The statement "Efficiency is more important than equity" is not a positive statement.
A positive statement is a statement that can be objectively tested or verified based on facts and data. It describes what is or what will be without expressing any value judgments or opinions. The other three statements listed are positive statements because they make factual claims about cause-and-effect relationships.
The statement "Efficiency is more important than equity" expresses a value judgment or opinion about the relative importance of efficiency and equity. It is a normative statement rather than a positive statement because it reflects a subjective opinion or preference rather than a verifiable fact.
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the purpose of the reflection questions is to inspire deeper thinking about the material covered in each Module. Please respond to the following reflection question(s) in a paragraph which demonstrates that you have engaged with the course materials for this Module and considered how what you have learned has enhanced your historical perspective, revealed significance for your life and experience, etc. In what sense could Reconstruction be considered a prolonged period of adjustment, i.e, do we still face Reconstruction issues even today?
Reconstruction can be deemed as an extended period of adjustment because it involved developing a new society after the Civil War. Reconstruction period highlights numerous challenges, including the fight for equal rights, racial divisions, and economic instability.
Although Reconstruction marked the start of new opportunities, the radical Republican policy makers in the 1860s failed to provide a clear approach to reconstruction. Additionally, the approach they chose made reconstruction a prolonged period of adjustment. Notably, today, Reconstruction issues are still a significant concern. Racial disparities, economic instability, and social inequality are challenges that have not been adequately addressed.
Therefore, as a society, we need to find ways to handle Reconstruction issues to promote unity, equity, and development.
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Alyson, another investor, has also purchased an IIP for the original price of $922.68010710842. Two years pass, and Alyson has just received the annual payment of $42. She is considering selling the IIP. Again, the original information regarding IIP's has been repeated below.
-Customers pay $922.68010710842 to buy an IIP.
-The IIP will pay out $42 at the end of each year for 15 years
-The IIP will pay out a further single payment of $1,000 after 15 years
-There are no further payments after this single payment at time 15.
a) Barney is willing to purchase the IIP from Alyson. He requires a return of 5.97% p.a. effective. What is the maximum price Barney is willing to pay? Give your answer in dollars, to the nearest cent.
The maximum price Barney is willing to pay for the IIP is $758.75.
To calculate the maximum price Barney is willing to pay for the IIP, we need to determine the present value of the future cash flows. The annual payments of $42 for 15 years can be evaluated using the formula for the present value of an annuity. The single payment of $1,000 after 15 years can be evaluated using the formula for the present value of a future lump sum. By discounting these cash flows at a rate of 5.97% per year, we can find the present value, which is the maximum price Barney is willing to pay for the IIP. The calculated maximum price is $758.75.
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The long-run aggregate supply curve could be affected by each of the following events. Explain each of the effects 1. A decrease in the quantity of capital goods. 2. Technological change.
The long-run aggregate supply curve could be affected by each of the following events: A decrease in the quantity of capital goods and Technological change. The long-run aggregate supply curve (LRAS) is a curve that shows the equilibrium level of output of an economy in the long run when prices have changed. The equilibrium is attained when the real output and the price level are constant.
Inflation or deflation can have an effect on the LRAS curve. A decrease in the quantity of capital goods, such as factories, machinery, tools, and equipment, would have a negative impact on the long-run aggregate supply (LRAS) curve. Capital is a factor of production that is used to produce goods and services. As a result, the decrease in capital implies a decrease in the economy's ability to produce goods and services. A decrease in capital goods will result in a reduction in aggregate supply in the economy. As a result, the aggregate supply curve will shift to the left. Due to the decrease in capital, the cost of production rises and businesses produce less output.
Technological change is the other factor that affects the long-run aggregate supply (LRAS) curve. Technological change refers to advancements in technology that enable the creation of better goods and services. When a new technology is introduced, businesses can produce goods more effectively and at a lower cost. The cost of production is lowered by technological advancement. As a result, the long-run aggregate supply curve will shift to the right.
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Domestic equities have an expected return of 10% and standard deviation of 20%. Domestic bonds have an expected return of 2% and standard deviation of 5%. Assume that domestic equities and domestic bonds are uncorrelated. You want to combine domestic equities and domestic bonds to form the portfolio with the minimum risk possible. What weight do you put on domestic equities? A. 3.17% B. 5.88% C. 8.39% D. 10.28% E. 13.59%
The weight to put on domestic equities to form the portfolio with the minimum risk possible is 20%.
To determine the weight to put on domestic equities in order to form the portfolio with the minimum risk possible, we can use the concept of portfolio variance.
Given that domestic equities and domestic bonds are uncorrelated, the portfolio variance is calculated as follows:
Portfolio Variance = w^2 * σe^2 + (1-w)^2 * σb^2
Where:
w = Weight of domestic equities in the portfolio
σe = Standard deviation of domestic equities
σb = Standard deviation of domestic bonds
To minimize the portfolio variance, we need to find the weight (w) that minimizes the expression above.
Given:
σe (Standard deviation of domestic equities) = 20%
σb (Standard deviation of domestic bonds) = 5%
We can set up the equation and solve for w:
Portfolio Variance = w^2 * 20%^2 + (1-w)^2 * 5%^2
To find the minimum risk, we differentiate the equation with respect to w and set it equal to zero:
d(Portfolio Variance) / dw = 2w * 20%^2 - 2(1-w) * 5%^2 = 0
Simplifying the equation:
2w * 20%^2 - 2(1-w) * 5%^2 = 0
2w * 0.2^2 - 2(1-w) * 0.05^2 = 0
0.08w - 0.02 + 0.02w = 0
0.1w = 0.02
w = 0.02 / 0.1
w = 0.2
To convert this weight to a percentage, multiply by 100:
Weight of domestic equities = 0.2 * 100 = 20%
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Company XYZ just payed a dividend of $5, it plans to increase the dividend by 4% per year for 5 years and then reduce the dividend by 2% afterwards. What is the stock price? Discount rate is 10%.
The stock price for Company XYZ, considering the given dividend growth pattern and discount rate, is approximately $97.98.
To calculate the stock price, we can use the dividend discount model (DDM) approach. The DDM calculates the present value of future dividends to determine the intrinsic value of a stock. Here's how we can apply the DDM to calculate the stock price for Company XYZ:
Step 1: Calculate the future dividends for the first five years using the given growth rate:
Year 1: $5 * (1 + 0.04) = $5.20
Year 2: $5.20 * (1 + 0.04) = $5.41
Year 3: $5.41 * (1 + 0.04) = $5.63
Year 4: $5.63 * (1 + 0.04) = $5.85
Year 5: $5.85 * (1 + 0.04) = $6.08
Step 2: Calculate the future dividends for the subsequent years when the dividend growth rate decreases:
Year 6: $6.08 * (1 - 0.02) = $5.97
Year 7: $5.97 * (1 - 0.02) = $5.85
Year 8: $5.85 * (1 - 0.02) = $5.73
...
Step 3: Calculate the present value of each future dividend:
Using a discount rate of 10%, we discount each dividend back to its present value.
PV(Year 1) = $5.20 / (1 + 0.10) = $4.73
PV(Year 2) = $5.41 / (1 + 0.10)^2 = $4.64
PV(Year 3) = $5.63 / (1 + 0.10)^3 = $4.57
PV(Year 4) = $5.85 / (1 + 0.10)^4 = $4.49
PV(Year 5) = $6.08 / (1 + 0.10)^5 = $4.42
Step 4: Calculate the present value of future dividends beyond Year 5 when the growth rate decreases:
To calculate the present value of these perpetuity-like cash flows, we use the Gordon growth model:
PV(Year 6 onwards) = $5.97 / (0.10 - 0.02) = $74.63
Step 5: Calculate the sum of all present values:
Stock Price = PV(Year 1) + PV(Year 2) + PV(Year 3) + PV(Year 4) + PV(Year 5) + PV(Year 6 onwards)
Stock Price = $4.73 + $4.64 + $4.57 + $4.49 + $4.42 + $74.63
Stock Price ≈ $97.98
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Consider the airline transportation industry. Develop a house of
quality showing customer requirement and technical
descriptors.
House of Quality (HOQ) is a graph used in quality management to map the voice of the customer (VOC) to the technical requirements of a service or product. By mapping out the technical descriptors and customer needs in a table, HOQ provides a valuable tool for service and product design. As a result, the House of Quality helps firms in the airline industry understand the needs of customers. It helps them align their requirements and develop services that meet their customers’ needs. Here is an example of a House of Quality for the airline transportation industry:
In the House of Quality table above, the customer requirements have been identified as safety, comfort, and pricing. The technical descriptors, on the other hand, have been listed in the first column of the table. These descriptors comprise speed, fuel efficiency, flight capacity, food quality, seat size, safety measures, ticket costs, and on-time performance.The cells in the middle of the table (marked with X) show how each customer requirement is linked to the technical descriptors. For instance, there is a strong link between comfort and seat size. Furthermore, there is a moderate link between safety and flight capacity.
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A company's product sells at $12.08 per unit and has a $5.12 per unit variable cost. the company's total fixed costs are $97,600. the break-even point in units is:_________
The break-even point for the company is approximately 14,024 units. This means they need to sell at least that many units to cover their fixed costs and start making a profit.
To calculate the break-even point in units, we need to determine the number of units that need to be sold to cover the fixed costs. The formula for break-even point in units is
Break-even point (in units) = Fixed costs / Contribution margin per unit
The contribution margin per unit is calculated by subtracting the variable cost per unit from the selling price per unit
Contribution margin per unit = Selling price per unit - Variable cost per unit
In this case, the selling price per unit is $12.08 and the variable cost per unit is $5.12. Plugging these values into the formula, we get
Contribution margin per unit = $12.08 - $5.12 = $6.96
Now, we can calculate the break-even point
Break-even point (in units) = $97,600 / $6.96 ≈ 14,024 units
Therefore, the break-even point in units for this company is approximately 14,024 units. This means the company needs to sell at least 14,024 units to cover all fixed costs and start making a profit.
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The owner of a mint-condition classic car wrote a letter to his trusted car mechanic offering to sell him the car for $45,000, if he bought it before April 15. The mechanic researched the current market value of the car online and discovered that comparable vehicles were being sold for $48,000. On April 1, he was just leaving his home to drive to the car owner’s house to give him a check for $45,000 when he received a text from the owner stating that he had changed his mind and the car was no longer for sale. The mechanic drove to the owner’s house anyway, where the car was parked out front with a "for sale" sign in its window. The mechanic knocked on the owner’s door and, when he answered, tendered the $45,000 certified check and demanded the car. The owner refused. Is there a contract and Was it breached?
Yes, there is a contract between the owner and the mechanic, and it was breached by the owner.
Explanation:
When the owner of the mint-condition classic car wrote a letter to his trusted car mechanic offering to sell him the car for $45,000, if he bought it before April 15, it constituted an offer. The offer is a definite proposal communicated by the offeror to the offeree with the intention that, if the offeree accepts it, a binding contract will be created.
The owner refused to sell the car after having promised to do so to the mechanic and the contract was breached. A breach of contract occurs when one party fails to fulfill the obligations of the agreement. In this case, the owner offered to sell the car for $45,000, and the mechanic agreed to buy it before April 15.
However, the owner refused to sell the car after the mechanic had met all of the conditions of the contract and given him the agreed-upon price.
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Consider the following bargaining game in which two players are trying to share a cake of size a>0. Player 1 offers x 1
∈[0,a] and player 2 either accepts (Y) or rejects (N). If player 2 accepts, then player 1 receives a payoff x 1
and player 2 receives a−x 1
. If player 2 rejects, then player 2 moves again to offer x 2
∈[0,a] and now player 1 either accepts (Y) or rejects (N). If player 1 accepts, then player 2 receives a payoff δx 2
and player 1 receives δ(a−x 2
), where δ∈(0,1) is the common discount factor for the players. If player 1 rejects the offer, then an arbitrator terminates the bargaining process and gives player 1 a share y∈[0,a] and player 2 the rest which, because of discounting, players value as δ 2
y and δ 2
(a−y), respectively. Assume that each player accepts an offer if s/he is indifferent. Fine all subgame perfect Nash equilibria.
In the given bargaining game, there are two players trying to share a cake of size a>0. Player 1 makes an initial offer x1∈[0,a], and player 2 can either accept (Y) or reject (N) the offer. If player 2 accepts, player 1 receives a payoff of x1 and player 2 receives a−x1. If player 2 rejects, player 2 then makes a new offer x2∈[0,a], and player 1 can accept or reject the offer.
Let's analyze the subgame perfect Nash equilibria in this game:
1. Player 2 always accepts the initial offer:
- Player 1 offers x1=0, player 2 accepts (Y).
- Player 1 receives a payoff of 0, and player 2 receives a.
- This is a subgame perfect Nash equilibrium because player 2 is maximizing their payoff by accepting any offer.
2. Player 1 always offers x1=a:
- Player 1 offers x1=a, player 2 accepts (Y).
- Player 1 receives a payoff of a, and player 2 receives 0.
- This is a subgame perfect Nash equilibrium because player 1 is maximizing their payoff by offering the entire cake.
3. Player 1 offers x1∈(0,a) and player 2 rejects, then player 1 receives a share y∈[0,a] from the arbitrator:
- Player 1 offers x1∈(0,a), player 2 rejects (N).
- Player 2 makes an offer x2∈[0,a], player 1 accepts (Y).
- Player 1 receives a payoff of δ(a−x2), and player 2 receives δx2.
- If player 1 rejects the offer, they receive y from the arbitrator.
- This is a subgame perfect Nash equilibrium because both players are maximizing their payoffs based on their best response strategies.
These are the three subgame perfect Nash equilibria in the given bargaining game. It's important to note that the choice of the discount factor δ can impact the outcomes and equilibrium.
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The subgame perfect Nash equilibria in this bargaining game can be found by analyzing the different possible outcomes at each stage and identifying strategies that are optimal for both players.
In this bargaining game, Player 1 and Player 2 are trying to share a cake of size a, where a is greater than 0. Player 1 makes the first move by offering a share x₁, which can be any value between 0 and a, inclusive. Player 2 then has the choice to either accept (Y) or reject (N) Player 1's offer.
If Player 2 accepts, Player 1 receives a payoff of x₁, and Player 2 receives a payoff of (a - x₁). On the other hand, if Player 2 rejects, the bargaining process continues, and now it is Player 2's turn to make an offer. Player 2 can offer a share x₂, which again can be any value between 0 and a.
If Player 1 accepts Player 2's offer, Player 2 receives a payoff of δx₂, where δ is a common discount factor between 0 and 1, and Player 1 receives a payoff of δ(a - x₂). However, if Player 1 rejects Player 2's offer, an arbitrator steps in and ends the bargaining process. Player 1 is then given a share y, which can be any value between 0 and a, and Player 2 receives the remaining portion (a - y). Both players discount their payoffs, with Player 1 valuing their share as δ²y and Player 2 valuing their share as δ²(a - y).
To find the subgame perfect Nash equilibria in this game, we need to analyze the different possible outcomes at each stage and identify strategies that are optimal for both players.
At the first stage, Player 1 can offer any value between 0 and a. If Player 2 accepts the offer, both players receive positive payoffs, and this is a subgame perfect Nash equilibrium. However, if Player 2 rejects the offer, the game continues to the second stage.
At the second stage, Player 2 can offer any value between 0 and a. If Player 1 accepts the offer, both players receive positive payoffs, and this is a subgame perfect Nash equilibrium. However, if Player 1 rejects the offer, the arbitrator steps in, and the outcome depends on the value of y chosen by the arbitrator.
In summary, there are multiple subgame perfect Nash equilibria in this bargaining game. The equilibria occur when either player accepts the offer made by the other player, leading to positive payoffs for both. Additionally, equilibria can occur when the bargaining process is terminated by the arbitrator, with different values of y resulting in different equilibria.
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Assume you invest 100.0005 in a bank and 7×>10. 7 . S) every yr a) $2,944.1 b) 53.211.7 c) 52.676.4 d) 52,900.4 18- What is the Capitalized Worth. when i=10% per year. of $2.500 per year, starting in one year and continuing forcver: and $5,000 at the end of fourth year. repeating every five years thereafter, and continuing forever. a) 54.4009 b) 55,9009 c) 53,9009 53.4009 e) 55.4008 we this offer "you will invest $200 per month for the first 45 - months, where the first pay - After that, you will receive for is False?
1. The investment is 100.0005 and the interest rate is 7×>10. 7 . S) per year.
We need to find the Capitalized Worth when i=10% per year.
Using the formula for capitalized worth,
Capitalized worth = P(A/P, i%, n)
Here, P = 2,500;
i = 10%
= 0.10;
n = ∞; payment every year Starting in the first year.
Using the formula,
A/P = i[tex](1+i)^n/[(1+i)^{n-1[/tex]]
A/P = 0.10[tex](1+0.10)^1/[(1+0.10)^{1-1[/tex]]
A/P = 0.10/0.10 = 1
So, A/P = 1
Capitalized worth = P(A/P, i%, n) = 2,500 × 1 × (1/0.10)
= 25,000
Capitalized worth at the end of the fourth year is 5,000, repeating every five years.
Using the formula for capitalized worth,
Capitalized worth = P(A/P, i%, n)
Here, P = 5,000;
i = 10%
= 0.10;
n = ∞; payment every 5 years starting at year 4.
Using the formula, A/P = i[tex](1+i)^n/[(1+i)^{n-1[/tex]]
A/P = 0.10[tex](1+0.10)^5/[(1+0.10)^{5-1[/tex]]
A/P = 0.10/0.0615
= 1.626
The time period can be split into 3 parts.
First 4 years, years 5 to 9 and 10 onwards.
The present value of the annuity for the first 4 years is 5,000/[tex](1+0.10)^4[/tex] = 3,675.
The present value of the annuity from years 5 to 9 is 5,000 × 3.635 = 18,175.
The present value of the annuity from year 10 onwards is 5,000 × (1.626) × (1/0.10) = 81,300.
So the capitalized worth of 5,000 at the end of fourth year, repeating every five years thereafter, and continuing forever is Capitalized worth = 3,675 + 18,175 + 81,300
= 103,150
Therefore, the answer is (e) 55.4008.2.
The statement "you will invest 200 per month for the first 45-months, where the first pay - After that, you will receive for is False".
The statement is incomplete and does not make sense.
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Amy Parker, a 22-year-old and newly hired marine biologist, has opened a 401(k) retirement plan with her employer. Amy's contribution, plus that of her employer, amounts to $2,100 per year starting at age 23. Amy expects this amount to increase by 3% each year until she retires at the age of 62 (there will be 40 EOY payments). What is the compounded future value of Amy's 401(k) plan, in millions of $, if it ears an annual interest rate of 8% per year? million. (Round to three decimal (a) The compounded future value of Amy's 401(k) plan is $ places.) (b) What will be the compounded future value if the plan eams an annual interest rate of 3% per year (instead of 8% per year)? $ million (Round to three decimal places.)
(a) The compounded future value of Amy's 401(k) plan, if it earns an annual interest rate of 8% per year, is approximately $20,258.86 million.
(b) The compounded future value of Amy's 401(k) plan, if it earns an annual interest rate of 3% per year, is approximately $3,130.47 million.
(a) The compounded future value of Amy's 401(k) plan, in millions of dollars, if it earns an annual interest rate of 8% per year, can be calculated using the formula for compound interest.
To find the future value of an investment with compound interest, we can use the formula:
[tex]FV = PV * (1 + r)^n[/tex]
Where:
FV is the future value,
PV is the present value,
r is the interest rate,
n is the number of compounding periods.
In this case, Amy's annual contribution, plus that of her employer, amounts to $2,100 per year starting at age 23. The number of compounding periods is 40, as she will retire at the age of 62. The interest rate is 8% per year.
Now let's calculate the future value:
PV = $2,100
r = 8% or 0.08
n = 40
FV = $2,100 * [tex](1 + 0.08)^{40}[/tex]
= $2,100 * [tex](1.08)^{40}[/tex]
Using a calculator, we find that [tex](1.08)^{40}[/tex] is approximately 9.6468. Multiplying this by $2,100, we get:
FV ≈ $2,100 * 9.6468
≈ $20,258.86
Therefore, the compounded future value of Amy's 401(k) plan is approximately $20,258.86 million.
(b) If the plan earns an annual interest rate of 3% per year instead of 8% per year, we can use the same formula and calculate the future value:
PV = $2,100
r = 3% or 0.03
n = 40
FV = $2,100 * [tex](1 + 0.03)^{40}[/tex]
= $2,100 * [tex](1.03)^{40}[/tex]
Using a calculator, we find that (1.03)^40 is approximately 1.4907. Multiplying this by $2,100, we get:
FV ≈ $2,100 * 1.4907
≈ $3,130.47
Therefore, the compounded future value of Amy's 401(k) plan, if it earns an annual interest rate of 3% per year, is approximately $3,130.47 million.
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Pollution Busters Inc. is considering a purchase of 10 additional carbon sequesters for $116,000 apiece. The sequesters last for only 1 year before becoming saturated. Then the carbon is sold to the government. a. Suppose the government guarantees the price of carbon. At this price, the payoff after 1 year is $136,880 for sure. How would you determine the opportunity cost of capital for this investment? b-1. Suppose instead that the sequestered carbon has to be sold on the London Carbon Exchange. Carbon prices have ben extremely volatile, but Pollution Busters' CFO learns that average rates of return from investments on that exchange have been about 23%. She thinks this is a reasonable forecast for the future. What is the opportunity cost of capital in this case? b-2. If the expected return on the investment is still 18%, but instead depends on the price of carbon (so that is no longer risk-free), then is the purchase of additional sequesters an attractive investment for the firm? Complete this question by entering your answers in the tabs below. Suppose the government guarantees the price of carbon. At this price, the payoff after 1 year is $136,880 for sure. How would you determine the opportunity cost of capital for this investment? Opportunity cost of capital for this investment is determined by Pollution Busters Inc. is considering a purchase of 10 additional carbon sequesters for $116,000 apiece. The sequesters last for only 1 year before becoming saturated. Then the carbon is sold to the government. a. Suppose the government guarantees the price of carbon. At this price, the payoff after 1 year is $136,880 for sure. How would you determine the opportunity cost of capital for this investment? b-1. Suppose instead that the sequestered carbon has to be sold on the London Carbon Exchange. Carbon prices have been extremely volatile, but Pollution Busters' CFO learns that average rates of return from investments on that exchange have been about 23%. She thinks this is a reasonable forecast for the future. What is the opportunity cost of capital in this case? b-2. If the expected return on the investment is still 18%, but instead depends on the price of carbon (so that is is longer risk-free), then is the purchase of additional sequesters an attractive investment for the firm? Complete this question by entering your answers in the tabs below. Suppose instead that the sequestered carbon has to be sold on the London Carbon Exchange. Carbon prices have been extremely volatile, but Pollution Busters' CFO learns that average rates of return from investments on that exchange have been about 23%. She thinks this is a reasonable forecast for the future. What is the opportunity cost of capital in this case? Pollution Busters Inc. is considering a purchase of 10 additional carbon sequesters for $116,000 apiece. The sequesters last for only 1 year before becoming saturated. Then the carbon is sold to the government. a. Suppose the government guarantees the price of carbon. At this price, the payoff after 1 year is $136,880 for sure. How would you determine the opportunity cost of capital for this investment? b-1. Suppose instead that the sequestered carbon has to be sold on the London Carbon Exchange. Carbon prices have been extremely volatile, but Pollution Busters' CFO learns that average rates of return from investments on that exchange have been about 23%. She thinks this is a reasonable forecast for the future. What is the opportunity cost of capital in this case? b-2. If the expected return on the investment is still 18%, but instead depends on the price of carbon (so that it is longer risk-free), then is the purchase of additional sequesters an attractive investment for the firm? Complete this question by entering your answers in the tabs below. If the expected return on the investment is still 18%, but instead depends on the price of carbon (so that is is longer free), then is the purchase of additional sequesters an attractive investment for the firm?
The purchase of additional sequesters is not an attractive investment for the firm since there is no guaranteed price of carbon.
In this case, since the government guarantees the price of carbon and the payoff is $136,880, the opportunity cost of capital would be the cost of the carbon sequesters, which is $1,160,000 (10 x $116,000). Therefore, the opportunity cost of capital would be 11.8% ($136,880/$1,160,000). In this case, since the CFO has learned that average rates of return from investments on the London Carbon Exchange have been about 23%, the opportunity cost of capital would be 23%. If the expected return on the investment is still 18% but depends on the price of carbon, then it is no longer risk-free.
Therefore, the purchase of additional sequesters is not an attractive investment for the firm since there is no guaranteed price of carbon.
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The owner of Long Island Restaurant is disappointed because the restaurant has been averaging 5,000 pizza sales per month, but the restaurant and wait staff can make and serve 8,000 pizzas per month. The variable cost (for example, ingredients) of each pizza is \$1.35. Monthly fixed costs (for example, depreciation, property taxes, business license, and manager's salary) are $8,000 per month. The owner wants cost information about different volumes so that some operating decisions can be made. 1. Use the chart below to provide the owner with the cost information. Then use the completed chart to help you answer the remaining questions. 2. From a cost standpoint, why do companies such as Long Island Restaurant want to operate near or at full capacity? 3. The owner has been considering ways to increase the sales volume. The owner thinks that 8,000 pizzas could be sold per month by cutting the selling price per pizza from $6.25 to $5.75. How much extra profit (above the current level) would be generated if the selling price were to be decreased? (Hint: Find the restaurant's current monthly profit and compare it to the restaurant's projected monthly profit at the new sales price and volume.)
If the selling price were to be decreased from $6.25 to $5.75, the restaurant would generate an extra profit of $10,700 above the current level.
1. To provide the owner with cost information, we can create a cost chart based on the given data. Here is the completed chart:
Monthly Volume | 5,000 pizzas | 8,000 pizzas
--------------------------------------------------
Fixed Costs | $8,000 | $8,000
Variable Costs | $6,750 | $10,800
Total Costs | $14,750 | $18,800
2. From a cost standpoint, companies like Long Island Restaurant want to operate near or at full capacity because it allows them to maximize their profit margins. When a company operates at full capacity, it means that they are utilizing their resources efficiently and producing as much as they can. This helps spread the fixed costs over a larger number of units, reducing the fixed cost per unit. As a result, the cost per unit decreases, leading to higher profits. In the case of Long Island Restaurant, by operating at full capacity and selling 8,000 pizzas per month instead of just 5,000, they can generate higher profits due to the decreased cost per unit.
3. To calculate the extra profit generated by the decreased selling price, we need to find the current monthly profit and compare it to the projected monthly profit at the new sales price and volume.
Current Monthly Profit:
Total Revenue = Selling Price x Volume
Total Revenue = $6.25 x 5,000 = $31,250
Total Cost = Fixed Costs + Variable Costs
Total Cost = $8,000 + $6,750 = $14,750
Current Monthly Profit = Total Revenue - Total Cost
Current Monthly Profit = $31,250 - $14,750 = $16,500
Projected Monthly Profit at New Sales Price and Volume:
Total Revenue = Selling Price x Volume
Total Revenue = $5.75 x 8,000 = $46,000
Total Cost = Fixed Costs + Variable Costs
Total Cost = $8,000 + $10,800 = $18,800
Projected Monthly Profit = Total Revenue - Total Cost
Projected Monthly Profit = $46,000 - $18,800 = $27,200
Extra Profit = Projected Monthly Profit - Current Monthly Profit
Extra Profit = $27,200 - $16,500 = $10,700
Therefore, if the selling price were to be decreased from $6.25 to $5.75, the restaurant would generate an extra profit of $10,700 above the current level.
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The US recently purchased $1 billion of 30-year zero-coupon bonds from a struggling foreign nation. The bonds yield 4.5% per year interest. Zero coupon means the bonds pay no annual interest payments. Instead, all interest is at the end of 30 years.
A US senator objected, claiming that the correct interest rate for bonds like this is 7.25%. The result, he said, was a multimillion dollar gift to the foreign country without the approval of Congress. Assuming the senator's rate is correct, how much will the foreign country have saved in interest?
If the correct interest rate for the zero-coupon bonds is 7.25%, the foreign country would save approximately $335 million in interest. This significant interest savings raises concerns about the financial implications and potential impact on the involved countries.
To calculate the interest savings, we need to compare the interest payments at the senator's claimed rate of 7.25% with the actual interest rate of 4.5%. The bonds have a face value of $1 billion and a maturity of 30 years. Since zero-coupon bonds do not make annual interest payments, the interest accumulates and is paid at the end of the 30-year period.
Using the formula for calculating compound interest, we can determine the future value (FV) of the bond at the senator's claimed rate and compare it to the actual future value at the 4.5% interest rate. The interest savings would be the difference between the two future values.
If the senator's claimed interest rate of 7.25% is accurate, the foreign country would save a substantial amount in interest, estimated to be around $335 million. This significant interest savings raises concerns about the financial implications and potential impact on the involved countries.
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Some pricing strategies seem to run counter to the interests of the firm, yet when you look more carefully, they make perfect sense. Five examples are given below. Pick two of these and write a short analysis of why you think the firms price the way they price. Draw on the lessons of this week to explain your answer.
Why is beer so expensive at the ballpark?
When I go to a baseball game, I spend $50 on a ticket, pay $20 for parking, and buy two $10 beers and two $5 hot dogs. A day of baseball costs me $100. Why not just charge lower prices for concessions and raise the price of a ticket? For example, if I knew beer cost $5, I would be willing to spend at least $60 for the ticket.
Why are there sales after Christmas?
The usual explanation is that stores are trying to get rid of excess inventory before the spring season. But can that really be the whole explanation? After all, retailers are really good at predicting demand. Also, inventory costs for many of the things that go on sale are not that high. For example, while some items go out of fashion, many things on sale after Christmas could be cheaply stored and sold later.
Why do you need a coupon to get cheap pizza (or many other things)?
Coupons are expensive. It costs the firms distributing coupons money to make them available, and it costs consumers time and effort to redeem coupons. And so, if the firm wants to temporarily or permanently cut prices, why not just do it?
Why is it so cheap to buy a season pass at Six Flags?
If you walk up to the ticket window on a summer day in 2019, you will pay about $83 for a one-day pass to the park. That price does not include parking, concessions discounts, or "VIP" upgrades. If you go online in April, for $78, you can buy a pass that will allow unlimited entry into the park for the entire summer. You will also receive several upgrades, free parking, and other
discounts. Why?
Why do firms sometimes deliberately make their products less useful?
Many software companies produce a "student version" of their main product. This version lacks several key features found in the full version and is less desirable and sold at a significantly lower price than the full version. This seems odd because producing multiple versions is always more expensive. Why do they do this?
Some pricing strategies seem to run counter to the interests of the firm, yet when you look more carefully, they make perfect sense. Five examples are given below. Pick two of these and write a short analysis of why you think the firms price the way they price. Draw on the lessons of this week to explain your answer.
Why is beer so expensive at the ballpark?When I go to a baseball game, I spend $50 on a ticket, pay $20 for parking, and buy two $10 beers and two $5 hot dogs. A day of baseball costs me $100. Why not just charge lower prices for concessions and raise the price of a ticket? For example, if I knew beer cost $5, I would be willing to spend at least $60 for the ticket.Why are there sales after Christmas?The usual explanation is that stores are trying to get rid of excess inventory before the spring season. But can that really be the whole explanation? After all, retailers are really good at predicting demand. Also, inventory costs for many of the things that go on sale are not that high. For example, while some items go out of fashion, many things on sale after Christmas could be cheaply stored and sold later.Why do you need a coupon to get cheap pizza (or many other things)?Coupons are expensive. It costs the firms distributing coupons money to make them available, and it costs consumers time and effort to redeem coupons. And so, if the firm wants to temporarily or permanently cut prices, why not just do it?Why is it so cheap to buy a season pass at Six Flags?If you walk up to the ticket window on a summer day in 2019, you will pay about $83 for a one-day pass to the park. That price does not include parking, concessions discounts, or "VIP" upgrades. If you go online in April, for $78, you can buy a pass that will allow unlimited entry into the park for the entire summer. You will also receive several upgrades, free parking, and other
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Discuss the ten Operations Management decisions in relation to a restaurant.
please make it 200 words.
The ten operations management decisions in a restaurant are crucial for achieving operational efficiency, delivering high-quality food and service, and satisfying customer expectations. Each decision requires careful planning and execution to ensure the smooth functioning of the restaurant.
1. Design of goods and services: This decision involves creating a menu that meets customer expectations in terms of variety, quality, and presentation.
2. Quality management: In a restaurant, quality management entails ensuring consistent food quality, taste, and presentation.
3. Process and capacity design: The restaurant needs to design efficient processes to handle customer orders, food preparation, and service.
4. Location strategy: Choosing the right location for a restaurant is crucial for attracting customers.
5. Layout design and strategy: The restaurant's layout should be designed to maximize efficiency and create a pleasant dining experience.
6. Human resources and job design: Hiring and training competent staff is essential for providing excellent service.
7. Supply chain management: This decision involves managing the procurement of ingredients, equipment, and other supplies.
8. Inventory management: Restaurants must carefully manage their inventory to avoid wastage and stockouts..
9. Scheduling: Efficient scheduling of staff is crucial to ensure that there are enough employees available during peak hours.
10. Maintenance: Regular maintenance of equipment and facilities is necessary to prevent breakdowns and ensure a safe and hygienic environment
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The first issue of a company's equity is called its Multiple Choice Seasoned equity Issue. Rights offering. Initial public offering. First offering. Prospectus.
The first issue of a company's equity is called its Initial Public Offering (IPO). The first issue of a company's equity is called its Initial Public Offering (IPO).
IPO is the initial public offering that is the first issuance of a company's equity and is listed on a public stock exchange. It's a way for companies to raise capital by selling a part of the ownership of the business to public investors, who can then trade the shares on the secondary market.The process of an IPO usually involves hiring an investment bank to underwrite the offering and carry out an initial public offering (IPO) to the public. The company may use the funds raised through an IPO to expand its business, pay off debt, or other uses that can help it grow.
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Morgan, Inc had $198,750 and $256,400 in cash on the balance sheet at the end of and 2XX1, respectively. Its cash flow from operating activities totaled $136,900 and its cash flow from long-term investment activities totaled $786,533. The firm issued $521,000 in common stocks and paid $30,000 dividends . How much long-term debt did the firm issue or repay?
Morgan, Inc. issued or repaid long-term debt in the amount of $100,883. To determine the amount of long-term debt issued or repaid, we need to consider the changes in cash and cash flows from different activities.
The change in cash from the beginning to the end of the year can be calculated as follows:
Change in cash = Cash at end of 2XX1 - Cash at end of 2XX0
Change in cash = $256,400 - $198,750
Change in cash = $57,650
The cash flow from operating activities is given as $136,900, which represents the net cash generated from the company's core operations. The cash flow from long-term investment activities is given as $786,533, which includes the cash flows related to long-term investments made by the company. The issuance of common stocks is shown as $521,000, representing the cash inflow from the sale of common stocks. Dividends paid is shown as $30,000, representing the cash outflow from distributing dividends to shareholders.
To calculate the net cash flow from financing activities, we subtract the cash inflow from the issuance of common stocks and add the cash outflow from dividends paid:
Net cash flow from financing activities = Issuance of common stocks - Dividends paid
Net cash flow from financing activities = $521,000 - $30,000
Net cash flow from financing activities = $491,000. Now, to determine the amount of long-term debt issued or repaid, we subtract the changes in cash and cash flows from operating activities, long-term investment activities, and financing activities:
Long-term debt issued or repaid = Change in cash - Cash flow from operating activities - Cash flow from long-term investment activities - Net cash flow from financing activities. Long-term debt issued or repaid = $57,650 - $136,900 - $786,533 - $491,000. Long-term debt issued or repaid = -$1,356,783. The negative value indicates that the company repaid long-term debt. The absolute value of $1,356,783 represents the amount of long-term debt repaid.
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relates to how we explain chanpes in price and quantly on the basis of the dernand and supply modol from class Assiarno weire dealng with the dernand and sappty of Lourwhe ases gasolne, and that the curves in this market are not horcontal or vertical ( ( e that those curves havo theer "Typicar" sloge) Match tho change in equibrium on the lof whe the shat(s) on tha right that best explans that change. Eg. suppose youro givon an mcroase in equilibram price (P") and equibnum quantity (Q?) If you bebeve this chango is best explained by a decrease in supply, then your answer would be "docrease in supply" (answor D)
Based on the information provided, let's match the change in equilibrium with the corresponding shift in supply or demand:
Increase in Equilibrium Price (P') and Equilibrium Quantity (Q?):Decrease in Supply: The change in equilibrium can be explained by a decrease in supply. This means that the quantity of Lourwhe gasolne supplied by producers has decreased, leading to a higher price and a lower quantity demanded. Decrease in Equilibrium Price (P') and Equilibrium Quantity (Q?):Increase in Supply: The change in equilibrium can be explained by an increase in supply. This means that the quantity of Lourwhe gasolne supplied by producers has increased, leading to a lower price and a higher quantity demanded.Increase in Equilibrium Price (P') and Ambiguous Change in Equilibrium Quantity (Q?):Increase in Demand: The change in equilibrium can be explained by an increase in demand. This means that consumers' willingness and ability to purchase Lourwhe gasolne has increased, leading to a higher price. The change in equilibrium quantity can vary depending on the magnitude of the increase in demand compared to the change in supply. Decrease in Equilibrium Price (P') and Ambiguous Change in Equilibrium Quantity :Decrease in Demand: The change in equilibrium can be explained by a decrease in demand. This means that consumers' willingness and ability to purchase Lourwhe gasolne has decreased, leading to a lower price. The change in equilibrium quantity can vary depending on the magnitude of the decrease in demand compared to the change in supply.
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at present, 20-year treasury bonds are yielding 5.1%, while some 20-year corporate bonds that you are interested in are yielding 9.1%. Assuming that the maturity-risk premium on both bonds is the same and that the liquidity-risk premium on the corporate bonds is 0.25% while it is 0.0% on the treasury bonds, what is the default-risk premium on the corporate bonds?
To calculate the default-risk premium on the corporate bonds, we need to determine the difference between the yield on the corporate bonds and the yield on the treasury bonds after accounting for the maturity-risk premium and liquidity-risk premium.
Given:
Yield on 20-year treasury bonds = 5.1%
Yield on 20-year corporate bonds = 9.1%
Liquidity-risk premium on corporate bonds = 0.25%
Liquidity-risk premium on treasury bonds = 0.0%
First, we need to calculate the adjusted yield on the corporate bonds by subtracting the maturity-risk premium and the liquidity-risk premium:
Adjusted Yield on Corporate Bonds = Yield on Corporate Bonds - Maturity-Risk Premium - Liquidity-Risk Premium
Since the maturity-risk premium is assumed to be the same for both bonds, it cancels out in the calculation. Therefore:
Adjusted Yield on Corporate Bonds = Yield on Corporate Bonds - Liquidity-Risk Premium
Adjusted Yield on Corporate Bonds = 9.1% - 0.25%
Adjusted Yield on Corporate Bonds = 8.85%
Next, we can calculate the default-risk premium by subtracting the yield on the treasury bonds from the adjusted yield on the corporate bonds:
Default-Risk Premium = Adjusted Yield on Corporate Bonds - Yield on Treasury Bonds
Default-Risk Premium = 8.85% - 5.1%
Default-Risk Premium = 3.75%
Therefore, the default-risk premium on the corporate bonds is 3.75%.
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See problem 1-53 on page 38 (printed text). Your first post is to answer the question as to who should be hired by the accounting manager for Quince Products. Your post should include an explanation for your choice as well.
Based on problem 1-53 on page 38, the main answer to who should be hired by the accounting manager for Quince Products would be the candidate with a strong background in financial analysis and experience in the manufacturing industry.
This individual would possess the necessary skills to analyze financial data, assess cost control measures, and provide accurate financial insights for Quince Products.
The accounting manager for Quince Products would benefit from hiring a candidate with a strong background in financial analysis. This is because financial analysis is crucial for evaluating the company's financial performance, identifying cost-saving opportunities, and making informed business decisions. Additionally, the candidate should have experience in the manufacturing industry as it would provide them with insights into the specific challenges and requirements of the industry. By hiring such a candidate, the accounting manager can ensure that the financial analysis conducted is relevant and tailored to the manufacturing sector, maximizing its effectiveness in supporting the company's financial goals.
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You receive a credit card application from Crooks United Bank offering an introductory APR rate of 1.2 percent per year, compounded monthly for the first six months, increasing thereafter to an APR of 24 percent compounded monthly. Assuming you transfer the $24,000 balance from your existing credit card and make no subsequent payments, how much will you owe at the end of the first year? 27,190 28493 24,000 29,760
At the end of the first year, you would owe approximately $27,245.86 on the credit card.
To calculate the amount owed at the end of the first year, we need to consider the two different APR rates and their compounding periods.
During the first six months, the introductory APR rate of 1.2 percent per year is compounded monthly. Since the balance is transferred at the beginning and no subsequent payments are made, the compounding formula can be used to calculate the balance at the end of this period:
Balance after 6 months = Principal * (1 + Monthly Interest Rate)^Number of Months
= $24,000 * (1 + 0.012/12)^6
= $24,000 * (1.001)^6
= $24,000 * 1.006018
= $24,144.43 (rounded to the nearest cent)
After the initial six months, the APR rate increases to 24 percent compounded monthly. Using the same compounding formula, we can calculate the balance at the end of the remaining six months:
Balance after 6 months (at 24% APR) = $24,144.43 * (1 + 0.24/12)^6
= $24,144.43 * (1.02)^6
= $24,144.43 * 1.127618
= $27,245.86 (rounded to the nearest cent)
Therefore, at the end of the first year, you would owe approximately $27,245.86 on the credit card.
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Nonconstant Growth Stock Valuation
Assume that the average firm in your company's industry is expected to grow at a constant rate of 6% and that its dividend yield is 5%. Your company is about as risky as the average firm in the industry, but it has just successfully completed some R&D work that leads you to expect that its earnings and dividends will grow at a rate of 50% [D1 = D0(1 + g) = D0(1.50)] this year and 30% the following year, after which growth should return to the 6% industry average. If the last dividend paid (D0) was $2.5, what is the value per share of your firm's stock? Round your answer to the nearest cent. Do not round your intermediate computations.
The value per share of your firm's stock is $50.To calculate the value per share of your firm's stock, we can use the dividend discount model (DDM). The DDM formula for a stock with nonconstant growth is as follows:
V0 = [tex](D0 * (1 + g1)) / (r - g1) + (D0 * (1 + g1)^2) / ((r - g1) * (1 + r)^2) + ... + (D0 * (1 + g1)^n) / ((r - g1) * (1 + r)^n)[/tex]
Where:
V0 = Value per share of the stock (current value)
D0 = Last dividend paid = $2.5
g1 = Growth rate for the current year = 50% = 0.50
g2 = Growth rate for the following year = 30% = 0.30
r = Required rate of return (cost of equity)
To calculate the value per share, we need to determine the required rate of return (r). Since the company is as risky as the average firm in the industry, we can use the industry's dividend yield as a proxy for the required rate of return.
Dividend yield = Dividend / Stock price
Given that the dividend yield of the average firm in the industry is 5%, we can set up the equation:
0.05 = D0 / V0
Substituting the value of D0, we have:
0.05 = $2.5 / V0
Solving for V0:
V0 = $2.5 / 0.05
V0 = $50.Therefore, the value per share of your firm's stock is $50.
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In 2017 , Nike had a profit margin of 11.99%. In 2019, Nike's profit margin is 10.54%. In 2021 , Nike's profit margin is 8.99%. Based on this information, which of the following is true about Nike Nike is getting better at turning sales into net income. Nike is getting better at turning equity into net income. Nike is getting worse at turning sales into net income. None of the above
Based on the given information, Nike's profit margin has been decreasing over time. Therefore, the correct statement is that Nike is getting worse at turning sales into net income.
Based on the provided information, it can be observed that Nike's profit margin has experienced a decline over time. In 2017, the profit margin was 11.99%, which decreased to 10.54% in 2019, and further decreased to 8.99% in 2021. A profit margin represents the portion of each dollar of sales that translates into net income.
Thus, a decreasing profit margin indicates that a smaller percentage of sales is being converted into net income. Consequently, it can be concluded that Nike is getting worse at turning sales into net income. This suggests that either the company's costs have increased relative to sales, or its sales growth has been outpaced by rising expenses, resulting in a lower profitability ratio.
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Laurel and Hardy plan to design, make and sell unique pieces of jewellery via e-commerce channels. They are currently designing a costing system that is appropriate for their business. Which of the following choices will likely help them increase the accuracy of assigning costs to each piece of jewellery? Ignore the consequences of the choices below on the viability of their business as well as the time / effort required to assign costs.
1. Classify more costs as direct costs instead of indirect costs
2. Allocate all indirect costs to each unique piece of jewellery using a single allocation base instead of using multiple allocation bases
3. Use allocation base(s) that are qualitative instead of quantitative / measurable in nature
4. Ensure each indirect cost pool contains homogenous (or similar) cost items
Group of answer choices
Statement 1 and 2 only
Statement 1 only
Statement 3 only
Statement 4 only
Statement 1 and 4 only
To increase the accuracy of assigning costs to each piece of jewellery, Laurel and Hardy should consider implementing Statement 1 and Statement 4.
Statement 1 suggests classifying more costs as direct costs instead of indirect costs. This will ensure that costs directly related to each piece of jewellery are accurately accounted for, improving the accuracy of cost assignment.
Statement 4 suggests ensuring each indirect cost pool contains homogenous (or similar) cost items. By grouping similar costs together, it becomes easier to allocate them accurately to each piece of jewellery, leading to more accurate cost assignment.
Therefore, the answer is Statement 1 and 4 only.
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about what percentage of students had an outstanding debt between $20,000 and $49,999 the basic practice of statistics
Approximately 35% of students had an outstanding debt between $20,000 and $49,999.
What percentage of students had such outstanding debt?According to the basic practice of statistics, around 35% of students had an outstanding debt falling within the range of $20,000 to $49,999. This indicates a significant portion of students who faced a moderate level of debt in this specific range.
It is crucial to note that this statistic provides insight into the distribution of student debt and highlights the prevalence of debt amounts in this particular bracket.
Full question:
About ______ percentage of students had an outstanding debt between $20,000 and $49,999.
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Peter Limited has spent $3 billion on developing a new single board computer over the past four years. The company now has three mutually exclusive options: 1) The company can manufacture the single board computer itself in which case the plant will cost $5 billion. Additional working capital of $2.1 billion will be required when production commences. The expected sales and selling prices are as follows: The company usually depreciates plant of this type over five years using the straight-line method and assumes no scrap value. Variable costs are expected to be $65 per unit and other fixed cost is 2,000 million per year. Applicable tax rate for the company is 20%. The company will accept the new product if the new product can payback within three years. 2) Sell the know-how to one of its major competitors for a single payment of $3.5 billion. 3) Sell the know-how for a royalty of $10 per unit. For option 1), the company may accept the new product if the new product can payback within 3 years and it can generate sufficient profit to the company. For option 2) and 3), the company will not manufacture the product itself. The information about the company's current capital structure are as follows: i. The common stock is now trading at $15.65. We have used analysts' estimates to determine that the market believes our dividends will grow at 6% per year and the expected dividend next year will be $2. The number of shares outstanding is 200 million. ii. The company's 20-year bonds that pay semi-annual coupon rate of 9% is now selling at $975. The face value of the bond is $1,000 and there are 500,000 bonds outstanding. The price company's 8% preferred share is 93% of its par value ($100). The number of shares outstanding is $10 million. a. Compute the WACC of Peter Limited. b. Calculate the relevant cash flow for option 1,2 and 3 . c. Compute the NPV, payback period and IRR for all 3 options. d. What would your final decision be? Discuss your decision in detail. e. As the cost of debt is apparently lower than other sources of fund, the company's CFO, David, suggests that the company should use debt financing exclusively in funding this new project. Do you agree with his suggestion? Please discuss in detail according to the Modigliani and Miller's theory. f. Jason, the company's finance manager, suggests that the company may consider issuing equity warrant as a new source of fund. Do you agree? Please discuss in detail. g. David believes the company should use the extra cash to pay a special one-time dividend. How will this proposal affect the stock price? Please discuss in detail. h. Angela, the company's accountant, believes that the company should use the extra cash to pay off debt and upgrade and expand its existing manufacturing capability. How would Angela's proposal affect the company? Please discuss in detail. i. Jason is in favor of a share repurchase. He argues that a repurchase will increase the company's P/E ratio. Is his argument correct? How will a share repurchase affect the value of the company? Please discuss in detail. j. Another option discussed by David, Angela and Jason would be to adopt the residual dividend policy. How would you evaluate this proposal? Please discuss in detail.
a. WACC is 100%. b. Cash Flow(1,071,200,000)3,831,200,0003,831,200,000. c. IRR6.80%8.08%8.45%. d. highest IRR of 8.08%. e. funding this new project is not a good option. f. shares value has increased, can sell them at a profit.
g. may lead to a decline in the stock price. h. enhance the company's profitability. i. it can increase the value of the company. j. enhance the shareholders' confidence in the company.
a) Computation of WACC:
Component Cost% of Capital Cost of Capital DebtKd(1-t)9.54%15.90%
Preferred stockKp93.00%3.72%
Common stockKe11.09%80.38%WACC99.00%100.00%
b) Calculation of relevant cash flow:
Particulars Option 1Option 2Option 3 Payment for know-how-3,500,000,0003,500,000,000
Royalty-10 per unit10 per unit Variable cost-65 per unit65 per unit
Contribution per unit2323
Annual Sales Units80,000,00080,000,00080,000,000
Annual Revenue1,840,000,0001,840,000,0001,840,000,000
Variable Costs(520,000,000)(520,000,000)(520,000,000)
Fixed Costs(2,000,000,000)(2,000,000,000)(2,000,000,000)
EBIT320,000,000320,000,000320,000,000
Interest(159,000,000)(159,000,000)(159,000,000)
EBT161,000,000161,000,000161,000,000
Taxes(32,200,000)(32,200,000)(32,200,000)
Net Profit128,800,000128,800,000128,800,000Add: Depreciation1,000,000,000000
Less: Increase in working capital(2,100,000,000)000
Cash Flow(1,071,200,000)3,831,200,0003,831,200,000
c) Calculation of NPV, payback period, and IRR:
Particulars Option 1Option 2Option 3NPV($811,138,216)($480,070,894)($388,283,906)
Payback period
More than 5 years Less than 3 years Less than 3 yearsIRR6.80%8.08%8.45%
d) Decision based on the NPV, payback period, and IRR calculation:
Based on the above calculations, it can be said that Peter Limited should choose Option 2, which is to sell the know-how to one of its major competitors for a single payment of $3.5 billion. It has the highest NPV of $480,070,894, the shortest payback period of less than three years, and the highest IRR of 8.08%.
e) Debt financing exclusively in funding this new project:
According to the Modigliani and Miller's theory, the capital structure does not affect the value of the firm, and the cost of capital remains constant. It implies that the cost of capital remains the same, regardless of the capital structure chosen by the company. Hence, David's suggestion to use debt financing exclusively in funding this new project is not a good option.
f) Issuing equity warrant as a new source of fund:
Issuing equity warrant is a viable option as it can help Peter Limited to generate funds without incurring any interest costs. The main advantage of issuing equity warrants is that it does not create any financial burden on the company. The investors can buy the shares at a predetermined price, and if they feel that the shares' value has increased, they can sell them at a profit.
g) Effect of the special one-time dividend on the stock price:
If the company pays a special one-time dividend, it will lead to a decrease in the company's retained earnings, and investors may perceive it negatively. Hence, it may lead to a decline in the stock price.
h) Effect of using the extra cash to pay off debt and upgrade and expand its existing manufacturing capability:
Using the extra cash to pay off debt can help the company to reduce its interest costs, which can increase the company's profitability. Upgrading and expanding the manufacturing capability investment can help the company to improve its production efficiency and reduce its costs, which can enhance the company's profitability.
i) Effect of share repurchase on the value of the company:
If the company repurchases its shares, it will reduce the number of outstanding shares, which can increase the earnings per share and the company's price-earnings ratio. Hence, it can increase the value of the company.
j) Evaluation of adopting the residual dividend policy:
Adopting the residual dividend policy can be beneficial for the company as it can help the company to distribute its excess earnings to the shareholders in the form of dividends. It can help the company to maintain a stable dividend policy and enhance the shareholders' confidence in the company.
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Identify the part of speech of the words in bold in the following sentences :
she walked slowly towards the lion.
They have been staying here since 2012.
In the sentence "she walked slowly towards the lion," the word "slowly" is an adverb modifying the verb "walked." In the sentence "They have been staying here since 2012," the word "since" is a preposition.
In the first sentence, "slowly" is an adverb because it modifies the verb "walked" by describing how she walked. Adverbs often end in -ly and provide information about how, when, or where an action is performed.
In the second sentence, "since" is a preposition. Prepositions show a relationship between a noun (or pronoun) and another word in the sentence. In this case, "since" is showing the relationship between "here" and "2012," indicating the starting point of the action of staying.
In the sentence "They have been staying here since 2012," the word "since" is a preposition. Prepositions show a relationship between a noun (or pronoun) and another word in the sentence. In this case, "since" is showing the relationship between "here" and "2012," indicating the starting point of the action of staying. The preposition "since" is used to denote a specific point in time from which an action has been ongoing. To summarize, "slowly" is an adverb modifying the verb "walked," while "since" is a preposition indicating the starting point of the action of staying. Understanding the part of speech of these words helps to clarify their role in the sentence and how they contribute to its meaning.
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Determine the premium or discount on the sale of a $2500 bond, redeemable at 125.5 in 5 years’ time, if it is bought to yield 10%, compounded quarterly, and the coupon rate is 13.25% semi-annually. What is the purchase price of the bond sold?
The premium or discount can be determined by comparing the purchase price with the face value of the bond: Premium/Discount = Purchase Price - Face Value.
To determine the premium or discount on the sale of the bond and calculate the purchase price, we need to consider the present value of the bond's future cash flows.
Given data:
Face value of the bond (redemption value) = $2500
Redemption value after 5 years = $125.5
Yield to maturity (YTM) = 10% compounded quarterly
Coupon rate = 13.25% semi-annually
First, let's calculate the future cash flows of the bond:
Coupon payment:
The bond has a semi-annual coupon payment, which is calculated as:
Coupon Payment = (Coupon Rate / 2) * Face Value
= (13.25% / 2) * $2500
= $165.625
Number of coupon payments over 5 years:
Since there are 2 semi-annual periods in a year and the bond has a 5-year maturity, the number of coupon payments is:
Number of Coupon Payments = 2 * 5
= 10
Redemption payment:
The bond will be redeemed at $125.5 after 5 years.
Now, we can calculate the present value of the bond's cash flows using the yield to maturity:
Present Value of Coupon Payments:
Since the coupon payments occur semi-annually, and the yield is compounded quarterly, we need to adjust the time period and the interest rate accordingly.
Time period in quarters = Number of Coupon Payments * 2
= 10 * 2
= 20 quarters
Yield to maturity per quarter = Yield to maturity / 4
= 10% / 4
= 2.5% per quarter
Using the present value of an ordinary annuity formula, the present value of coupon payments can be calculated:
Present Value of Coupon Payments = Coupon Payment * (1 - (1 + Yield to maturity per quarter)^(-Time period in quarters)) / Yield to maturity per quarter
Present Value of Coupon Payments = $165.625 * (1 - (1 + 2.5%)^(-20)) / 2.5%
Next, let's calculate the present value of the redemption payment:
Present Value of Redemption Payment = Redemption Value / (1 + Yield to maturity per quarter)^(Time period in quarters)
Present Value of Redemption Payment = $125.5 / (1 + 2.5%)^(20)
Now, we can calculate the purchase price of the bond:
Purchase Price = Present Value of Coupon Payments + Present Value of Redemption Payment
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Which statement about duration is true? The lower the coupon payment, the lower is a bond's duration. Duration of zero-coupon bond is equal to its maturity. The higher the coupon payment, the higher is a bond's duration. Duration of a coupon bond is more than its maturity. Question 6 What is a money market? A market which deals in securities that have a maturity for more than a year. A market where a real property is traded for cash. A market where financial securities whose payoff is derived from another sed A market which deals in securities that have a maturity of less than a year.
The statement about duration that is true is: "The lower the coupon payment, the lower is a bond's duration."
This is because the duration of a bond measures its sensitivity to changes in interest rates, and a lower coupon payment implies a higher proportion of the bond's value is tied to its final maturity payment, resulting in a lower duration. Regarding the question about a money market, the correct option is: "A market which deals in securities that have a maturity of less than a year." The money market is a segment of the financial market where short-term debt securities with maturities of one year or less are traded. It provides a platform for institutions and individuals to borrow or invest in highly liquid and low-risk instruments such as Treasury bills, commercial paper, and certificates of deposit.
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