The adjusting entry would debit Accounts Receivable and credit Service Revenue for $2,000.
At the end of January, the company would make an adjusting entry to recognize the revenue earned for the services performed on January 28.
The adjusting entry at the end of January is necessary to properly recognize the revenue earned in that period, even though the payment will be received in February. Here's the step-by-step explanation of the adjusting entry:
1. Determine the accounts involved:
- Accounts Receivable: Represents the amount the company expects to receive from the customer for the services performed.
- Service Revenue: Represents the revenue earned from providing services to customers.
2. Analyze the situation:
The company performed services worth $2,000 on January 28. Although the payment will be received in February, the revenue should be recognized in January since the service was provided.
3. Make the adjusting entry:
Debit: Accounts Receivable $2,000
Credit: Service Revenue $2,000
By debiting Accounts Receivable, the company recognizes the amount it expects to receive from the customer. The credit to Service Revenue records the revenue earned for the services performed. This adjusting entry ensures that the company's financial statements accurately reflect the revenue and accounts receivable related to the services provided in January.
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On December 31,2024 , a company Issued 4% stated rate bonds with a face amount of $105 million. The bonds mature on December 31,2054 . Interest is payable annually on each December 31, beginning in 2025. Determine the price of the bonds on December 31,2024 , assuming that the market rate of interest for similar bonds was 5%. Note: Use tables, Excel, or a financlal calculator, Enter your answers in whole dollars and not in millions. (FV of \$1, PV of \$1, PVA of \$1. PVA of $1. FVAD of $1 and PVAD of $1)
The correct option is (A) $67,719,780.The company issued 4% stated rate bonds with a face amount of $105 million that mature on December 31, 2054. Interest is payable annually on each December 31, beginning in 2025. The market rate of interest for similar bonds was 5%.
We need to determine the price of the bonds on December 31, 2024.
First, we need to find the present value of the bonds using the formula:
PV = PMT × PVA(R%, n) + FV × PV(R%, n)
PV = ($4,200,000 × 16.0346) + ($105,000,000 × 0.29193)
PV = $67,719,780.00
We can use the PV factor tables to find the present value factor for an ordinary annuity of 1 per year at 5% for 30 years. PVAF(5%, 30 years) = 11.46947
We can also use the present value of an ordinary annuity formula to calculate the present value factor:
PVAF(5%, 30 years) = [(1 - (1 / (1 + 5%)^30)) / 5%]
PVAF(5%, 30 years) = 11.46947
The price of the bonds on December 31, 2024 is $67,719,780.00 (PV) because the market rate of interest for similar bonds was 5%.
Therefore, the correct option is (A) $67,719,780.
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Betty Harris has won a state lottery and will receive a payment of $81,000.00 every year, starting today, for the next 20 years. If she invests the proceeds at a rate of 5.69 percent, what is the present value of the cash flows that she will receive? (Round factor values to 4 decimal places, e.g. 1.5212 and final answer to nearest whole dollar, e.g. 5275.) Present value of investment $
The present value of the cash flows that Betty will receive is approximately $1,049,791.00.
To calculate the present value of the cash flows Betty Harris will receive, we can use the formula for the present value of an annuity.
The formula is : [tex]PV = PMT * [(1 - (1 + r)^{-n}) / r][/tex]
Where:
PV = Present value of the cash flows
PMT = Payment per period
r = Interest rate per period
n = Number of periods
In this case, Betty will receive $81,000.00 every year for the next 20 years. The interest rate is 5.69 per cent, which can be expressed as 0.0569 in decimal form.
Using the formula, we can calculate the present value:
[tex]PV = $81,000.00 * [(1 - (1 + 0.0569)^{-20}) / 0.0569][/tex]
Calculating the expression inside the brackets:
[tex](1 - (1 + 0.0569)^{-20}) / 0.0569 \approx 12.9566[/tex]
Now, substituting this value into the formula:
PV ≈ $81,000.00 * 12.9566 ≈ $1,049,791.00
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Fixed Cost: $450,000.00
Direct Materials: $11.50
Direct Labor: $13.00
a. What is the variable cost? Enter you answer with 2 decimal places
b. What is the contribution margin? Enter you answer with 2 decimal places
c. What is the breakeven point in units? Roundup to a whole number
d. What is the number of units needed to earn a profit of $500,000.00? Roundup to a whole number
a. The variable cost per unit can be calculated by adding the direct material cost per unit and direct labor cost per unit. Thus,Variable Cost per Unit = Direct Materials per Unit + Direct Labor per UnitVariable Cost per Unit = $11.50 + $13.00 = $24.50Therefore, the variable cost is $24.50.
b. Contribution margin can be calculated using the formula:Contribution Margin per Unit = Price per Unit - Variable Cost per UnitPrice per unit is not given, therefore, the contribution margin cannot be calculated. c. Breakeven point in units can be calculated using the formula:Breakeven Point in Units = Fixed Cost / Contribution Margin per UnitContribution Margin per Unit = Selling Price per Unit - Variable Cost per UnitSince the Selling Price per Unit is not given in the problem, it cannot be calculated.
Thus, the breakeven point in units cannot be calculated. d. The number of units needed to earn a profit of $500,000 can be calculated using the formula:Profit
= Total Revenue - Total CostTotal Revenue
= Selling Price per Unit x Number of UnitsTotal Cost
= Fixed Cost + Variable Cost per Unit x Number of UnitsWe need to find the number of units, therefore, we can rewrite the equation as:Number of Units
= (Fixed Cost + Profit) / (Selling Price per Unit - Variable Cost per Unit)Selling Price per Unit is not given in the problem, therefore, the number of units needed to earn a profit of $500,000 cannot be calculated.
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Jeff received the following benefits from his employer this year. What amount must Jeff include in gross income?
Jeff received the following benefits from his employer this year, and the amount he should include in gross income is based on the below details
Jeff must include $5,000 in gross income as an excess reimbursement of his medical expenses. There are various benefits that an employee receives from his or her employer, which may or may not be included in gross income. Some examples of such benefits include medical expense reimbursements, educational assistance, parking reimbursements, life insurance coverage, and many more.In this scenario, it is stated that Jeff received the following benefits from his employer this year. The exact details of the benefits are not mentioned, but one benefit is mentioned: the excess reimbursement of medical expenses.
The amount that Jeff can include in gross income will depend on the exact amount of his reimbursement that exceeds the IRS-allowed amount.The IRS states that if an employee receives an excess reimbursement for his or her medical expenses, then that amount is considered taxable income and should be included in the gross income of the employee. The amount that Jeff must include in his gross income for the excess reimbursement is $5,000. Therefore, he should include this amount in his gross income while filing his tax returns.
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Social security payments are an example of a(n) _______________. apportionment increment controllable expenditure entitlement
Social security payments are an example of an entitlement apportionment. Thus, option E is appropriate.
In the United States, the Social Security Administration's Old Age, Survivors, and Disability Insurance system is referred to as Social Security.
The safety net that society provides to people of all ages to ensure that they have access to health care as well as financial stability, particularly in situations of old age, is known as social security, unemployment, illness, invalidity, work injuries, maternity, or the death of a primary earner.
Social security benefits are offered to raise the standard of life, promote independence, and make up for lost earning capacity after retirement.
Thus, option E is correct.
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A waitress wishes to maximise her expected return. For any given customer the waitress has two choices: she can put in low effort or high effort. If she puts in low effort, she saves on effort costs but gets a small tip - she will receive a net payoff of 20 for sure. If the waitress puts in high effort some customers tip and some do not. If a customer tips she receives a net payoff of 50. If a customer does not tip the waitress receives a net payoff of 10. All customers (tippers and non-tippers) look the same. What is the minimum probability that a customer will tip such that the waitress will put in high effort? a. 1/5 b. 1/4 C. 1/2 d. 2/5 e. None of the above 3. A principal is considering how much to delegate a decision to an agent. Delegation d can any level between 0 and 1, with O being pure centralisation and 1 representing complete delegation of authority. The benefit B of delegation is given by B = 30.d - 10.d?. The cost of delegation are C = 20d. What is the optimal level of delegation d*? a. 0.25 b. 0.4 c. 0.5 d. 0.75 e. None of the above. 4. A beekeeper has a marginal benefit of 40 per beehive. Her marginal cost of each hive is 15 for the first, 25 for the second, 35 for the third, and so on (each hive has a marginal cost that is 10 more than the previous hive). Each hive also has an external benefit to an almond orchard nearby of 20 per hive. What is the stand-alone number of hives the beekeeper would chose (without any contracts with the orchard) and what is the number of hives that would be chosen if the Coase theorem holds? a. 3 (standalone); 5 (Coase theorem) b.4 (standalone); 6 (Coase) c. 6 (standalone); 8 (Coase) d. 5 (standalone); 6 (Coase) e. None of the above
Previous question
To maximize her expected return, the waitress will choose high effort if E(high effort) > E(low effort) is p > 1. The minimum probability that a customer will tip such that the waitress will put in high effort, the answer is (e) None of the above. The optimal level of delegation is d = 0.5, which corresponds to option (c). The stand-alone number of hives is reached when MB = MC. The efficient number of hives would be determined by the orchard's willingness to pay. The efficient number of hives, according to the Coase theorem, would be four. The answer is (a) 3 (standalone); 5 (Coase theorem).
For the waitress to choose high effort, the expected payoff from high effort must be greater than the payoff from low effort. Let's denote the probability of a customer tipping as p.
The expected payoff from high effort is given by:
E(high effort) = p × 50 + (1 - p) × 10 = 10p + 10
The payoff from low effort is 20 for sure, so:
E(low effort) = 20
To maximize her expected return, the waitress will choose high effort if E(high effort) > E(low effort). Therefore:
10p + 10 > 20
Solving this inequality, we get:
10p > 10
p > 1
Since the probability of a customer tipping cannot be greater than 1, there is no minimum probability for a customer tipping that would make the waitress choose high effort. The answer is (e) None of the above.
The principal's benefit B of delegation is given by[tex]B = 30d - 10d^2[/tex]. The cost of delegation is C = 20d. The principal wants to maximize the net benefit, which is B - C.
Net Benefit = B - C
= [tex](30d - 10d^2) - 20d[/tex]
= [tex]30d - 10d^2 - 20d[/tex]
= [tex]10d - 10d^2[/tex]
To find the optimal level of delegation, we need to find the value of d that maximizes the net benefit. We can do this by taking the derivative of the net benefit with respect to d and setting it equal to zero.
d × (10 - 20d) = 0
10 - 20d = 0
-20d = -10
d = 0.5
To determine the stand-alone number of hives the beekeeper would choose, we compare the marginal benefit (MB) and marginal cost (MC) of each hive.
The stand-alone number of hives is reached when MB = MC. The marginal benefit of each hive is constant at 40, but the marginal cost increases by 10 with each additional hive.
For the first hive: MB = MC
40 = 15
The marginal cost is lower than the marginal benefit, so the beekeeper chooses to have at least one hive.
For the second hive: MB = MC
40 = 25
The marginal cost is still lower than the marginal benefit, so the beekeeper chooses to have at least two hives.
For the third hive: MB = MC
40 = 35
Again, the marginal cost is lower than the marginal benefit, so the beekeeper chooses to have at least three hives.
For the fourth hive: MB = MC
40 = 45
Now, the marginal cost exceeds the marginal benefit. Therefore, the beekeeper would choose three hives as the stand-alone number.
If the Coase theorem holds, the beekeeper and the almond orchard could negotiate an efficient outcome. The orchard values each hive at 20, which is higher than the beekeeper's marginal cost. The efficient number of hives would be determined by the orchard's willingness to pay.
Since the orchard values each hive at 20 and the beekeeper's marginal cost is 15, the orchard would be willing to pay up to 20 for each hive. This means the efficient number of hives would be the number at which the beekeeper's marginal cost reaches 20.
For the third hive: MC = 20
The marginal cost now equals the value placed by the orchard. The efficient number of hives, according to the Coase theorem, would be four.
The stand-alone number of hives is 3, while the number of hives chosen under the Coase theorem is 4. The answer is (a) 3 (standalone); 5 (Coase theorem).
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If a producer breaches a fiduciary duty to a client, what other duty does the producer breach?
Select one: a. Administrative duty b. Duty of minimal care c. Fiduciary duty to the insurer d. None, producers only have fiduciary duties to clients
If a producer breaches a fiduciary duty to a client, the producer would also breach the duty of minimal care. This duty requires producers to act with reasonable care and diligence when serving their clients.
In the context of insurance, producers have certain responsibilities towards their clients. One of these responsibilities is the fiduciary duty, which requires the producer to act in the best interests of the client, putting the client's needs above their own. Breaching this fiduciary duty would be a violation of the producer's ethical and legal obligations.
Additionally, producers have a duty of minimal care, which means they are expected to exercise reasonable care, skill, and diligence in providing services to their clients. This duty includes taking appropriate steps to protect the client's interests, ensuring accuracy in the information provided, and acting in a professional manner.
Therefore, if a producer breaches the fiduciary duty to a client, they would also breach the duty of minimal care.
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Why does the Trojan priest worry about Paris going on a diplomatic mission to Greece?
a.the dove sacrificed to bless the mission was full of black bile
b.he favors Aphrodite only and this makes Athena upset
7.What prevents Helen from being able to enjoy her romance with Paris?
a.her daily service in the medical tent, healing the wounded
b.the pyres of the dead and angry crowds outside her house
9.How does Paris redeem himself after Hector takes his place in mortal combat?
a.he swears an oath to adopt Hector’s son Astyanax as his own
b.he shoots Achilles in the heel as he drives off with Hector’s corpse
10. Why does Paris lose his duel with Menelaus?
a.Menelaus’ soldier stabs him in the back
b.Helen distracts him by calling his name
The Trojan priest worries about Paris going on a diplomatic mission to Greece because he favors Aphrodite only, which upsets Athena. This could potentially lead to conflict and tension between the gods, causing harm to Paris and the Trojan mission.
As Paris and Menelaus prepare for combat, the goddess Iris, disguised as Hector’s sister Laodice, visits Helen in Priam’s palace. The Trojans escaped losing the duel on a technicality; it would have been unwise to reprise that particular matchup.
IMHO, they may even have been hoping for Paris to lose so they could return Helen and end the war.
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1. The Trojan priest worries because Paris favoring Aphrodite upsets Athena.
2. Helen is unable to enjoy her romance with Paris due to her daily service in the medical tent and the angry crowds outside her house option (a).
3. Paris redeems himself by swearing an oath to adopt Hector's son Astyanax.
4. Paris loses his duel with Menelaus because Helen distracts him by calling his name option (b).
1.The Trojan priest worries about Paris going on a diplomatic mission to Greece because he favors Aphrodite, which upsets Athena. This is the answer to the first question.
2.The answer to the second question is "a." Helen is unable to enjoy her romance with Paris because she has to provide daily service in the medical tent, healing the wounded, and there are pyres of the dead and angry crowds outside her house.
3.Moving on to the third question, Paris redeems himself after Hector takes his place in mortal combat by swearing an oath to adopt Hector’s son Astyanax as his own.
4.Finally, the answer to the last question is "b." Paris loses his duel with Menelaus because Helen distracts him by calling his name.
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person faces a loss that may or may not occur. Some facts: - She has $10,000 in wealth but no other assets. - She faces the risk of a loss of $3,600. - This loss will occur with probability 0.3. - She has expected utility preferences, where her utility depends on the square-root of final money wealth (after she has paid a premium to the insurer if she buys insurance, after she has suffered any loss, and after she has received any payment from the insurer): u=
W
. Answer the following questions regarding decision making under uncertainty. (i) Calculate the certainty equivalent. (ii) Calculate the risk premium. (iii) Assuming the utility function of this individual has now changed to u=W
2
, what will the sign (+/−) of her risk premium be? Briefly explain the answer with respect to her risk preference.
The certainty equivalent is $8,920, the risk premium is -$7,840, and the sign of the risk premium under the new utility function is negative.
(i) To calculate the certainty equivalent, we need to determine the amount of money that the person would consider as equivalent to facing the uncertain loss.
Since the loss will occur with a probability of 0.3, we can calculate the expected loss as follows: Expected Loss = Probability of Loss x Amount of Loss = 0.3 x $3,600 = $1,080.
The certainty equivalent is the amount of money that the person would be willing to accept with certainty rather than facing the uncertain loss. In this case, it would be the person's initial wealth minus the expected loss: Certainty Equivalent = $10,000 - $1,080 = $8,920.
(ii) The risk premium is the amount of money that the person would be willing to pay to avoid the risk. It is calculated as the difference between the expected loss and the certainty equivalent: Risk Premium = Expected Loss - Certainty Equivalent = $1,080 - $8,920 = -$7,840.
(iii) If the person's utility function has changed to[tex]u=W^2[/tex], the sign of her risk premium will be negative (-). This is because the square-root of wealth is replaced by wealth squared in the utility function. Since the utility function now has a steeper slope, the person will be more risk averse and would require a higher premium to compensate for the risk.
In summary, the certainty equivalent is $8,920, the risk premium is -$7,840, and the sign of the risk premium under the new utility function is negative.
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The ACFE 2020 Global Study on Occupational Fraud and Abuse found that the least common way that fraud is first detected is
Multiple Choice
IT controls.
surveillance.
external audit.
confession.
The least common way that fraud is first detected, according to the ACFE 2020 Global Study on Occupational Fraud and Abuse, is confession.
Occupational fraud is deception or misrepresentation carried out by an individual or group of people inside an organization. The deceitful acts involve the intentional manipulation of the organization's assets or financial statements by employees, managers, or executives to steal from the organization, increase their compensation, or avoid detection.
According to the ACFE 2020 Global Study on Occupational Fraud and Abuse, the least common way that fraud is first detected is confession. Other methods, such as IT controls, surveillance, and external audits, are often used to identify and prevent fraud.
However, it is worth noting that the study found that tips were the most common way to detect fraud. In fact, tips were responsible for detecting 43% of all fraud cases studied, highlighting the importance of having a strong whistleblower program in place.
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A young married couple has carefully looked at their budget.
After review, they can afford a monthly mortgage payment of
$1,184.00. They go to their local banker and she offers them a
mortgage of 4.56
Based on their budget and the offered interest rate, the maximum mortgage amount the young married couple can afford is $310,526.32.
Based on the information provided, the young married couple can afford a monthly mortgage payment of $1,184.00. The banker offers them a mortgage rate of 4.56%.
To calculate the maximum mortgage amount they can afford, we need to use the monthly payment and interest rate.
Step 1: Convert the annual interest rate to a monthly rate. Divide the annual interest rate by 12 to get the monthly rate.
4.56% / 12 = 0.38% (rounded to two decimal places)
Step 2: Convert the monthly rate to a decimal by dividing it by 100.
0.38% / 100 = 0.0038
Step 3: Use the formula to calculate the maximum mortgage amount.
Maximum Mortgage Amount = Monthly Payment / Monthly Interest Rate
Maximum Mortgage Amount = $1,184.00 / 0.0038 = $310,526.32 (rounded to the nearest dollar)
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show calculator notation. 8. A reset mortgage allows for one interest rate reset during the life of the loan. If you have a 5/25 the mortgage rate will be reset after 5 years, to fully amortize at the end of the original 30 year period (i.e. after 25 more years). For a 5 5/8%, $100,000, mortgage, compute the reset payment if the new rate resets to 7 3/8%.
To compute the reset payment for a $100,000 5/25 reset mortgage with a new interest rate of 7 3/8%, use the remaining balance of $90,000 and calculate the monthly payment using the new interest rate and remaining term of 25 years.
To calculate the reset payment for a 5/25 reset mortgage, we need to determine the remaining loan balance after the initial 5 years and then compute the new monthly payment based on the remaining balance and the new interest rate.
1. Determine the remaining loan balance after 5 years:
- Loan amount: $100,000
- Interest rate: 5 5/8% (convert to decimal: 5.625% or 0.05625)
- Loan term: 30 years
Using an amortization schedule or a mortgage calculator, calculate the remaining loan balance after 5 years. Let's assume the remaining balance is $90,000.
2. Calculate the reset payment using the remaining balance and the new interest rate:
- Remaining balance: $90,000
- New interest rate: 7 3/8% (convert to decimal: 7.375% or 0.07375)
- Loan term: 25 years (remaining term after the initial 5 years)
Using the formula for calculating the monthly payment on a fixed-rate mortgage, the reset payment can be calculated as follows:
P = (r * PV) / (1 - (1 + r)^(-n))
where:
P = monthly payment
r = monthly interest rate
PV = loan balance (present value)
n = total number of payments
Plugging in the values:
P = (0.07375 * $90,000) / (1 - (1 + 0.07375)^(-25))
Using a calculator, compute the reset payment to find the final answer.
Note: The above calculation assumes that the reset payment will fully amortize the loan over the remaining 25-year term. It's important to double-check the calculations and consider any additional fees or adjustments that may apply to the reset process.
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Consider the market for Chevron gasoline. The demand for this product would become more elastic if it A. were consumed over a shorter period of time. B. were more of a necessity. C. were a smaller share in the consumer's budget. D. were defined more narrowly. E. had fewer close substitutes
According to the question The correct option is E. had fewer close substitutes.
The demand for Chevron gasoline would become more elastic if it had fewer close substitutes. This means that if there are fewer alternative options or competitors offering similar products, consumers would be more responsive to changes in price and more likely to switch to other available options.
When there are more substitutes available, consumers have more choices and can easily switch to other brands or types of gasoline, making the demand less elastic. Therefore, having fewer close substitutes increases the elasticity of demand for Chevron gasoline.
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Suppose Ghana operates a fixed exchange rate and you do not expect a devaluation in the next year which bond should you buy if the Ghana bond pays an interest of 26% and the US bond an interest of 0.5% ? What happens to the Ghana interest rate relative to the US interest rate? (5 Marks)
If Ghana operates a fixed exchange rate and there is no expected devaluation in the next year, it would be more beneficial to buy the Ghana bond that pays an interest rate of 26% compared to the US bond with an interest rate of 0.5%.
The higher interest rate on the Ghana bond indicates a higher return on investment. By purchasing the Ghana bond, you can earn a significantly higher interest income compared to the US bond.
Regarding the Ghana interest rate relative to the US interest rate, we can conclude that the Ghana interest rate is substantially higher than the US interest rate. This suggests that investors are demanding higher returns for holding Ghanaian bonds due to factors such as inflation expectations, economic conditions, and perceived risks associated with investing in Ghana.
The interest rate differential between the two countries reflects the market's assessment of the relative attractiveness and risk profile of each bond according to exchange rates
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Harisson Inc. owns fast food restaurants and snack food and beverage manufacturers in Canada. One of the restaurants, Pizza Place, serves a variety of beverages along with pizzas. One of the beverages is ginger beer, which is served on tap. Harisson has just purchased a new division, Cumberland Beverages, that produces ginger beer. The managing director of Cumberland Beverages has approached the managing director of Pizza Place about purchasing Cumberland Beverages ginger beer for sale at Pizza Place restaurants rather than its usual brand of ginger beer. Managers at Pizza Place agree that the quality of Cumberland Beverages ginger beer is comparable to the quality of their regular brand. It is just a question of price. The basic facts follow:
Cumberland Beverages:
Ginger beer production capacity per month 10,000 kegs
Variable cost per keg of ginger beer $8 per keg
Fixed costs per month $70,000
Selling price of Cumberland Beverages ginger beer
on the outside market $20 per keg
Pizza Place:
Purchase price of regular brand of ginger beer $18 per keg
Monthly consumption of ginger beer 2,000 kegs
Required: compute and briefly explain the basis for:
Selling division transfer price range with idle capacity
Selling division transfer price range with no idle capacity
Selling division transfer price range with some idle capacity
Selling division’s lowest acceptable transfer price
The purchasing division’s highest acceptable transfer price
Transfer price range with idle capacity: $8 to $20 per keg.
Cumberland Beverages' selling division in this situation has idle capacity. Based on the variable cost per keg of ginger beer, which is $8 per keg, the transfer price should be determined. The transfer price range would therefore be from the variable cost per keg ($8) to the outside market selling price ($20 per keg).
Selling division transfer price range with no idle capacity: The transfer price should account for the opportunity cost of selling internally as opposed to on the open market when the selling division has no unused capacity. The opportunity cost in this scenario would be the selling price per keg on the open market, which is $20. As a result, the transfer price would start at $20 per keg and go up from there to cover the opportunity cost.
Selling division transfer price range with some idle capacity: The transfer price should still reflect the variable cost per keg, which is $8 per keg, even if the selling division has some idle capacity but not enough to meet the entire demand from the purchasing division (Pizza Place). However, a markup above the variable cost would be appropriate given that the selling division might sell the remaining capacity on the open market. The transfer price range would be from the variable cost per keg ($8) up to the selling price on the outside market ($20 per keg).
Selling division’s lowest acceptable transfer price: The variable cost per keg, which is $8, would be the lowest transfer price that the selling division would take. The selling division would incur a loss if the price fell below this level. Lowest transfer price that the selling division will accept is $8 per keg.
The purchasing division’s highest acceptable transfer price: The greatest transfer price that the purchasing division would accept is the $18 per keg that they presently pay for the usual brand of ginger beer. Any increase in price would make it more economical for the purchasing department to keep buying the standard brand. The greatest transfer price that the purchasing division will take is $18 per keg.
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The complete question is:
Harisson Inc. owns fast food restaurants and snack food and beverage manufacturers in Canada. One of the restaurants, Pizza Place, serves a variety of beverages along with pizzas. One of the beverages is ginger beer, which is served on tap. Harisson has just purchased a new division, Cumberland Beverages, that produces ginger beer. The managing director of Cumberland Beverages has approached the managing director of Pizza Place about purchasing Cumberland Beverages ginger beer for sale at Pizza Place restaurants rather than its usual brand of ginger beer. Managers at Pizza Place agree that the quality of Cumberland Beverages ginger beer is comparable to the quality of their regular brand. It is just a question of price. The basic facts follow:
Cumberland Beverages:
Ginger beer production capacity per month 10,000 kegs
Variable cost per keg of ginger beer $8 per keg
Fixed costs per month $70,000
Selling price of Cumberland Beverages ginger beer
on the outside market $20 per keg
Pizza Place:
Purchase price of regular brand of ginger beer $18 per keg
Monthly consumption of ginger beer 2,000 kegs
Required: compute and briefly explain the basis for:
Selling division transfer price range with idle capacity
Selling division transfer price range with no idle capacity
Selling division transfer price range with some idle capacity
Selling division’s lowest acceptable transfer price
The purchasing division’s highest acceptable transfer price
A construction management company is examining its cash flow requirements for the next few years. The company expects to replace software and in-field computing equipment at various times. Specifically, the company expects to spend $5,000 1 year from now, $10,000 3 years from now, and $13,000 each year in years 6 through 10. What is the future worth in year 10 of the planned expenditures, at an interest rate of 9% per year?
The future worth in year 10 of the planned expenditures is approximately $139,789.74.
The future worth in year 10 of the planned expenditures can be calculated using the following formulas:
Present value of $5,000 in year 1, discounted at a 9% interest rate:
[tex]\[PV_1 = \frac{5000}{(1 + 0.09)} = 4587.16\][/tex]
Present value of $10,000 in year 3:
[tex]\[PV_3 = \frac{10000}{(1 + 0.09)^3} = 7789.94\][/tex]
Present value of an annuity of $13,000 in years 6 through 10:
[tex]\[PV_{\text{annuity}} = 13000 \times \left[\frac{1 - (1 + 0.09)^{-5}}{0.09}\right] = 54850.86\][/tex]
To find the future worth in year 10, we compound these present values to year 10 using the formula:
[tex]\[FV = (PV_1 + PV_3 + PV_{\text{annuity}}) \times (1 + 0.09)^{10} = 139789.74\][/tex]
Therefore, the future worth in year 10 of the planned expenditures is approximately $139,789.74.
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PapersRUs produces paper products in a competitive market. The firm has the following cost function 25+15x+0.5x2 where x is the quantity of paper produced. The price faced by firm is p. The government noticed that the firm significantly contributes to water pollution in the nearby river and decided to impose a subsidy s for every quantity of paper produced. a. Derive the expression for the optimal quantity of paper to maximize profit. Set up the firm's problem. Derive and interpret the first order condition. b. Assume that the price p=95 and s=30 for every unit of output produced. How much is the optimal output and profit with and without the subsidy? c. Given your result, do you think the subsidy was a good idea to impose on the firm to control the pollution? Provide a brief explanation of your answer.
To set up the firm's problem, we need to find the expression for the optimal quantity of paper to maximize profit. The firm's profit function can be derived from the cost function and the price faced by the firm.
The profit function is given by: Profit = Revenue - Cost
Revenue = Quantity * Price = x * p
Cost = 25 + 15x + 0.5[tex]x^2[/tex]
Substituting the revenue and cost functions into the profit function, we get:
Profit = x * p - (25 + 15x + 0.5[tex]x^2[/tex])
To maximize profit, we take the derivative of the profit function with respect to x and set it equal to zero. This is the first order condition: dProfit/dx = p - (15 + x) = 0
Simplifying this equation, we get:
x = p - 15
Assuming p = 95 and s = 30, we can find the optimal output and profit with and without the subsidy. With the subsidy, the optimal output is:
x = p - s
= 95 - 30
= 65
To find the profit, we substitute the optimal output into the profit function:
Profit = 65 * 95 - (25 + 15 * 65 + 0.5 *[tex]65^2[/tex])
Without the subsidy, the optimal output remains the same at x = p - 15
= 95 - 15
= 80.
The profit can be calculated in the same way as above.
The subsidy reduces the cost of production for the firm, leading to a lower optimal output and potentially higher profit. In this case, the optimal output with the subsidy (65) is lower than without the subsidy (80).
Whether the subsidy was a good idea to control pollution depends on the trade-off between the reduction in pollution and the cost of the subsidy. If the reduction in pollution outweighs the cost of the subsidy, then it can be considered a good idea. However, without more information about the environmental impact and the cost of the subsidy, it is difficult to make a definitive judgment.
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A company enters into a long futures contract for 5,000 bushels of wheat at $6.50 per bushel. The initial margin is $4,000 and the maintenance margin is $3,000. What price change would allow you to withdraw $2,000 from the margin account? Select one: a. The price per bushel falls to $6.10 b. The price per bushel rises to $6.90 c. The price per bushel falls to $5.50 O d. The price per bushel rises to $5.50 e. None of the above are true
Since the minimum price change required is $307.69, none of the options provided would allow you to withdraw $2,000 from the margin account. Therefore, the correct answer is Option E.
To determine the price change that would allow you to withdraw $2,000 from the margin account, we need to calculate the equity in the margin account after the withdrawal.
Equity in the margin account = Initial margin - Withdrawal
Equity = $4,000 - $2,000 = $2,000
The equity in the margin account should be equal to or above the maintenance margin to avoid a margin call. Therefore, we can calculate the minimum price change required using the formula:
Minimum price change = (Equity in the margin account / Number of contracts) / Contract size
In this case, the number of contracts is 1 (5,000 bushels) and the contract size is $6.50 per bushel.
Minimum price change = ($2,000 / 1) / $6.50 = $307.69
Since the minimum price change required is $307.69, none of the options provided would allow you to withdraw $2,000 from the margin account. Therefore, the correct answer is e. None of the above are true.
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4 unit 1 test period 4 20 of 2620 of 26 items 21:30 / 01:00:00 question a leftward shift of a supply curve for avocados (a normal good) might be caused by:______.
A leftward shift of a supply curve for avocados (a normal good) might be caused by some avocado farmers leaving the market.
What might cause a leftward shift of the supply curve for avocados?When avocado farmers leave the market, it may result in a decrease in the overall supply of avocados which could have various reasons for farmers exiting the market such as unfavorable weather conditions, increased production costs or a shift to alternative crops.
These factors can lead to a reduced quantity of avocados supplied at each price level causing the supply curve to shift to the left. As a result, consumers would face higher prices and a decreased availability of avocados in the market.
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a trader sold a covered call that is nearing expiration. what conditions are best for rolling the trade? select all that apply.
When rolling a covered call trade nearing expiration, several conditions are favorable.
Firstly, if the underlying asset's price is approaching or above the strike price of the call option, rolling the trade is a good option.
Secondly, if the trader believes that the underlying asset will continue to increase in price, rolling the trade can allow them to capture additional upside potential. Thirdly, if the time premium of the current call option is relatively low, rolling the trade can be beneficial.
Additionally, if the trader wants to extend the duration of the trade or generate more income, rolling the trade can be advantageous. Lastly, if the trader wants to adjust the strike price to align with their current outlook, rolling the trade is a suitable choice.
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Assets and costs are proportional to sales. debt and equity are not. the company maintains a constant 35 percent dividend payout ratio. what is the internal growth rate?
The inner increase price for Bello Co. Is approximately 6.30%.
To calculate the internal growth price, we want to decide the retention ratio, that's the complement of the dividend payout ratio.
Dividend payout ratio = 45%
Retention ratio = 100% - Dividend payout ratio = 100% - 45% = 55%
The inner boom fee can be calculated using the following formulation:
Internal Growth Rate = Retention ratio × Return on Assets
To calculate the return on assets, we want to decide the net earnings and general assets.
Net income = $4,977
Total belongings = Current property + Fixed assets = $11,940 + $31,500 = $43,440
Return on Assets (ROA) = Net profits / Total belongings = $four,977 / $43,440 = 0.1146 or 11.46%
Internal Growth Rate = 55% × 11.46% = 6.303% (rounded to two decimal places)
Therefore, the internal increase fee for Bello Co. Is approximately 6.30%.
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The correct question is:
Cost allocation in a manufacturing company LO 4-1, 4-2, 4-3 Camp Manufacturing Company makes tents that it sells directly to camping enthusiasts through a mail-order marketing program. The company pays a quality control expert $80,000 per year to inspect completed tents before they are shipped to customers. Assume that the company completed 1,600 tents in January and 1,200 tents in February. For the entire year, the company expects to produce 20,000 tents. Required a. As the number of tents inspected increases, does the amount of fixed cost increase, decrease, or stay the same? b. As the number of tents inspected increases, does the fixed cost per unit increase, decrease, or stay the same?
a. The amount of fixed cost remains the same as the number of tents inspected increases.
b. The fixed cost per unit decreases as the number of tents inspected increases.
a. The amount of fixed cost remains the same as the number of tents inspected increases. Fixed costs are costs that do not change with the level of production. In this case, the cost of the quality control expert is a fixed cost because it remains constant regardless of the number of tents inspected. Whether the company inspects 1,600 tents in January or 1,200 tents in February, the cost of the quality control expert remains at $80,000 per year.
b. The fixed cost per unit decreases as the number of tents inspected increases. To calculate the fixed cost per unit, we divide the total fixed cost by the number of units produced. In this case, the total fixed cost is $80,000 per year, and the company expects to produce 20,000 tents for the entire year. Therefore, the fixed cost per unit is $80,000 divided by 20,000, which is $4 per tent.
a. Fixed costs are costs that do not change with the level of production. They remain constant regardless of the number of units produced. In this case, the cost of the quality control expert is a fixed cost because it remains the same whether the company inspects 1,600 tents in January or 1,200 tents in February. The fixed cost is not affected by the number of units inspected.
b. The fixed cost per unit is calculated by dividing the total fixed cost by the number of units produced. In this case, the total fixed cost is $80,000 per year, and the company expects to produce 20,000 tents for the entire year. Therefore, the fixed cost per unit is $4 per tent. As the number of tents inspected increases, the fixed cost per unit decreases because the total fixed cost is spread over a larger number of units.
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Access a financial newspaper or magazine (i.e. WSJ if you can find it. Financial Time, Barrons, Reuters: Business and Financial News, Money, Kiplinger Personal Finance)
Find an article about stock valuation. Write 100-200 words explain how Chapter 7 concepts are applied in your article. Cite the article and link it.
Chapter 7 of most finance textbooks typically covers topics related to stock valuation, such as fundamental analysis and the discounted cash flow (DCF) model. These concepts are used to determine the intrinsic value of a stock.
In the context of the article you mentioned, it is important to identify the specific concepts discussed. For example, the article might discuss how to calculate the intrinsic value of a stock using financial ratios, earnings forecasts, or cash flow projections. It may also explore the impact of economic factors, market trends, or industry analysis on stock valuation.
To fully explain how Chapter 7 concepts are applied in the article, it would be helpful to have access to the article itself. However, based on the information provided, you can analyze the article by examining how it applies the principles of stock valuation, whether it discusses the different valuation methods, or if it provides insights into the factors that affect stock prices.
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A car manufacturing company analyzes the possibility of manufacturing the gas cap of their cars. Currently, the company buys at $8 each stopper to a supplier. The manufacture of such a stopper would imply that the company will buy a machine whose cost would be $3,300,000 and salvage value after 5 years of use would be $100,000. Also, to operate and maintain this machinery, the company incurred annual fixed costs of $500,000 and variable costs of $5/cap. If the company needs 500,000 caps a year and The Trema that applies is 15% per year, what decision would be more profitable for the company: continue to buy gas caps or manufacture them? Solve the problem using the IRR criterion.
By calculating the IRR for both options, we can determine which one is more profitable for the company. The option with the higher IRR would be the more profitable choice.
According to the information given, the car manufacturing company is considering whether to continue buying gas caps from a supplier or start manufacturing them. To make this decision, we can use the IRR criterion.
Let's calculate the cash flows associated with both options:
1. Buying gas caps:
- Annual cost per cap: $8
- Number of caps needed per year: 500,000
- Annual cost of buying gas caps: $8 x 500,000 = $4,000,000
2. Manufacturing gas caps:
- Machine cost: $3,300,000
- Salvage value after 5 years: $100,000
- Annual fixed costs: $500,000
- Variable cost per cap: $5
- Number of caps needed per year: 500,000
- Annual variable costs: $5 x 500,000 = $2,500,000
To calculate the cash flows, we need to consider the net cash inflows or outflows for each year:
Year 0 (Initial investment): -$3,300,000 (machine cost)
Year 1: -$500,000 (fixed costs) - $2,500,000 (variable costs) = -$3,000,000
Year 2: -$500,000 (fixed costs) - $2,500,000 (variable costs) = -$3,000,000
Year 3: -$500,000 (fixed costs) - $2,500,000 (variable costs) = -$3,000,000
Year 4: -$500,000 (fixed costs) - $2,500,000 (variable costs) = -$3,000,000
Year 5: -$500,000 (fixed costs) - $2,500,000 (variable costs) + $100,000 (salvage value) = -$2,900,000
Now, we can calculate the IRR for both options. The IRR is the discount rate that makes the net present value (NPV) of the cash flows equal to zero.
For buying gas caps, the cash flows are: -$4,000,000 (Year 0) and $0 for the following years.
For manufacturing gas caps, the cash flows are: -$3,300,000 (Year 0), -$3,000,000 (Years 1-4), and -$2,900,000 (Year 5).
The IRR criterion helps us assess the profitability of a project by comparing the discount rate to the internal rate of return. If the IRR is higher than the discount rate (in this case, 15%), the project is considered profitable.
To calculate the IRR, we can use financial software or a calculator. We can input the cash flows for each option and find the discount rate that makes the NPV equal to zero.
After calculating the IRR for both options, we compare them to determine which one is more profitable for the company. If the IRR for buying gas caps is higher than the IRR for manufacturing gas caps, it would be more profitable to continue buying them. Conversely, if the IRR for manufacturing gas caps is higher, it would be more profitable to start manufacturing them.
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Based on the IRR criterion, it would be more profitable for the car manufacturing company to manufacture the gas caps rather than buying them from the supplier. The IRR of approximately 22.6% indicates that the project is financially viable.
To determine whether it is more profitable for the car manufacturing company to continue buying gas caps or to manufacture them, we will use the Internal Rate of Return (IRR) criterion.
1. Calculate the cash inflows: The cash inflow per year from manufacturing the gas caps would be the savings from not buying them from the supplier. Currently, the company buys 500,000 gas caps at $8 each, so the total cost is 500,000 * $8 = $4,000,000 per year.
2. Calculate the cash outflows: The cash outflows include the initial cost of the machine, the annual fixed costs, and the variable costs per cap.
The initial cost of the machine is $3,300,000, and the salvage value after 5 years is $100,000. The annual fixed costs are $500,000, and the variable costs per cap are $5.
3. Calculate the net cash flow per year: The net cash flow per year is the cash inflow minus the cash outflow. In this case, it would be $4,000,000 - ($3,300,000 - $100,000 + $500,000 + 500,000 * $5).
4. Calculate the IRR: The IRR is the discount rate at which the net present value (NPV) of the cash flows is zero. We need to find the discount rate that makes the NPV of the cash flows equal to zero. By using a financial calculator or software, we can find that the IRR is approximately 22.6%.
5. Decision: If the IRR is greater than the discount rate (15% per year in this case), it means that the project is profitable and should be undertaken. In this case, the IRR is greater than 15%, so it is more profitable for the company to manufacture the gas caps rather than buying them.
In conclusion, based on the IRR criterion, it would be more profitable for the car manufacturing company to manufacture the gas caps rather than buying them from the supplier. The IRR of approximately 22.6% indicates that the project is financially viable.
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Why is it important for a company to have a website?
There are six main steps to building a website. Which step is the most critical? Explain.
What are the differences between Search Engine Marketing (SEM) and Search Engine Optimization (SEO)?
Having a website is important for a company as it provides an online presence, enhances credibility, enables customer engagement, and facilitates marketing and sales activities.
Among the six steps involved in building a website, the most critical step is planning. Planning sets the foundation for the entire website development process. It involves defining the website's purpose, target audience, content strategy, site structure, and desired functionality.
Proper planning ensures that the website aligns with the company's goals, effectively communicates its message, and provides a seamless user experience. Without thorough planning, the website may lack direction, coherence, and fail to meet the needs of its intended users.
Search Engine Marketing (SEM) and Search Engine Optimization (SEO) are two distinct but related strategies for improving a website's visibility on search engine result pages. SEM involves paid advertising, such as pay-per-click (PPC) campaigns, to drive targeted traffic to a website. It focuses on maximizing visibility and generating immediate results through paid search ads.
On the other hand, SEO is the process of optimizing a website's content, structure, and technical aspects to improve its organic search rankings. SEO aims to increase the website's visibility and attract organic traffic without relying on paid advertising. While SEM offers instant visibility through paid ads, SEO provides long-term benefits by enhancing organic search performance.
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Suppose that you are part of the Management team at F. Mayer Imports. Fast forward a few years and suppose that it is the end of December 2019 and a novel coronavirus that causes a respiratory illness was identified and reported to the World Health Organization. There is heightened uncertainty around the World.
You (as part of the management team) are reviewing F. Mayer’s hedging strategy for the calendar year 2020. Assume that F. Mayer’s management considers two scenarios:
Scenario 1 (Normal): The expected revenue from Australian sales in 2020 is A$180 million.
Scenario 2 (Low): The expected revenue from Australian sales in 2020 is 30% lower than the normal revenues.
Assume, in each scenario, that all revenues are realized at the end of December 2020. In addition to the import-related costs, F. Mayer has operational costs (e.g., paying employees, property costs) that equals 30% of the revenues. The import costs in 2020 in Euros are fixed at €70 million. Assume all costs are paid at the end of the year.
The current spot exchange rate is (bid-ask) €0.62/A$ - €0.63/A$ and forward bid-ask is €0.59/A$ - €0.60/A$. The call option premium is €0.026, and the call option strike price is €0.62. The put option premium is €0.025 and the put option strike price is €0.60. You are only allowed to buy options and you are not allowed to write options.
Your finance team has made the following 1-year forecasts for December 2020:
bid-ask will be €0.62/A$ - €0.63/A$ if the investors (and speculators) risk levels remain unchanged during the pandemic.
bid-ask will be €0.51/A$ - $0.53/A$ if the investors (and speculators) consider the Euro a safe haven currency during the pandemic.
bid-ask will be €0.88/A$ - $0.90/A$ if the investors (and speculators) consider the Australian dollar a safe haven currency during the pandemic
1) if the investors consider the Australian dollar a safe haven currency during the pandemic? How does this compare to the baseline case?
If investors consider the Australian dollar a safe haven currency during the pandemic, the bid-ask exchange rate for the Euro and Australian dollar is expected to be €0.88/A$ - €0.90/A$.
In the baseline case, the spot exchange rate for the Euro and Australian dollar is €0.62/A$ - €0.63/A$, and F. Mayer Imports' management team expects normal revenues of A$180 million. However, in the scenario where the Australian dollar is considered a safe haven currency during the pandemic, the forecasted bid-ask exchange rate is €0.88/A$ - €0.90/A$. This implies a considerable strengthening of the Australian dollar against the Euro.
As a result, if F. Mayer Imports does not hedge against this scenario, the conversion of Australian sales revenue to Euros at the end of December 2020 would yield a higher amount of Euros compared to the baseline case. This could lead to increased profits for the company.
However, it's important to note that hedging strategies are designed to mitigate risk and uncertainty. If the company management decides to hedge its currency exposure, it would involve purchasing call options at the strike price of €0.62 to protect against the potential depreciation of the Australian dollar. The premium paid for the call options would be €0.026 per unit.
By employing a hedging strategy, F. Mayer Imports would have a predetermined exchange rate (€0.62) to convert their Australian sales revenue to Euros, regardless of the actual spot exchange rate at the end of December 2020. This provides the company with certainty and protection against adverse currency movements.
In conclusion, if investors consider the Australian dollar a safe haven currency during the pandemic, it indicates a strengthening of the Australian dollar compared to the baseline case. F. Mayer Imports can consider implementing a hedging strategy using call options to mitigate the potential risk associated with currency fluctuations and ensure a more predictable outcome for their revenues in Euros.
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analysis and Decision-Making Case Leo, the owner of a local poster shop, comes to you for help. "We've only been breaking even the past two years, and I'm getting very frustrated! I don't know what to do because I feel like I've already tried to improve our processes as much as possible, but we still haven't been able to generate a profit. Do you have any suggestions as to how we can turn things around? I just don't think we can even consider moving forward with this business unless we can earn $10,000 in operating income next year. Even then, we'll have to think long and hard about what the future holds." Leo shares the following information with you, as you ponder different scenarios to help your friend. After thinking about it for a while, you suggest the following possibilities to help him turn things around. 1. Lower the selling price by 10% to increase sales volume by 5%. 2. Advertise on the radio and with social media, for a combined cost of $1,000, to increase volume by 10%. 3. Use a more affordable paper on which to print the posters (available for $0.60 per unit), in combination with a lessexpensive film to cover the top of the poster (avaiiable for $0.40 per unit). 4. Instead of paying the salespeople a fixed salary, move to a commission-based compensation plan (save $20,000 in salary; incur $1.50 per unit sold commission), which should increase sales volume by 20%. Required (Round amounts to the nearest cent.) a. Analyze each of the proposals against the current situation to determine if it will help Leo achieve his profit goal. b. For any options that do meet the goal, or that come close to the goal, discuss the feasibility of the option, recognizing any potential drawbacks that these changes could present for the company. c. After these initial discussions, Leo realizes that he has ignored any possible tax effects thus far. He estimates that his business will be subject to a 25% tax rate. Will any of the proposed scenarios allow him to reach an after-tax income goal of $10,000 ? If so, which one(s)? If not, do you have any other suggestions?
The proposals that will help Leo achieve his after-tax income goal are Proposals 3 and 4.
a. Analysis of each proposal:
Lower the selling price by 10% to increase sales volume by 5%:
With a price reduction of 10% and an increase in sales volume of 5%, the operating income can be computed as follows:
Revenue: 10,000 posters × $13.50 each × 95% = $128,250
Less Variable Costs: 10,000 posters × $6.50 each = $65,000
Fixed Costs: $70,000
Profit: $128,250 - $65,000 - $70,000 = $(6,750)
Therefore, this proposal will not allow Leo to reach his $10,000 after-tax income goal.
Advertise on the radio and with social media, for a combined cost of $1,000, to increase volume by 10%:
With an advertising cost of $1,000 and an increase in sales volume of 10%, the operating income can be computed as follows:
Revenue: 10,000 posters × $14.85 each × 110% = $163,350
Less Variable Costs: 10,000 posters × $6.50 each = $65,000
Fixed Costs: $70,000 + $1,000 = $71,000
Profit: $163,350 - $65,000 - $71,000 = $27,350
Therefore, this proposal will help Leo achieve his after-tax income goal.
Use a more affordable paper on which to print the posters (available for $0.60 per unit), in combination with a less expensive film to cover the top of the poster (available for $0.40 per unit):
With a reduced cost of $1.00 per unit, the operating income can be computed as follows:
Revenue: 10,000 posters × $15.50 each = $155,000
Less Variable Costs: 10,000 posters × $5.50 each = $55,000
Fixed Costs: $70,000
Profit: $155,000 - $55,000 - $70,000 = $30,000
Therefore, this proposal will help Leo achieve his after-tax income goal.
Instead of paying the salespeople a fixed salary, move to a commission-based compensation plan (save $20,000 in salary; incur $1.50 per unit sold commission), which should increase sales volume by 20%:
With a salary savings of $20,000 and an increase in sales volume of 20%, the operating income can be computed as follows:
Revenue: 10,000 posters × $16.20 each × 120% = $194,400
Less Variable Costs: 10,000 posters × $6.50 each + 10,000 posters × $1.50 commission = $80,000
Fixed Costs: $50,000
Profit: $194,400 - $80,000 - $50,000 = $64,400
Therefore, this proposal will help Leo achieve his after-tax income goal.
b. Feasibility of the option:
Proposal 2 will require a budget of $1,000 for advertising, while Proposal 3 will entail a change in the production materials used. Since the new materials are cheaper than the previous ones, Proposal 3 appears to be more feasible. However, marketing effort is required if Leo wants to attract more customers.
Proposal 4 is also feasible, and it can allow Leo to save on salary expenses while increasing sales volume. However, commission-based compensation plans may demotivate salespeople who are accustomed to a fixed salary.
c. After-tax income goal:
Leo estimates that his business will be subject to a 25% tax rate. Hence, his after-tax income goal of $10,000 will require the company to generate $13,333.33 in operating income.
Only Proposals 3 and 4 will allow Leo to achieve his after-tax income goal:
Proposal 3: Operating Income = $30,000 × 75% = $22,500
Proposal 4: Operating Income = $64,400 × 75% = $48,300
Therefore, the proposals that will help Leo achieve his after-tax income goal are Proposals 3 and 4.
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As the sole owner of BigTech Corporation, you are considering expanding its operations to boost income, but before making a final decision, you want to calculate the corporate tax consequences of such a decision. Currently, BigTech generates before-tax yearly income of $3,500,000 and has no debt outstanding. Expanding operations would allow BigTech to increase beforetax yearly income to $4,250,000. To finance BigTech's expansion you can either cash reserves or new debt financing. If you choose to use debt financing, BigTech will have a yearly interest expense of $185,000. What will BigTech's after-tax profit be if it financing the expansion with cash versus debt? $2,765,000;$2,618,850
$892,500;$853,650
$1,985,350;$2,153,020
$3,357,500;$3,211,350
The right response is $2,765,000. The answer's use of the number $2,618,850 is inaccurate, and it has no relation to any computation in the case.
To calculate BigTech Corporation's after-tax profit, we need to consider the corporate tax consequences of the decision to expand operations using either cash reserves or debt financing.
If BigTech chooses to finance the expansion with cash reserves, there will be no interest expense. The before-tax yearly income of $3,500,000 will be subject to corporate tax. Assuming a corporate tax rate of 21%, the tax liability would be ($3,500,000 × 0.21) = $735,000.
Therefore, the after-tax profit would be ($3,500,000 - $735,000) = $2,765,000.
On the other hand, if BigTech decides to finance the expansion with debt, there will be an annual interest expense of $185,000. This interest expense can be deducted from the before-tax yearly income.
So, the taxable income would be ($4,250,000 - $185,000) = $4,065,000. Applying the 21% corporate tax rate, the tax liability would be ($4,065,000 × 0.21) = $853,650.
Therefore, the after-tax profit would be ($4,250,000 - $853,650) = $3,396,350.
Comparing the two scenarios, the after-tax profit when financing the expansion with cash reserves is $2,765,000, while the after-tax profit when using debt financing is $3,396,350.
Therefore, the correct answer is $2,765,000;$2,618,850.
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23) Patty's Pet Store purchased merchandise on October 10,2021 , at a price of $35,000, subject to credit terms of 2/10,n/30. Patty's uses the gross method for recording purchases and uses perpetual inventory system. Required: 1. Prepare the journal entry to record the purchase. 2. Prepare the journal entry to record the payment of one-half the invoice amount on October 18, 2021 . 3. Prepare the journal entry to record the payment of the balance of the amount due on November 8, 2021.
The purchase of merchandise is recorded by debiting the Merchandise Inventory account to increase the inventory value and crediting the Accounts Payable account
1. Journal Entry to Record the Purchase on October 10, 2021:
Date: October 10, 2021
Account Debit Credit
Merchandise Inventory $35,000
Accounts Payable $35,000
The purchase of merchandise is recorded by debiting the Merchandise Inventory account to increase the inventory value and crediting the Accounts Payable account to reflect the liability owed to the supplier.
2. Journal Entry to Record the Payment of One-Half the Invoice Amount on October 18, 2021:
Date: October 18, 2021
Account Debit Credit
Accounts Payable $17,500
Cash $17,500
The payment of one-half the invoice amount is recorded by debiting the Accounts Payable account to reduce the liability and crediting the Cash account to reflect the outflow of cash.
3. Journal Entry to Record the Payment of the Balance of the Amount Due on November 8, 2021:
Date: November 8, 2021
Account Debit Credit
Accounts Payable $17,500
Cash $17,500
The payment of the balance amount due is recorded by debiting the Accounts Payable account to reduce the liability and crediting the Cash account to reflect the outflow of cash.
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Suppose we observe the following rates: today's one year interest rate (
1
R
1
)=10%, today's two year interest rate (1R
2
)=13%, and the expected one year rate one year from today E(
2
r
1
)=11%. If the liquidity premium theory of the term structure of interest rates holds, what is the liquidity premium for year 2 ?
The liquidity premium for year 2 is -0.5%. To find the liquidity premium for year 2, we can use the liquidity premium theory equation:
Liquidity Premium = Expected Interest Rate - Average of Shorter-Term Interest Rates.
In this case, the expected interest rate for year 2 (E(2r1)) is given as 11%. The shorter-term interest rates are the one-year interest rate (1R1) and the two-year interest rate (1R2), which are 10% and 13% respectively.
To calculate the liquidity premium for year 2, we can substitute these values into the equation:
Liquidity Premium = E(2r1) - (1R1 + 1R2) / 2
= 11% - (10% + 13%) / 2
= 11% - 23% / 2
= 11% - 11.5%
= -0.5%
Therefore, the liquidity premium for year 2 is -0.5%.
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