The budgeted cash disbursements for December are $348,000.The correct option is "D".
To calculate the budgeted cash disbursements for December, we need to take into account the various cash inflows and outflows during the month. Here's a breakdown of the cash inflows and outflows:
Cash inflows: Sales: $400,000
Cash outflows: Depreciation: $10,000
Selling and administrative expenses: $40,000
Merchandise purchases: Since the invoice cost for merchandise purchases represents 75% of the sales price, the total cost of merchandise purchases is (75/100) x $400,000 = $300,000.
Since all purchases are paid in cash, the budgeted cash disbursements for merchandise purchases is $300,000.
Increase in merchandise inventory: Since the planned merchandise inventory on December 31 is $12,000 and the inventory on December 1 was also $12,000, there is no increase or decrease in inventory during the month.
Therefore, the total budgeted cash disbursements for December would be: $10,000 (cash balance at December 1) + $10,000 (depreciation) + $40,000 (selling and administrative expenses) + $300,000 (merchandise purchases) = $360,000
However, we need to adjust for the fact that there is no increase in merchandise inventory during the month. Therefore, we need to subtract the amount of the planned merchandise inventory on December 31:
$360,000 - $12,000 = $348,000
The correct option is "D".
-----------The given question is incomplete, the complete question is:
"Lowe ridge has budgeted its activity for december according to the following information: sales at $400,000, all for cash. budgeted depreciation for december is $10,000. the cash balance at december 1 was $10,000. selling and administrative expenses are budgeted at $40,000 for december and are paid for in cash. the planned merchandise inventory on december 31 and december 1 is $12,000. the invoice cost for merchandise purchases represents 75% of the sales price. all purchases are paid in cash. how much are the budgeted cash disbursements for december?
A. $230,000
B. $340,000
C. $350,000
D. $348,000."------------
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identify whether each of the following events poses an adverse selection problem or a moral hazard problem in financial markets.a. a manager of a savings and loan association responds to reports of a likely increase in federal deposit insurance coverage. she directs loan officers to extend mortgage loans to less creditworthy borrowers.b. a loan applicant does not mention that a legal judgment in his divorce case will require him to make alimony payments to his ex-wife.c. an individual who was recently approved for a loan to start a new business decides to use some of the funds to take a hawaiian vacation.
a) In scenario a. adverse selection takes place. b) In scenario b. moral hazard problem occurs and c) In scenario c. also moral hazard problem takes place in the financial markets.
a. The manager of a savings and loan association directing loan officers to extend mortgage loans to less creditworthy borrowers in response to likely increase in federal deposit insurance coverage is an adverse selection problem. Adverse selection occurs when one party in a transaction has more information than the other party, resulting in the second party facing a higher risk than anticipated.
b. The loan applicant not mentioning the legal judgment requiring alimony payments to his ex-wife is a moral hazard problem. Moral hazard occurs when one party in a transaction takes additional risks because they are insulated from the consequences of their actions. In this case, the loan applicant has an incentive to not disclose the legal judgment because it could reduce his chances of getting the loan or increase the interest rate.
c. The individual who was recently approved for a loan to start a new business using some of the funds to take a Hawaiian vacation is also a moral hazard problem. In this case, the borrower has been granted funds for a specific purpose, but is using some of the funds for personal reasons. This behavior increases the risk for the lender as it could mean the borrower is not using the funds as intended and may not be able to repay the loan.
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A project that provides annual cash flows of $17,900 for nine years costs $85,000 today.
a. What is the NPV for the project if the required return is 8 percent?
b. At a required return of 8 percent, should the firm accept this project?
c. What is the NPV for the project if the required return is 20 percent?
d. At a required return of 20 percent, should the firm accept this project?
A project that provides annual cash flows of $17,900 for nine years costs $85,000 today will have-
a. A NPV of $26,819.29 at a return of 8%.
b. The firm should accept the project at 8% rate of return.
c. If the return is 20%, the NPV will be -$12,845.70.
d. The firm should reject the project at the 20% rate of return.
The future profitability of an investment, project, or business is assessed using net present value. The NPV of an investment is essentially the total discounted to the present value of all future cash flows during the investment's lifetime.
A set of cash flows that happen at various dates are considered to have a net present value or net present worth. The amount of time between now and a cash flow determines the present value of that cash flow.
The detailed calculation showing the NPV at the rate of return of 8% and 20% respectively is attached below. Also, the discount rate is being calculated.
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for a monopolist, group of answer choices average revenue is always greater than the price of the good. marginal revenue is always less than the price of the good. marginal cost is always greater than average total cost. marginal revenue equals marginal cost at the point where total revenue is maximized.
In the case of a monopolist: marginal revenue is always less than the price of the good. The correct option is B.
1. A monopolist is a single seller in a market, meaning they have significant control over the price of the product they're selling.
2. The demand curve for a monopolist slopes downward, indicating that the price of the good decreases as quantity demanded increases.
3. Average revenue (AR) is the total revenue divided by the quantity of goods sold. In a monopolist's case, average revenue is equal to the price of the good.
4. Marginal revenue (MR) is the change in total revenue when one additional unit of the good is produced and sold. Due to the downward-sloping demand curve, marginal revenue decreases as more units are sold.
5. Since marginal revenue decreases at a faster rate than the price of the good, it's always less than the price of the good for a monopolist.
In summary, for a monopolist, marginal revenue is always less than the price of the good because of the downward-sloping demand curve and the fact that marginal revenue decreases at a faster rate than the price of the good.
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Complete question:
for a monopolist, group of answer choices:
a. average revenue is always greater than the price of the good.
b. marginal revenue is always less than the price of the good.
c. marginal cost is always greater than average total cost.
d. marginal revenue equals marginal cost at the point where total revenue is maximized.
according to the federal emergency management agency, the number of human-induced sinkholes has doubled since 1930. insurance claims increased 1200% from 1987 to 1991, costing nearly $100 million. a major reason for this is .
According to the Federal Emergency Management Agency, the number of human-induced sinkholes has doubled since 1930.
A major reason for the increase in human-induced sinkholes, as reported by the federal emergency management agency, is the extensive development and alteration of land. As more land is developed and modified, such as through mining, drilling, and construction, the ground is destabilized and more prone to sinkholes.
The resulting increase in insurance claims, as seen from 1987 to 1991, highlights the need for individuals and businesses to be aware of the potential risks and to ensure they have adequate insurance coverage for such events major reason for this is the increased human activities, such as construction and groundwater extraction, that can destabilize the ground and contribute to the formation of sinkholes.
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all taxable income from investment property sales must eventually be classified as either ordinary income, depreciation recapture income, or capital gain income. what is the maximum tax rate that an investor can be charged on depreciation recapture income?
The maximum tax rate on depreciation recapture income is capped at 25%, regardless of an individual's ordinary income tax bracket. The maximum tax rate that an investor can be charged on depreciation recapture income depends on their individual tax bracket.
As of 2023, the current ordinary income tax rates for individuals in the United States are as follows:
10% for income up to $14,000 (for single filers)12% for income between $14,001 and $54,800 (for single filers)22% for income between $54,801 and $86,350 (for single filers)24% for income between $86,351 and $164,925 (for single filers)32% for income between $164,926 and $209,425 (for single filers)35% for income between $209,426 and $523,600 (for single filers)37% for income over $523,600 (for single filers)This means that even if an investor falls into a higher ordinary income tax bracket, the maximum tax rate on depreciation recapture income from investment property sales will be 25%. It's important to note that tax laws are subject to change, and it's always advisable to consult with a qualified tax professional for specific tax advice related to your individual circumstances.
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Garten Corporation reported net sales $800,000; cost of goods sold $520,000; operating expenses $210,000; and net income $68,000.
Calculate the profit margin and gross profit rate. (Round answers to 1 decimal place, e.g. 10.2%.)
Garten Corporation has a gross profit rate of 35.0% and a profit margin of 8.5%
Calculate Gross Profit:
Gross Profit = Net Sales - Cost of Goods Sold
Gross Profit = $800,000 - $520,000
Gross Profit = $280,000
Calculate Gross Profit Rate:
Gross Profit Rate = (Gross Profit / Net Sales) × 100
Gross Profit Rate = ($280,000 / $800,000) × 100
Gross Profit Rate = 0.35 × 100
Gross Profit Rate = 35.0%
Calculate Profit Margin:
Profit Margin = (Net Income / Net Sales) × 100
Profit Margin = ($68,000 / $800,000) × 100
Profit Margin = 0.085 × 10
Profit Margin = 8.5%
So, Garten Corporation has a gross profit rate of 35.0% and a profit margin of 8.5%.
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simone and rajiv need to decide which one of them will take time off from work to complete the rather urgent task of digging postholes for their new fence. simone is pretty good with a post auger; she can dig the holes in 30 minutes. rajiv is somewhat slow; it takes him 5 hours to dig the holes. simone earns $110 per hour as a lawyer, while rajiv earns $25 per hour as a barber. keeping in mind that either simone or rajiv must take time off from work to dig the holes, who has the lower opportunity cost of completing the task? simone and rajiv face identical opportunity costs simone rajiv
Simone has the lower opportunity cost of completing the task as his hourly wage is lower than Rajiv's. Rajiv's high hourly wage means that the cost of her time spent digging postholes is higher than Simone, making it more costly for her to take time off from work.
Opportunity cost is the value of the next best alternative foregone. In this case, the opportunity cost for each person is the income they would have earned had they not taken time off to dig the postholes. Simone can dig the holes in 30 minutes, which means her opportunity cost for completing the task is $55.
Rajiv, on the other hand, takes 5 hours to complete the task, which means his opportunity cost is $125. Therefore, Simone has the lower opportunity cost of completing the task.
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period costs would include costs like advertising or insurance where the linkage between these costs and individual sales is difficult to establish. true or false
The given statement "period costs would include costs like advertising or insurance where the linkage between these costs and individual sales is difficult to establish." is true because period costs are associated with time.
Period costs are expenses incurred by a business that are not directly related to the production process but are associated with the passage of time. These costs are expensed on the income statement during the period in which they are incurred and are not included in the cost of goods sold.
Examples of period costs include advertising and promotional expenses, insurance, rent, salaries and wages of administrative staff, office supplies, and utilities. These costs cannot be directly linked to individual sales, and their impact on the business's financial performance is generally spread over an extended period.
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Write a 10 page essay on what is corporate Social Responsibility
and include arguments for and against. Include what is the evidence
of corporate social responsibility in Jamaica and its impact?
An essay is an essay or piece of writing that deals with a subject from the author's personal point of view. Essays are opinionated, subjective, and argumentative texts.
Here's a suggested structure for your essay:
1. Introduction
Define Corporate Social Responsibility (CSR)
Briefly mention its relevance in today's business world
2. Arguments for CSR
Ethical responsibility: Companies have an obligation to act in the best interests of society and the environment
Long-term business sustainability: CSR initiatives can help companies become more sustainable and profitable in the long run
Improved reputation and brand image: Engaging in CSR activities can enhance a company's public image and customer loyalty
Employee morale and retention: CSR initiatives can boost employee satisfaction and reduce turnover rates
3. Arguments against CSR
Financial costs: Implementing CSR initiatives can be expensive, potentially reducing profits and shareholder returns
Dilution of focus: CSR may distract companies from their primary goal of maximizing shareholder value
Ineffective or tokenistic efforts: Some CSR initiatives may not be genuinely impactful and can be perceived as "greenwashing"
4. Evidence of CSR in Jamaica
Provide examples of Jamaican companies that have implemented CSR initiatives
Discuss the specific CSR programs and their impacts on society and the environment
5. Impact of CSR in Jamaica
Discuss both positive and negative consequences of CSR initiatives in Jamaica
Analyze the overall effect of CSR on Jamaica's economic, social, and environmental landscape
6. Conclusion
Summarize your main points
Offer your perspective on the importance of CSR in Jamaica and the wider business world
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which of the following statements are correct regarding income statements prepared under variable and absorption costing? multiple select question. absorption costing categorizes costs based on cost behavior. both income statements include product and period costs. the difference between the statements is how total manufacturing overhe
Regarding income statements prepared under variable and absorption costing, absorption costing classifies costs based on cost behavior and both income statements include product and period costs. Here options A and B are the correct answer.
Both absorption and variable costing are methods used to allocate manufacturing costs to the products produced by a company. The main difference between these two methods is how they treat fixed manufacturing overhead costs.
In absorption costing, fixed manufacturing overhead costs are included in the cost of the product, while in variable costing, they are treated as period costs and expensed in the period they are incurred. Therefore, the income statements prepared under these two methods may differ in the following ways:
Absorption costing categorizes costs based on cost behavior, as it includes both variable and fixed manufacturing overhead costs in the cost of the product. Both income statements include product and period costs. Product costs are the costs associated with producing and selling a product, while period costs are expenses that are not directly tied to the production of goods, such as selling and administrative expenses.
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Complete question:
Which of the following statements are correct regarding income statements prepared under variable and absorption costing? multiple select question.
A - absorption costing categorizes costs based on cost behavior.
B - both income statements include product and period costs.
C - the difference between the statements is how total manufacturing overhead
True or False? The lender is actually deducting the amount of interest directly from the loan amount and giving the borrower the rest of the loan money, which is called the proceeds.
The given statement is false because the lender is not deducting the amount of interest directly from the loan amount and giving the borrower the rest of the loan money as the proceeds.
When a borrower takes out a loan, the lender disburses the full loan amount to the borrower. The borrower then makes regular payments to the lender, which include both principal and interest. The interest is calculated based on the loan amount and the interest rate, and is paid over the life of the loan according to the agreed-upon terms.
For example, if a borrower takes out a $10,000 loan with a 5% annual interest rate and a 3-year repayment term, the lender will disburse the full $10,000 to the borrower.
The borrower will then make regular payments over the next three years, which will include both principal and interest. The interest will be calculated based on the outstanding loan balance and the interest rate, and will be paid to the lender over the life of the loan.
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true or false: in determining the optimal capital structure, managers should keep in mind that lower effective tax rates lead to greater incentives to borrowing.
Managers should consider the fact that higher borrowing incentives result from lower effective tax rates when determining the best capital structure. Thus, it is true.
What is the optimal capital structure?Lower effective tax rates can lead to greater incentives to borrowing in determining the optimal capital structure. This is because interest payments on debt are generally tax-deductible, meaning that the cost of debt is reduced by the tax savings.
As a result, when a company has a lower effective tax rate, the tax shield from debt becomes more valuable, making borrowing more attractive as a way to lower the company's overall tax burden.
This can impact the optimal capital structure decision, as managers may choose to take on more debt in order to benefit from the tax advantages associated with borrowing.
However, it's important to note that other factors such as the company's risk tolerance, cash flow, and market conditions should also be considered in determining the optimal capital structure, and tax rates alone should not be the sole determining factor.
Therefore, it is true that Managers should consider the fact that higher borrowing incentives result from lower effective tax rates when determining the best capital structure.
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Managers should take into account the fact that lower effective tax rates increase the incentives to borrow when choosing the best capital structure. This claim is False.
What aspects must to be taken into account when deciding on the ideal capital structure?
The weighted average cost of capital, risk and expected return, business risk, industry averages, the potential cost of financial distress, the company's tax status, and the use of financial models for this purpose are all things that need to be taken into consideration by the company in order to determine the best capital structure.
How do these managers determine what capital structure is best for a company?
Why Do Managers Choose a Capital Structure. A business will want to reduce its costs if it has access to resources (such as from investors and lenders).
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In the context of an audit of internal controls, the auditor must document all of the following except:A) the extent to which he or she relied upon work performed by others.B) the auditor's understanding and evaluation of the design of each of the components of the entity's internal control over financial reporting.C) transcripts of the auditor's discussion with management concerning the points at which misstatements could occur.D) the evaluation of any deficiencies discovered that could result in a modification of the auditor's report.C) transcripts of the auditor's discussion with management concerning the points at which misstatements could occur.
The entity's management must comply with all of the following except: present an oral assessment of the effectiveness of the entity's internal control over financial reporting as of the end of the entity's most recent fiscal year, option D.
Financial reporting primarily offers a tool to assess revenue for businesses, monitor changes, and make choices. Financial report types, which we'll discuss in a minute, include useful details on cash flow, revenue and debts, and general business success.
Stakeholders can use these reports to decide what the firm should do next depending on cash flow, assets, and obligations.
You will have a broad understanding of the company's financial status and how it affects your ability to react to challenges or opportunities in the market. You'll be able to boost the company by making changes by paying great attention to one particular area of the finances of the company.
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Complete question;
In order for an external auditor to complete an audit of a public company, the entity's management must comply with all of the following except:
A) accept responsibility for the effectiveness of the entity's internal control over financial reporting.
B) evaluate the effectiveness of the entity's internal control over financial reporting using suitable control criteria.
C) support its evaluation with sufficient evidence, including documentation.
D) present an oral assessment of the effectiveness of the entity's internal control over financial reporting as of the end of the entity's most recent fiscal year.
Which of the following generate the type of externality previously described? (Negative Externality) Check all that apply.
a. Musashi has planted several trees in his backyard that increase the beauty of the neighborhood, especially during the fall foliage season.
b. The local airport has doubled the number of runways, causing additional noise pollution for the surrounding residents.
c. A microbiology lab has published its breakthrough in swine flu research.
d. Your roommate Cho has bought a cat to which you are allergic.
The options that generate a negative externality are (b) and (d).
A negative externality occurs when an action by one party creates costs or negative effects on others, without that party bearing the full costs.
In this case, the two options that generate a negative externality are:
b. The local airport has doubled the number of runways, causing additional noise pollution for the surrounding residents. This creates a negative externality because the airport's expansion leads to increased noise pollution, affecting the well-being of nearby residents without the airport compensating them for this impact.
d. Your roommate Cho has bought a cat to which you are allergic.
This is a negative externality because Cho's decision to bring a cat into your shared living space negatively affects your health and well-being, and Cho may not be fully considering the costs of this decision on you.
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which of the following is a part of professional skepticism? questioning mind critical assessment of audit evidence a. yes yes b. yes no c. no no d. no yes
The correct answer is a. yes yes. Professional skepticism involves having a questioning mind and conducting a critical assessment of audit evidence.
The correct answer is (a) yes-yes: Both a questioning mind and critical assessment of audit evidence are essential components of professional skepticism. Professional skepticism is an attitude that includes a questioning mind and a critical assessment of audit evidence. It involves maintaining an objective mindset and not accepting assertions without verifying them through sufficient and appropriate evidence. Thus, professional skepticism is necessary for auditors to conduct high-quality audits that provide reliable and relevant information to users of financial statements.
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Production systems with customized outputs typically have relatively: A. high volumes of output B. low unit costs C. high amount of specialized equipment D. fast work movement E. skilled workers
Production systems with customized outputs typically have relatively high amounts of specialized equipment and skilled workers.
This is because custom outputs require specific tools and machinery, as well as skilled workers who can handle the intricacies of the customization process. While the volume of output may not be as high as in mass production systems, the unit costs can still be relatively low due to efficient use of specialized equipment and skilled labor. However, the work movement may not be as fast as in other production systems due to the need for careful attention to detail in the customization process.
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to be part of the ________ for a product, consumers must share a common need that can be satisfied by the product and have the resources, willingness, and authority to purchase the product.
To be part of the target market for a product, consumers must share a common need that can be satisfied by the product and have the resources, willingness, and authority to purchase the product.
A target market is a specific group of consumers that a company targets with its marketing efforts. Understanding the target market is essential for developing effective marketing strategies and reaching potential customers.The common need that the target market shares is often related to a specific problem or desire that the product can address. For example, if a company sells skincare products, its target market might be people who have acne-prone skin or want to reduce the appearance of wrinklesIn addition to having a common need, the target market must also have the resources, willingness, and authority to purchase the product. This means that they must have the financial means to afford the product, be interested in purchasing it, and have the decision-making power to make the purchase.By identifying and targeting the right target market, companies can increase their chances of success in selling their products. Effective marketing strategies can be developed that speak to the needs and desires of the target market, and the product can be positioned in a way that resonates with them. As a result, the target market is more likely to purchase the product and become loyal customers.For more such question on target market
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what is the future value of the following uneven cash flow stream? the appropriate interest rate is 10%, compounded annually.
The future value of this uneven cash flow stream is $1,102.60, assuming an interest rate of 10%, compounded annually.
To calculate the future value of an uneven cash flow stream, we need to first determine the present value of each individual cash flow and then add up their future values. Here is an example of an uneven cash flow stream:
Year Cash Flow
1 $100
2 $200
3 $300
4 $400
5 $500
Using a financial calculator or spreadsheet software, we can determine the present value of each cash flow using the appropriate interest rate and the number of years until the cash flow is received. For example, the present value of the first cash flow of $100 received in year 1 is simply $100, since it is received immediately.
To calculate the future value of the entire cash flow stream, we can add up the future values of each individual cash flow. Here is the calculation:
Future value = (PV1 x FVIF10%,1) + (PV2 x FVIF10%,2) + (PV3 x FVIF10%,3) + (PV4 x FVIF10%,4) + (PV5 x FVIF10%,5)
Future value =[tex]($100 x 1.1^5) + ($200 x 1.1^4) + ($300 x 1.1^3) + ($400 x 1.1^2) + ($500 x 1.1^1)[/tex]
Future value = $100 x 1.61051 + $200 x 1.4641 + $300 x 1.331 + $400 x 1.210 + $500 x 1.1
Future value = $1,102.60
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the expected return on the market portfolio is 17%. the risk-free rate is 8%. the expected return on abc inc. common stock is 22%. the beta of abc inc common stock is 1.50. within the context of the capital asset pricing model, . group of answer choices b. abc inc.'s stock is fairly priced d. abc inc. stock's alpha is 5.5% a. abc inc. stock's alpha is -5.5% c. abc inc.'s stock is underpriced
The Expected Return is 21.5% but the actual expected return is 22%, we can conclude that the stock is abc inc.'s stock is fairly priced. Thus, option b is correct.
Risk-Free Rate = 8%
Expected Return = 17%
The beta of ABC Stock = 1.50
Expected Return on Common Stock = 22%
According to the Capital Asset Pricing Model (CAPM), the anticipated return on a deposit is defined by its beta, the risk-free rate, and the expected return on the market portfolio. The formula used to calculate is:
Expected Return = Risk-Free Rate + Beta x (Return on Market - Risk-Free Rate)
Expected Return = [tex]8*\frac{1}{100} + 1.50 * (17*\frac{1}{100} - 8*\frac{1}{100})[/tex]
Expected Return = 8% + 1.50 * 9%
Expected Return = 21.5%
The Expected Return is 21.5%, Therefore we can conclude that that the stock is slightly overpriced.
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Using the CAPM model, we can determine that ABC Inc. stock is slightly overpriced with a negative alpha of -5.5%, indicating that it is underperforming relative to what would be predicted by the model. Here option A is the correct answer.
The Capital Asset Pricing Model (CAPM) is a widely used model that helps investors determine the expected return on an asset or a portfolio of assets. According to CAPM, the expected return on an asset is equal to the risk-free rate plus a risk premium, which is proportional to the asset's beta and the market risk premium. The market risk premium is the difference between the expected return on the market portfolio and the risk-free rate.
Using the information provided, we can calculate the market risk premium as follows:
Market risk premium = Expected return on a market portfolio - Risk-free rate
= 17% - 8%
= 9%
Next, we can use CAPM to calculate the expected return on ABC Inc. common stock as follows:
Expected return on ABC Inc. common stock = Risk-free rate + Beta × Market risk premium
= 8% + 1.50 × 9%
= 21.5%
Comparing the expected return on ABC Inc. common stock (21.5%) to its actual expected return (22%), we can conclude that the stock is slightly overpriced. This is because the stock's expected return is higher than what would be predicted by the CAPM. The difference between the expected return and the actual expected return is known as alpha.
Therefore, we can conclude that the correct answer is (a) ABC Inc. stock's alpha is -5.5%. This means that the stock has a negative alpha, indicating that it is underperforming relative to what would be predicted by the CAPM.
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4. Option Pricing 2: There are two firms - A and B with very similar characteristics. Both firms have the current firm value of $100, and they have to repay $70 debt in 5 years. The risk-free rate is 3% per year. The only difference is firm A's asset volatility is 20% while firm B’s asset volatility is 10% per year. (10 points) (a) Compute the equity and debt value for both firms. (3 points) (i) Which firm has a higher equity value and why? (2 points) (b) Compute the probability of default for both firms. (2 points) (c) Compute the debt yield and credit spread for both firms. (1 points) (i) Which firm has a higher credit risk and why? (2 points)
Firm A has a higher equity value because its higher asset volatility leads to a higher call option value, firm A has a higher credit risk because it has a higher probability of default and a higher credit spread.
For both firms, the value of debt is $70, and the risk-free rate is 3% per year. Therefore, the present value of debt for both firms is:
[tex]PV(debt) = $70 / (1 + 0.03)^5 = $59.05[/tex]
To compute the equity value, we use the Black-Scholes-Merton model:
Equity Value = Firm Value - Debt Value
Equity Value = $100 - $59.05 = $40.95
For firm A, the asset volatility is 20%, so we use a volatility of 0.20 in the Black-Scholes-Merton model. For firm B, the asset volatility is 10%, so we use a volatility of 0.10.
For firm A:
Equity Value = $40.95
Call Option Value = $18.14
Put Option Value = $0.00
For firm B:
Equity Value = $40.95
Call Option Value = $9.93
Put Option Value = $0.00
(i) Firm A has a higher equity value because its higher asset volatility leads to a higher call option value.
To compute the probability of default, we use the Merton model:
Probability of Default = N(d2)
where d2 is given by:
[tex]d2 = [ln(Firm Value / PV(debt)) - (r - 0.5 \times \sigma ^2) \times T] / (\sigma \times \sqrt(T)[/tex])
For firm A:
[tex]d2 = [ln($100 / $59.05) - (0.03 - 0.5 \times 0.20^2) \times 5] / (0.20 \times \sqrt(5)) = -0.89[/tex]
Probability of Default = N(-0.89) = 0.186
For firm B:
[tex]d2 = [ln($100 / $59.05) - (0.03 - 0.5 \times 0.10^2) \times 5] / (0.10 \times \sqrt(5)) = -1.74[/tex]
Probability of Default = N(-1.74) = 0.0401
The debt yield is given by:
Debt Yield = r + Credit Spread
where r is the risk-free rate and the credit spread is given by:
Credit Spread = -ln(Probability of Default) / T
For firm A:
Credit Spread = -ln(0.186) / 5 = 0.0644
Debt Yield = 0.03 + 0.0644 = 0.0944
For firm B:
Credit Spread = -ln(0.0401) / 5 = 0.0323
Debt Yield = 0.03 + 0.0323 = 0.0623
(i) Firm A has a higher credit risk because it has a higher probability of default and a higher credit spread.
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a 1. A distribution has a mean equal to 24 a median equal to 20 and a standard deviation equal to 5. What is the Pearson measure of Skewness (5)
Pearson skewness, also known as the first moment skewness or the moment coefficient of skewness, is a measure of the skewness of a probability distribution. It is calculated as the third central moment divided by the cube of the standard deviation.
To calculate the Pearson measure of skewness, you can use the following formula:
Pearson skewness = (Mean - Median) / Standard Deviation
In this case, the Mean is 24, the Median is 20, and the Standard Deviation is 5. Plug these values into the formula:
Pearson skewness = (24 - 20) / 5
Pearson skewness = 4 / 5
Pearson skewness = 0.8
So, the Pearson measure of skewness for this distribution is 0.8.
A positive skewness value indicates that the distribution is positively skewed, meaning that the right tail (higher values) is longer than the left tail (lower values).
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Avi Co. raises cash by borrowing $10,000 and pledging $12,000 accounts receivables as security for the loan. To comply with the full disclosure principle, Avi will record a journal entry in the amount of the $10,000 note payable, and also record a _____________ to the financial statements, indicating that $12,000 of accounts receivables have been pledged.
The answer is that Avi will record a disclosure note to the financial statements, indicating that $12,000 of accounts receivables have been pledged as security for the $10,000 note payable.
This disclosure is necessary to comply with the full disclosure principle, which requires companies to provide all relevant information that could affect financial statement users' decisions.
The pledging of accounts receivables as security for a loan could impact the company's ability to collect on those receivables and could also impact the company's liquidity position. Therefore, it is essential to disclose this information to financial statement users.
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I have been approved for a mortgage and I am able to save $35 on my monthly payment if I pay $2,000 in up front points. How many months do I need to stay in the house for me to breakeven assuming a 6% discount rate. O 57 O 60 O 65 O 68
You need to stay in the house for approximately 65 months to breakeven on the upfront points cost, assuming a 6% discount rate. The correct option is C.
To determine how many months you need to stay in the house to breakeven on the upfront points cost, we'll consider the $35 monthly savings and the $2,000 upfront payment.
Firstly, we need to calculate the total cost of the loan without paying upfront points:
Multiply the monthly payment by the number of months in the loan term. Let's say the monthly payment is P and the loan term is n years, then the total cost of the loan is P x 12 x n.
Let's say the new monthly payment is Q.
Multiply the new monthly payment by the number of months in the loan term. The total cost of the loan with upfront points is Q x 12 x n.
Find the breakeven point:
Set the two total costs equal to each other and solve for n:
P x 12 x n = (Q x 12 x n) + 2000/(1+0.06)^n
In this equation, P is the monthly payment without upfront points, Q is the monthly payment with upfront points, and 0.06 is the discount rate.
Solve for n using a numerical method or trial and error.
Based on the calculations, the breakeven point is 65 months. Therefore, you need to stay in the house for 65 months to recoup the upfront points payment and start saving money on your monthly payments. Therefore, the answer is Option C.
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Moving to another question will save this response Question 2 points Acar loan of $39895 is to be repaid by making payments each month for 4 years. Interest comedy, bow much or more Enter your answer to the nearest dollar. Do not enter the sample input24
The monthly payments required to repay a car loan of $39895 over 4 years with interest will be approximately $878.
To calculate the monthly payments required to repay the car loan, we can use the formula for calculating the payment amount of a loan:
P = (Pv*r) / (1-(1+r)^-n)
Where P is the monthly payment, Pv is the loan principal, r is the monthly interest rate, and n is the total number of payments.
Assuming a monthly interest rate of 0.5% (or an annual interest rate of 6%), and a total of 48 payments (4 years x 12 months), we can plug in the numbers:
P = (39895*0.005) / (1-(1+0.005)^-48)
P ≈ $877.57
Therefore, the monthly payments required to repay the car loan of $39895 over 4 years with interest will be approximately $878.
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consider the journal entry required at the date of cash payment for the purchase of the beds within the discount period. what is the amount that should be debited to accounts payable?
The amount that should be debited to accounts payable would be the full invoice amount of the beds, before any discount is applied. This is because the discount is only applied if the payment is made within the discount period.
The purchase of the beds on credit would have resulted in a credit entry to accounts payable and a corresponding debit to purchases or inventory.When the payment is made within the discount period, the journal entry to record the payment would include a debit to accounts payable and a credit to cash.The amount that should be debited to accounts payable would be the full invoice amount of the beds, before any discount is applied.This means that the debit to accounts payable would be equal to the original purchase price of the beds.The credit to cash would be equal to the payment amount, which would be the original purchase price less any discount offered for paying within the discount period.The journal entry to record the payment would be a debit to accounts payable for $10,000 and a credit to cash for $9,800.
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cost flows lamont company produced 80,000 machine parts for diesel engines. there were no beginning or ending work-in-process inventories in any department. lamont incurred the following costs for may: molding department grinding department finishing department direct materials $12,000 $5,300 $8,000 direct labor 10,000 8,800 12,000 applied overhead 17,000 15,000 12,000 required: question content area 1. calculate the costs transferred out of each department.
Lamont corporation transferred out $39,000 from the molding branch, $29,100 from the grinding branch, and $32,000 from the finishing branch.
To calculate the fees transferred out of every department, we need to apply the idea of cost flows. cost flows assist in knowledge how charges are allocated and transferred between exceptional departments at some point of the producing system.
The costs incurred in each department are allotted to the devices produced in that department. Then, these expenses are transferred to the subsequent branch where in addition processing takes place. This manner keeps until the very last product is finished.
because there had been no starting or ending work-in-method inventories in any branch, we can expect that all eighty,000 machine elements were completed in may additionally. consequently, the prices incurred in each department want to be allocated to all 80,000 units.
To calculate the expenses transferred out of each department, we need to subtract the costs of finishing work-in-manner inventories from the total expenses incurred in each branch. however, considering that there have been no ending work-in-procedure inventories, we are able to surely use the overall fees incurred in every department because the fees transferred out of that department.
Thus, the prices transferred out of each department are:
Molding branch: $12,000 + $10,000 + $17,000 = $39,000
Grinding branch: $5,300 + $8,800 + $15,000 = $29,100
Finishing branch: $8,000 + $12,000 + $12,000 = $32,000
Thus, A total of $39,000 from the moulding branch, $29,100 from the grinding branch, and $32,000 from the finishing branch were transferred by Lamont Corporation.
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Therefore, Lamont Company transferred a total of $39,000 from the moulding branch as Cost Flows, $29,100 from the grinding branch, and $32,000 from the finishing branch.
A total of $39,000 from the molding branch, $29,100 from the grinding branch, and $32,000 from the finishing branch were transferred by Lamont Corporation.
Each department's expenses are allocated to the gadgets the department produces. These costs are then passed to the succeeding branch for additional processing. This process continues up until the very last product is completed.
We may anticipate that all 80,000 machine components were finished in may as well. As a result, all 80,000 units want to be charged the costs incurred in each department.
Thus, the prices transferred out of each department are:
Molding branch: $12,000 + $10,000 + $17,000 = $39,000
Grinding branch: $5,300 + $8,800 + $15,000 = $29,100
Finishing branch: $8,000 + $12,000 + $12,000 = $32,000
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conditions are very important in determining when a contracting party's performance is required. types of conditions include all of the following except: group of answer choices conditions relevant conditions prescedent conditions concurrent conditions subsequent
The answer would be "None of the above" since all of the options listed are types of conditions.
The correct statement would be: "Types of conditions include all of the following: relevant conditions, precedent conditions, concurrent conditions, and subsequent conditions." So, the answer would be "None of the above" since all of the options listed are types of conditions.
What are the precedent conditions?
Precedent conditions are conditions that must be fulfilled before a contract comes into effect or before the obligations under the contract become enforceable. In other words, they are conditions that must be satisfied before a party is required to perform its obligations under the contract. An example of a precedent condition is a condition in a real estate purchase contract that states the sale is contingent upon the buyer obtaining financing from a lender.
What are the concurrent conditions?
Concurrent conditions in contract law refer to conditions that must be satisfied at the same time in order for a party's performance to be required. In other words, these are conditions that require both parties to perform their respective obligations simultaneously. For example, if a seller agrees to deliver goods to a buyer upon receipt of payment, both the payment and delivery of goods must happen at the same time in order for the contract to be fulfilled. If one party fails to perform their obligation concurrently, the other party may be excused from performing their own obligation.
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Who is the current Secretary-General of the UN? Who are the permanent members of the UN Security Council? Should they be permanent? Are peacekeeping operations a legitimate UN function?
The current Secretary-General of the United Nations is António Guterres. The permanent members of the UN Security Council are China, France, Russia, the United Kingdom, and the United States. The permanent member status has been a subject of debate, as some argue that it is undemocratic and creates an unequal distribution of power within the UN.
However, others argue that the permanent members bring stability and consistency to the Security Council. Peacekeeping operations are a legitimate function of the UN and are intended to promote peace and security in areas affected by conflicts. The UN deploys peacekeeping forces to areas where there is a threat to international peace and security.
The current Secretary-General of the UN is António Guterres. The permanent members of the UN Security Council are the United States, the United Kingdom, France, Russia, and China. Whether they should be permanent members is a matter of debate and perspective. Peacekeeping operations are indeed a legitimate UN function, as they help maintain international peace and security.
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Inherent market instability is most closely connected to which economic theory?A. Supply-sideB. MonetarismC. KeynesianD. Classical
Inherent market instability is most closely connected to Keynesian economic theory, which advocates for government intervention to stabilize economic fluctuations and prevent recessions. Thus option C is correct.
The Keynesian economic theory is most closely associated with inherent market instability, which is the propensity of markets to endure swings and cycles of expansion and contraction. The government's responsibility in regulating the economy and averting recessions is emphasised by Keynesian economics. This may involve measures like increased government expenditure, fiscal stimulus, and monetary measures for regulating interest rates and reining in inflation.
Supply-side economics emphasises the significance of encouraging economic development through policies that boost output and investment, in contrast to classical economics, which emphasises the self-correcting nature of markets and calls for little government interference.
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What are the advantages and disadvantages of being an office incumbent in Washington, D.C? Which incumbent is more likely to win an election - congressional or presidential incumbent? Why?
Congressional incumbents are more likely to win elections than presidential incumbents.
Advantages of being an office incumbent in Washington, D.C:
Name recognition: Incumbents have an advantage in name recognition since they have already served in office and have gained some level of visibility and recognition in their constituency.Fundraising: Incumbents have a significant fundraising advantage over their challengers since they have established relationships with donors, political action committees, and other interest groups.Experience and connections: Incumbents have experience working in the political system and have developed relationships and connections with other elected officials and bureaucrats, which can help them pass legislation, secure funding, and achieve their policy goals.Access to resources: Incumbents have access to various resources, including staff, offices, and other government resources, which can help them better serve their constituents.Disadvantages of being an office incumbent in Washington, D.C:
Anti-incumbent sentiment: Incumbents can face anti-incumbent sentiment among voters who may be dissatisfied with the status quo or frustrated with government performance.Voter fatigue: Incumbents may have been in office for a long time, and voters may be ready for a change.Scandals: Incumbents may be more vulnerable to scandals or negative publicity since they have a record to defend, and their opponents may use their record against them.Congressional incumbents are more likely to win elections than presidential incumbents. This is because congressional elections are more local in nature, and voters are more likely to focus on issues that affect their district or state. In contrast, presidential elections are more national in scope, and voters are more likely to be influenced by broader national issues, which may not always work in favor of the incumbent. Additionally, presidential elections often have high voter turnout, making it more difficult for the incumbent to mobilize their base and turn out their voters.
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