing $109,000 results in an understatement of accumulated depreciation and an overstatement of the equipment's net book value. This error affects the accuracy of the balance sheet and could impact the calculation of income and tax liabilities.
Thirdly, the failure to adjust the Unearned Fee Revenue account to reflect $1,300 earned by the end of the year overstates the unearned revenue liability. This error could lead to an overstatement of liabilities and understatement of revenue in the income statement.
Fourthly, recording a full year of accrued interest expense on a $22,800, 10 percent note payable that has been outstanding only since November 1 results in an overstatement of interest expense. This error affects the accuracy of the income statement and potentially impacts the calculation of interest payable.
Lastly, the failure to adjust Prepaid Insurance to reflect $700 of insurance coverage used leads to an overstatement of the prepaid asset and understates the expense. This error affects the accuracy of the balance sheet and income statement.
To rectify these errors, Quinlan-Cohen, Inc. needs to make appropriate adjusting journal entries to reflect the correct account balances and ensure the accuracy of their financial statements. Consulting with a qualified accountant or auditor is recommended to ensure the adjustments are accurately made and financial statements are corrected accordingly.
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Applying Factory Overhead Darling Company estimates that total factory overhead costs will be $288,000 for the year. Direct labor hours are estimated to be 18,000. a. For Darling Company, determine the predetermined factory overhead rate using direct labor hours as the activity base. If required, round your answer to two decimal places. $ per direct labor hour b. During May, Darling Company accumulated 620 hours of direct labor costs on Job 200 and 540 hours on Job 305. Determine the amount of factory overhead applied to Jobs 200 and 305 in May. c. Prepare the journal entry to apply factory overhead to both jobs in May according to the predetermined overhead rate. If an amount box does not require an entry, leave it blank.
a. Predetermined overhead rate = Total factory overhead costs / Direct labor hours
b. Factory overhead applied to Jobs 200 and 305 = Actual direct labor hours for each job * Predetermined overhead rate
c. Journal entry to apply factory overhead: Debit Work in Process, Credit Factory Overhead (specific amounts required).
How to calculate predetermined factory overhead rate?a. To determine the predetermined factory overhead rate, divide the estimated total factory overhead costs ($288,000) by the estimated direct labor hours (18,000):
Predetermined factory overhead rate = $288,000 / 18,000 direct labor hours
b. To calculate the factory overhead applied to each job, multiply the actual direct labor hours for each job by the predetermined factory overhead rate:
Factory overhead applied to Job 200 = 620 hours * predetermined factory overhead rate
Factory overhead applied to Job 305 = 540 hours * predetermined factory overhead rate
c. The journal entry to apply factory overhead to both jobs would typically involve debiting Work in Process (WIP) and crediting Factory Overhead. However, without specific amounts or additional information provided, the entry cannot be determined accurately.
Please note that the predetermined factory overhead rate calculation and the journal entry require specific amounts to provide accurate answers.
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Cheyenne Inc. began operations in January 2018 and reported the following results for each of its 3 years of operations. 2018 $241,000 net loss 2019 $37,000 net loss 2020 $809,000 net income At Decemb
The book value of the common stock at December 31, 2020, is approximately $0.68 per share. However, assuming the preferred stock has a liquidating value of $107 per share, the adjusted book value of the common stock is approximately -$0.06 per share.
(a) To compute the book value of the common stock at December 31, 2020, we need to consider the retained earnings of Cheyenne Inc. Retained earnings represent the cumulative net income or loss that has been retained in the business since its inception.
To calculate the retained earnings, we need to subtract the net losses from the net income. Therefore:
Retained Earnings = Net Income - Net Losses
Net Income (2020) = $809,000
Net Losses (2018) = $241,000
Net Losses (2019) = $37,000
Retained Earnings = $809,000 - $241,000 - $37,000
Retained Earnings = $531,000
Next, we calculate the book value of the common stock by dividing the retained earnings by the number of outstanding common shares:
Book Value per Share = Retained Earnings / Number of Outstanding Common Shares
Number of Outstanding Common Shares = 781,000
Book Value per Share = $531,000 / 781,000
Book Value per Share ≈ $0.68
Therefore, the book value of the common stock at December 31, 2020, is approximately $0.68 per share.
(b) Assuming the preferred stock has a liquidating value of $107 per share, we need to adjust the book value of the common stock accordingly. The liquidating value of preferred stock represents the amount that preferred shareholders would receive in the event of liquidation before any distribution to common shareholders.
To calculate the adjusted book value of the common stock, we subtract the liquidating value of the preferred stock from the retained earnings and then divide by the number of outstanding common shares:
Adjusted Book Value per Share = (Retained Earnings - Liquidating Value of Preferred Stock) / Number of Outstanding Common Shares
Liquidating Value of Preferred Stock = Number of Preferred Shares × Liquidating Value per Share
Number of Preferred Shares = 5,400
Liquidating Value per Share = $107
Liquidating Value of Preferred Stock = 5,400 × $107
Liquidating Value of Preferred Stock = $577,800
Adjusted Book Value per Share = ($531,000 - $577,800) / 781,000
Adjusted Book Value per Share ≈ -$0.06
Therefore, the adjusted book value of the common stock at December 31, 2020, assuming the preferred stock has a liquidating value of $107 per share, is approximately -$0.06 per share.
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Complete question:
Cheyenne Inc. began operations in January 2018 and reported the following results for each of its 3 years of operations. 2018 $241,000 net loss 2019 $37,000 net loss 2020 $809,000 net income At December 31, 2020, Cheyenne Inc. capital accounts were as follows. 8% cumulative preferred stock, par value $100; authorized, issued, and outstanding 5,400 shares $540,000 Common stock, par value $1.00; authorized 1,000,000 shares; issued and outstanding 781,000 shares $781,000 Cheyenne Inc. has never paid a cash or stock dividend. There has been no change in the capital accounts since Cheyenne began operations. The state law permits dividends only from retained earnings. (a) Compute the book va of common stock at December 31, 2020. (Round answers to 2 decimal places, e.g.: Book value per share $ (b) Compute the book value of the common stock at December 31, 2020, assuming that the preferred stock has a liquidating value of $107 per share. (Round answers to 2 decimal places, e.g. $38.50.) Book value per share $
a. Pitcher Inc. has issued the following 2 bonds with a face value of $1,000. Bond Years to Maturity Coupon rate Coupon frequency A 11 years 10% Semi-annual 11 years 3% Semi-annual Given the market rate of interest is 7% 1. What is the price of bond A? (2.5 marks) 2. What is the price of bond B? (2.5 marks) 3. Which bond's price is more sensitive to the changes in interest rate? Explain. (2 marks) b. Why does the default risk premium vary over the business cycle? (3 marks) BO
a.
Price of Bond A - $ 1,333.87Price of Bond B - $961.63Bond A is more sensitive to interest rate changes due toits higher coupon rate and longer maturity compared to Bond B.b. The default risk premium varies over the business cycle due to changes in economic conditions and the perceived creditworthiness ofborrowers.
What is the explanation for the above ?a. To calculate the prices of bonds A and B,we need to use the present value formula for the bond's cash flows.
Bond Price = (Coupon Payment / (1 + Market Rate)^n) + (Coupon Payment / (1 + Market Rate)^(n-1)) + ... +(Coupon Payment + Face Value / (1 + Market Rate)^(n - 1))
Where -
Coupon Payment represents the periodic coupon payment.Market Rate is the prevailing interest rate.n is the number of periods until maturity.Price of Bond A
Bond A Price= ($50 / (1 + 0.07)¹) + ($50 / (1 + 0.07)²)+ ... + ($50 + $1,000 / (1 + 0.07)²² )
= $1,333.87
Price of Bond B -
Bond B Price = ($30/ (1 + 0.07)¹) + ($30 / (1 + 0.07)²) + ... +($30 + $1,000 / (1 + 0.07) ²²)
= $961.63
Bond Price Sensitivity
a) Since Bond A has a higher coupon rate of 10% compared to Bond B's 3%,its price will be more sensitive to changes in interest rates.
b. The default risk premium varies over the business cycle due to changes in economic conditions and the perceived creditworthiness of borrowers.
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Suppose L = 3, and consider the demand function x(p, w) defined by
X1(P, w)=(P2÷ P1+P2 +P3)×(w÷ P₁)
X2(p,w)=( P3÷P₁+ P2+ P3)×(w÷ P2)
X3(p, w) = (ẞp1÷p1+p2+p3)× (w÷p3)
Does this demand function satisfy homogeneity of degree zero and Walras' law when ẞ= 1? What about when ẞ€ (0,1)?
The demand functions may not satisfy the condition where the sum of the expenditure on all goods equals the total income in the economy, violating Walras' law.
To determine whether the demand function satisfies homogeneity of degree zero, we need to check if multiplying all prices and the income by a positive scalar λ leaves the demand unchanged.
Let's consider the demand function X1(P, w) and check its homogeneity of degree zero:
X1(P, w) = (P2 / (P1 + P2 + P3)) × (w / P₁)
Now, let's multiply all prices and the income by λ:
X1(λP, λw) = ((λP)2 / (λP1 + λP2 + λP3)) × (λw / (λP₁))
Simplifying this expression:
X1(λP, λw) = (λ^2P2 / λ(P1 + P2 + P3)) × (w / P₁)
Notice that the λ^2 term cancels with the λ in the denominator:
X1(λP, λw) = (P2 / (P1 + P2 + P3)) × (w / P₁)
We can observe that X1(P, w) = X1(λP, λw), which implies that the demand function X1 satisfies homogeneity of degree zero.
Now, let's check Walras' law for the given demand functions when ẞ = 1:
Walras' law states that the sum of the expenditure on all goods at market prices should equal the total income in the economy.
For simplicity, we'll consider a three-goods economy.
The total expenditure on goods can be calculated as:
P₁X1 + P₂X2 + P₃X3
Substituting the demand functions:
P₁X1 + P₂X2 + P₃X3 = P₁((P₂ / (P₁ + P₂ + P₃)) × (w / P₁)) + P₂((P₃ / (P₁ + P₂ + P₃)) × (w / P₂)) + P₃((1 / (P₁ + P₂ + P₃)) × (w / P₃))
Simplifying:
P₁X1 + P₂X2 + P₃X3 = (P₂w / (P₁ + P₂ + P₃)) + (P₃w / (P₁ + P₂ + P₃)) + (w / (P₁ + P₂ + P₃))
Combining like terms:
P₁X1 + P₂X2 + P₃X3 = (P₂w + P₃w + w) / (P₁ + P₂ + P₃)
Factoring out w from the numerator:
P₁X1 + P₂X2 + P₃X3 = w(P₂ + P₃ + 1) / (P₁ + P₂ + P₃)
Since the numerator of the right-hand side contains w and the denominator contains P₁ + P₂ + P₃, we can conclude that Walras' law is satisfied when ẞ = 1.
However, when ẞ € (0,1), the demand functions may not satisfy Walras' law. The presence of the term ẞp₁ in X3(p, w) implies that the expenditure on good 3 depends on the price of good . Therefore, the demand functions may not satisfy the condition where the sum of the expenditure on all goods equals the total income in the economy, violating Walras' law.
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