Answer:
A) revenues to be understated
Explanation:
In this scenario, this would cause revenues to be understated. This is mainly because the financial report of profit would state an amount that is less than the amount that was actually earned by the Architecture Firm. This is due to the profit of $2320 that was already fully earned by the Firm not being included in the financial report, therefore missing a piece of the profits in the report (understated).
15-9: Harris Company must set its investment and dividend policies for the coming year. It has three independent projects from which to choose, each of which requires a $3 million investment. These projects have different levels of risk, and therefore different costs of capital. Their projected IRRs and costs of capital are as follows: Project A: Cost of capital: 17%; IRR: 20% Project B: Cost of capital: 13%; IRR: 14% Project C: Cost of capital: 7%; IRR: 9% Haris intends to maintain its 35% debt and 65% common equity capital structure, and its net income is expected to be $7,500,000. If Harris maintains its residual dividend policy (with all distributions in the form of dividends), what will its payout ratio be?
Answer:
Its payout ratio will be 22%
Explanation:
Residual dividend policy is a policy where a company uses the residual equity to fund dividend payments.
Accept Project A, B and C as they all have higher Cost of capital than the IRR
The total investment = $3,000,000 * 3 = $9,000,000
Dividend = Earnings - Investment in equity = $7,500,000 - 65%*$9,000,000 = $7,500,000 - $5,850,000 = $1,650,000
Dividend payout ratio = Dividend / Total earnings = $1,650,000 / $7,500,000 = 0.22 = 22%
Which of the jobs listed is likely to be the most influenced by creativity and the creative process?A) Warehouse workerB) ProgrammerC) ReceptionistD) Office manager
Answer:
C) Programmer
Explanation:
Creative process could be regarded as
a process of unconscious and conscious mind, it is a simple term of inspiration. It involves critical thinking and ability to solve problems with one skills. According to Graham Wallas who model a creative process, in the book of " The Art of Thought" told us about the stages involves in the creative process which are;
✓preparation (or saturation)
✓incubation
✓ illumination
✓ verification (or implementation).
Out of the given options only programming can be regarded as a creative process.
Answer:programmer
Explanation:
The knowledge a firm possesses can be a source of competitive advantage. Describe ways that a firm can continuously learn to maintain its competitive position.
Answer:
It includes; Digging deeper into areas of knowledge/expertise and comparison of achievement can help foster,creat or lead to a competitive position/ advantage. Finding out, sourcing and making use of other areas or sources of knowledge and information can keep a company up to date of competitive efforts and leads to an environment for creativity, shows/ create new knowledge within the company thereby finally leading toexisting competitive advantages and going after new ones.Success is a product of failure so therefore, getting the knowledge of failure as part of the innovative process can bring good results.
Meeting goals with all flexibility and sharing of personal stories, sourcing outsiders, proving one’s self wrong will all foster a kind of fear-free searching of new ideas.
Explanation:
For firm generally, crafting, creating or bringing a strategy that gives/yields a competitive advantage over rivals is said to be the most reliable means of achieving above-average profitability and financial performance in any organization. A company can attain and have sustainable competitive advantage if and when the elements of the strategy used by the company give buyers lasting and good impression orreasons to prefer a company's products or services over those of their competitors.
Strategic approaches used by company to build a competitive advantage includes; Focusing on a narrow market environment (niche) within an industry and also creating an advantage based on offering more value for the money e.t.c.
Abbey Co. sold merchandise to Gomez Co. on account, $35,000, terms 2/15, net 45. The cost of the merchandise sold was $24,500. Abbey Co. issued a credit memo for $3,600 for merchandise returned that originally cost $1,700. Gomez Co. paid the invoice within the discount period. What is the amount of gross profit earned by Abbey Co. on the above transactions?
A- $10,500
B- $30,772
C- $7,972
D- $ 31,400
Answer:
Gross profit earned = $7,972
Explanation:
Net sales = $35,000 - 3,600
Net sales = $31,400
Merchandise cost = $24,500 - 1,700
Merchandise cost = 22,800
Discount allowed = [$31,400]2%
Discount allowed = 628
Gross profit earned = $31,400 - $22,800 - $628
Gross profit earned = $7,972
If an investor has a fixed investment horizon, what type of security can be used to minimize both the price risk and the reinvestment risk?
Answer:
A zero coupon treasury bond
Explanation:
A zero coupon treasury bond having a maturity period matching the investment horizon of an investor can minimize both price risk and reinvestment risk. Reinvestment risk in case of a bond refers to reinvestment of the cash flows from the bond at a return close to current investment rate of return. As a zero coupon treasury bond do not pay any coupon payment, it won't carry any reinvestment risk.
The bond holder in case of a zero coupon treasury bond, receives a guaranteed payment at maturity of the bond. This payment is equal to face value or par value of the bond. Price risk (increase or decrease in a bond value due to interest rates) matters if a bond is sold before maturity.. However, on selling a bond at its maturity, price risk won't matter as the payment will be equal to face or par value.
Calculate the yield to maturity of a zero coupon bond with a face value (par value) of $1,000, maturing in 15 years and selling for a price of $525.75.a. 5.62%.b. 4.38%.c. 8.74%.d. 15.26%.e. 16.27%.
Answer:
YTM = 0.043793 or 4.3793% rounded off to 4.38%
Explanation:
The yield to maturity or YTM is the yield or return that an investor can earn on the bond if the bond is purchased today and is held till the bond matures. The formula to calculate the Yield to maturity of a zero coupon bond is as follows,
YTM = [ (( F / PV)^1/n) - 1 ]
Where,
F is the Face value of the bond
PV is the current value of the bond
n is the number of years to maturity
YTM = [ (( 1000 / 525.75)^1/15) - 1 ]
YTM = 0.043793 or 4.3793% rounded off to 4.38%
On December 28, 2021, Tristar Communications sold 17 units of its new satellite uplink system to various customers for $25,000 each. The terms of each sale were 2/10, n/30. Tristar uses the gross method to account for sales discounts.In what year will income before tax be affected by discounts, assuming that all customers paid the net-of-discount amount on January 6, 2022. By how much in 2022ï¼ income before tax will be reduced byï¼
Answer:
Since the company records its transactions using hte gross method, any discounts will affect 2022 earnings. The journal entries to record these sales are:
December 28, 2021, 17 units sold
Dr Accounts receivable 425,000
Cr Sales revenue 425,000
January 6, 2022, invoices collected
Dr Cash 416,500
Dr Sales discounts 8,500
Cr Accounts receivable 425,000
Blankenship Company operates a factory with two departments, X and Y. The utilities to heat and light the manufacturing facility would most likely be allocated to departments X and Y on the basis of:a. Square Footage occupiedb. Machine Hoursc. Direct labor hoursd. Units sold
Answer:
a. Square Footage occupied
Explanation:
Machine hours is the cost drive of utilities (cost object); it is not the basis of allocation. Direct labor hours is the cost drive of utilities (cost object); it is not the basis of allocation. Unit sold is the basis of allocation of advertising; it is not the allocation bases of utilities.
Utilities expenses such as heat, water, and lighting are generally allocated based area occupied by the department. Hence, the option “square footage occupied” is the correct answer.
M and M, Inc. produces a product that has a variable cost of $3.40 per unit. The company's fixed costs are $41,600. The product is sold for $6 per unit and the company desires to earn a target profit of $13,000. What is the amount of sales that will be necessary to earn the desired profit? (Do not round intermediate calculations.) A. $305,200 B. $96,000 C. $150,600 D. $126,000
Answer:
D. $126,000
Explanation:
We will calculate the amount of sales to earn desired profit as;
= (Desired profit + Fixed costs) / Contribution margin %
Given that;
Desired profit = $13,000
Fixed costs = $41,600
We can calculate contribution margin % using the formula;
= (Sales price per unit - Variable cost per unit) / Sales price per unit
= ($6 - $3.4) / $6
= $2.6 / $6
= 0.4333333
= 43.33333% rounded off
We can now calculate ;
Amount of sales = (Desired profit + Fixed costs) / Contribution margin %
= ($13,000 + $41,600) / 43.33333%
= $54,600 / 43.33333%
= $126,000
Therefore, the amount of sales that will be necessary to earn the desired profit is $126,000
Your local T-Spirit store is having a sale on the latest i-razpod cell phone. The store is also offering financing to those who
qualify. The new cell phone is on sale for $150.00 with a two year contract. The sales associate informs you that the
closed-end installment loan offered by the store is a 24 month installment plan with monthly payments of $8.44.
Determine the finance charge (interest) of the installment loan.
a $52.00
c. $54.30
b. $52.56
d. $56.10
Answer:
$52.56
Explanation:
first, figure out how much you'll be paying during the 24 months.
8.44 x 24 = 202.56
subtract 150, the original price of the phone, from 202.56, the price you would be paying over 24 months.
202.56 - 150 = 52.56
the finance charge is $52.56.
Answer:
B. 52.56
Explanation:
I meant to choose B and accidentally chose A. Says the answers b
One of the potential benefits of ____________ from the company's perspective is that customers will be buying a larger range of services or products from the company than they otherwise might have.
a. price bundling
b. prestige pricing
c. value pricing
d. odd-even pricing
e. informative pricing
Answer:
a. price bundling
Explanation:
Price bundling in business can be defined as a strategic process which typically involves the combination of several goods and services into a single unit for a relatively lower price or cost.
One of the potential benefits of price bundling from the company's perspective is that customers will be buying a larger range of services or products from the company than they otherwise might have.
Pule purchases four bottles of bathroom cleaner for $3 each. The maximum prices she would have been willing to pay for each bottle are $6 for the first bottle, $5 for the second bottle, $4 for the third bottle, and $3 for the fourth bottle. The marginal cost of producing the bottles is $2.50. What is Pule's consumer surplus on the third bottle of bathroom cleaner?a. $.50 b. $6c. $1d. $0
Answer:
The correct answer is:
$1 (d)
Explanation:
A consumer surplus is the difference between what a consumer is willing to pay and what they are able to pay for a particular good or service. It is simply the extra benefit gained by the consumer for paying lesser for a good or service than what they actually intended to pay. Based on this, it is noticed that consumer surplus tends to increase as the market price of goods/services fall, and reduce as their price increases. It is represented mathematically as:
Consumer surplus = (Price willing to pay) - (Actual price paid)
In this example, the consumer surplus is calculated thus:
price willing to pay for third bottle = $4
Price paid = $3
Consumer surplus = 4 - 3 = $1
When markets fail, public policya. can do nothing to improve the situationb. can potentially remedy the problem an increase economicefficiency.c. can always remedy the problem and increase economicefficiency.d. can in theory, remedy the problem, buy in practice, publicpolicy has proven to be ineffective
Answer:
b. can potentially remedy the problem an increase economic efficiency.
Explanation:
A market failure can be defined as a situation in which the market fails to produce an efficient level of output required to meet the demands of the consumers or customers.
This ultimately implies that, a market failure arises when there is inefficiency in the distribution or allocation of goods and services in a free market. Thus, the demand of the consumer of these goods and services are not being met with the level of supply (output) required i.e the forces of demand and supply are not efficient in producing the level of output required by the economy.
Some of the causes of market failure are imperfect information, monopoly, oligopoly, externalities etc.
Hence, when markets fail, public policy can potentially remedy the problem an increase economic efficiency.
Some of the public policy are pollution permits, government price controls, advertising etc.
Redesigned Computers has 6.5 percent coupon bonds outstanding with a current market price of $832. The yield to maturity is 16.28 percent and the face value is $1,000. Interest is paid semiannually. How many years is it until these bonds mature? A. 2.10 years B. 4.19 years C. 7.41 years D. 9.16 years E. 18.32 years
Answer:
A. 2.10 years
Explanation:
Use following formula to calculate the numbers of years to maturity of the bond.
Price of the bond = [ Periodic Coupon payment x ( 1 - ( 1 + periodic yield to maturity )^-numbers of periods ) / Periodic yield to maturity ] + [ Face value / ( 1 + periodic yield to maturity )^numbers of periods
where
Price of the bond = $832
Periodic Coupon payment = $1,000 x 6.5% x 6/12 = $32.5
Periodic yield to maturity = 16.28% x 6/12 = 8.14%
Face value = $1,000
Numbers of periods = ?
Placing values in the formula
$832 = [ $32.50 x ( 1 - ( 1 + 8.14% )^-numbers of periods ) / Periodic 8.14% ] + [ $1,000 / ( 1 + 8.14% )^numbers of periods ]
Numbers of periods = 4.20 period
Numbers of years = 4.20 x 12/6 = 2.10 years
At July 31, Oriole Company has this bank information: cash balance per bank $8,085, outstanding checks $755, deposits in transit $1,390 and a bank service charge $25. Determine the adjusted cash balance per bank at July 31.
Answer:
The adjusted cash balance per bank at July 31 is $8,720
Explanation:
Adjusted cash balance is the cash balance calculated after required adjustments in the balance as per bank or balance as per record of the entity having that bank account.
Accroding to the bank reconciliation statement
The outstanding checks are deducted from the cash balance as per bank because these are the check issued but not be presented in the bank until the end of a period.On the other hand, the deposit in transit is the cash that is to be received but this balance is in the clearing process of the check.Bank Service charges is already adjusted in the balance as per bank.Adjusted Balance can be calculated as follow
Cash balance as per Bank ______________ $8,085
Less: Outstanding Checks ______________ $755
Add: Deposit in transit _________________ $1,390
Adjusted Cash balance ________________ $8,720
If a 7% increase in the price of cheese causes a 7% reduction in the total revenue received by cheese farmers, the demand for cheese is:A.Inelastic.B.Elastic.C.Unit elastic.D.Infinite
Answer:
C.Unit elastic
Explanation:
Unit elastic demand is the term that describes a scenario where a change in price causes a proportionate change in demand. It is one of the types of elastic demand. A good or service is said to have elastic demand if a small change in price causes a considerable change in the quantity demanded.
In the unit elastic demand, if a product price changes by a certain percentage, the demand will change by an equal percentage. In this scenario, a 7 percent price increase results in a 7 percent decrease in demand.
if the owner of a business invests $20,000 in her business , which 2 accounts are affected?
Answer:
The owner invests personal cash in the business. The company's asset account Cash increases. ... (If the company is a corporation, then the Common Stock account(s) will increase.)
Powder Ski Shop reports inventory using the lower of cost and net realizable value (NRV). Below is information related to its year-end inventory Inventory Quantity Unit Cost NRV Ski Jackets 20 $115 $95 Skis 25 300 350Calculate the total amount to be reported for ending Inventory. Inventory Quantity Lower of Cost and NRV per unit Ending Inventory Ski jackets 20 $ 115 $ 2,300Skis 25 300 7500Use the following information: Net sales $250,000Cost of goods sold 180,000 Beginning inventory 55,000Ending inventory 45,000 a. Calculate the inventory turnover ratio. (Round your answer to 1 decimal place.) Inventory turnover ratio _______ times b. Calculate the average days in Inventory. (Assume 365 days in a year. Round your intermediate calculations and final answer to 1 decimal place.) Average days in inventory ______ days c. Calculate the gross profit ratio. Gross profit ratio ________ %
Answer:
Inventory Quantity Unit Cost NRV
Ski Jackets 20 $115 $95
Skis 25 $300 $350
Ending inventory = (20 x $95) + (25 x $300) = $9,400
a) inventory turnover ratio = cost of goods sold / average inventory = $180,000 / [($55,000 + $45,000)/2] = $$180,000 / $50,000 = 3.6
b) average days in inventory = 365 / inventory turnover = 365 / 3.6 = 101.39 days
c) gross profit ratio = gross profit / net sales = ($250,000 - $180,000) / $250,000 = $70,000 / $250,000 = 0.28 = 28%
Data related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows: Timber rights on a tract of land were purchased for $1,140,000 on February 22. The stand of timber is estimated at 6,000,000 board feet. During the current year, 1,600,000 board feet of timber were cut and sold. On December 31, the company determined that $1,110,000 of goodwill was impaired. Governmental and legal costs of $9,120,000 were incurred on April 3 in obtaining a patent with an estimated economic life of 15 years. Amortization is to be for three-fourths of a year.
Required:
a. Determine the amount of the amortization, depletion, or impairment for the current year for each of the foregoing items. Do not round your intermediate calculations.
Item Impairment, Amortization or Depletion Expense
a. $
b. $
c. $
b. Journalize the adjusting entries required to record the amortization, depletion, or impairment for each item.
Answer:
a) Determination of the amount of the amortization, depletion, or impairment for the current year for each item:
Item Impairment Amortization Depletion
Expense Expense Expense
a. Timber rights $304,000
b. Goodwill $ 1,110,000
c. Patent $456,000
b) Adjusting Journal Entries:
Date Account Titles Debit Credit
Dec. 31 Depletion Expense -Timber rights $304,000
Accumulated Depreciation - Timber rights $304,000
To record the depletion expense for Timber rights.
Dec. 31 Goodwill Impairment Loss $1,110,000
Accumulated Goodwill Impairment $1,110,000
To record the impairment loss for Goodwill
Dec. 31 Amortization Expense - Patent $456,000
Accumulated Amortization - Patent $456,000
To record the amortization expense for Patent.
Explanation:
a) Data and Calculations:
February 22, Purchase of Timber rights $1,140,000
Estimated stand of timber = 6,000,000
Used board feet of timber = 1,600,000
Units of product Depletion
= $1,140,000/6,000,000 * 1,600,000
= $304,000
December 31, Goodwill impairment
= $1,110,000
April 3 Patent:
Cost incurred $9,120,000
Amortization per annum = $608,000 ($9,120,000/15)
Amortization for the current year = $456,000 ($608,000 * 3/4)
Suppose you buy a 7 percent coupon, 20-year bond today when it’s first issued. If interest rates suddenly rise to 15 percent, what happens to the value of your bond?
a. the price of the bond will fall
b. the price of the bond will raise
Answer: a. the price of the bond will fall.
Explanation:
If one buys a 7% coupon, 20-year bond today when it’s first issued and the interest rates suddenly rise to 15%, the value of the bond will decrease.
This is because there's an inverse relationship between price and interest rates, that is, the increase in one variable will lead to the decrease in the other variable. When there is a rise in the inters rate, it should be noted that the payments on fixed coupon are worth less.
Therefore, the price of the bond will fall.
Ben and Mildred's Stables used two different independent variables (trainer hours and number of? horses) in two different equations to evaluate the cost of training horses. The most recent results of the two regressions are as follows:
Trainer's hours: Variable Coefficient Standard Error t-Value Constant $1,005.45 $217.52 4.61 Independent Variable $22.54 $3.23 7.40 r2 = 0.56 Number of horses: Variable Coefficient Standard Error t-Value Constant $5,240.20 $1,180.32 4.44 Independent Variable $22.54 $3.23 4.75 r2= 0.63
What is the estimated total cost for the coming year if 14,700 trainer hours are incurred and the stable has 310 horses to be trained, based upon the best cost driver?
A. $13,995,671.20
B. $7,992.85
C. $332,343.45
D. $300,276.50
Answer:
the estimated total cost for the coming year is $12,227.60
Explanation:
The computation of the estimated total cost is shown below:
y
= Constant coefficient + independent variable coefficient × number of horses
= $5,240.20 + $22.54 × 310 horses
= $5,240.20 + $6,987.40
= $12,227.60
This is the answer but not the same is to be given in the options
hence, the estimated total cost for the coming year is $12,227.60
Archer, in Chicago, wrote to Ganze in New York City offering to purchase her antique car. When she received the letter, Ganze mailed an acceptance. After she mailed the letter, Ganze changed her mind and sent a telegram rejecting the offer. The acceptance letter reached Archer one day before the telegram. Did a contract result
Answer:
No
Explanation:
Remember, in business law, as long as both parties did not sign a contractual document, the purchase is not legal.
In this case, it could be observed that Ganze only "mailed an acceptance" not a signed document between both parties agreeing on the purchase of her antique car.
Also, the fact that she quickly sent a telegram letting Archer know that she is rejecting the offer, shows that she acted in good fate to withdraw her acceptance on time.
Martinez Corporation purchased machinery on January 1, 2022, at a cost of $268,000. The estimated useful life of the machinery is 4 years, with an estimated salvage value at the end of that period of $31,800. The company is considering different depreciation methods that could be used for financial reporting purposes.
(SEE PICTURE)
Answer:
see below
Explanation:
1. Depreciation using the straight-line method.
Under the straight-line method, depreciation is a constant figure in every year of an asset's useful life.
The calculation of depreciation expense is by establishing the depreciable amount, which is the asset cost minus salvage value.
Depreciable amount = Asset cost - Salvage value.
In this case
Depreciable amount = $268,000 - $31,800
=$236,200
The depreciation rate = 1/4 x 100 = 25%
Depreciation per year
=25/100 x $236,200
=$59,050
year Depreciable cost rate Amount
2022 $236,200 25% $59,050
2023 $236,200 25% $59,050
2024 $236,200 25% $59,050
2025 $236,200 25% $59,050
2. Depreciation under the double-declining method.
The double-declining method uses twice the rate of the straight-line depreciation method.
The depreciation rate for the straight-line method is 25%, double-declining will use 50%. The salvage value is $31,800. The asset is depreciated until the salvage value is achieved.
year Depreciable cost rate Amount
2022 $268,000 50% $134,000
2023 $134,000 50% $67,000
2024 $67,000 50% $33,500
2024 $33,500 - $1,700
Balance : salvage value of $31,800
b The straight-line method would have the highest income reported in 2022. It reports less depreciation expense.
c. both Methods will report the same amount of income over the 4 year period.
All of the following are true except:___________
a. A favorable labor efficiency variance could result from using higher quality materials that result in fewer inspections.
b. A favorable labor rate variance could result from lower wage workers quitting.
c. A favorable materials price variance could result from purchasing identical materials from another supplier at a lower price.
d. An unfavorable materials usage variance could result from not efficiently utilizing raw materials, thus causing waste.
e. An unfavorable labor efficiency variance can be caused by machine downtime, and poor quality materials.
Answer:
b. A favorable labor rate variance could result from lower wage workers quitting.
Explanation:
The reason is because Lower wage workers quitting will often result in increase labour cost and the Increase in labour cost will be resulted in unfavorable labour variance. Hence, the option B is incorrect.
Alpha Company used the periodic inventory system for purchase & sales of merchandise. Discount terms for both purchase & sales are, FOB Destination, 2/10, n30 and the gross method is used.
Alpha Company sold on account merchandise costing $3,000 to Bravo Company on May 2, 2016. Selling price was $4,500. Freight charges related to this transaction of $200 were paid by Alpha Company.
Bravo Company returned, to Alpha Company, merchandise with an original cost to Alpha of $300 on May 3, 2016. Merchandise was sold to Bravo for $450.
Use this information to prepare Alpha Company's General Journal entries (without explanation) for May 2 & May 3 entries.
Answer:
May 2
Trade Receivable $4.700 (debit)
Sales Revenue $4,700 (credit)
May 3
Sales Revenue $450 (debit)
Trade Receivable $450 (credit)
Explanation:
First, it is important to identify in whose books we are required to make the accounting entries. In this case we are required to record in Alpha (supplier) records.
Note also that Alpha Company, Alpha Company uses the periodic inventory system for purchase & sales of merchandise. This means inventory valuation is done at the end of financial year.
May 2
This is is the date of sale, we recognize the Revenue and the asset - Account Receivable. The amount should include the freight charges since this is a FOB destination shippment.
May 3
The date that the merchandise was returned. We derecognize the sale and the asset - Trade Receivable to the extent of the selling price of the goods returned
Commodity and derivative markets: ____________.a. are additional sources of financing for corporate projects. b. enable the financial manager to adjust a firm's exposure to various business risks. c. are always over-the-counter markets. d. deal only in foreign currencies.
Answer:
b. enable the financial manager to adjust a firm's exposure to various business risks.
Explanation:
The commodity and derivative markets are the tools of the investment where it permits the investors to take the profit from the specific commodities without taking the possession.
So as per the given options, the option B is correct as it also enables the financial manager for managing the exposure of the firm for the different types of business risk
Therefore the option B is correct
Paid cach Rs 900 after deducting 10% cash discount
Answer:
I'm assuming you're looking for the original price? That would be $990 before the 10% discount.
Explanation:
Which body of law governs the rules regarding the offering or trading of ownership interests in corporations?
A. State law.
B. The Revised Model Business Corporation Act.
C. Federal law.
D. Common law.
Answer
:C. Federal law.
Explanation:
Federal law can be regarded as one of the body of law in a country usually form by the federal government, the federal government which is the combination of states and province in a country under one federation usually raise some law that overseas the trading ownership interests( how a firm is able to secure common stock in another in corporations)as well as other rules that protect the business, organization through the federation. It should be noted that federal law is the body of law that governs the rules regarding the offering or trading of ownership interests in corporations
Courageous, Inc. just paid a dividend of $1.80per share on its stock. The dividends are expected to grow at a constant rate of 3 percent per year, indefinitely. If investors require a 12 percent return on Courageous stock, what is the current price? What will the price be in 3 years? In 15 years?
PART A:
Current Price: $____________.
PART B:
Price in Three Years: $____________.
PART C:
Price in Fifteen Years: $____________.
Answer:
P0 = $20.6
P3 = $22.5101762 rounded off to $22.51
P15 = $32.09412 rounded off to $32.09
Explanation:
Using the constant growth model of dividend discount model, we can calculate the price of the stock today. The DDM values a stock based on the present value of the expected future dividends from the stock. The formula for price today under this model is,
P0 = D0 * (1+g) / (r - g)
Where,
D0 * (1+g) is dividend expected for the next period /year g is the growth rate r is the required rate of return or cost of equity
Current Price
P0 = 1.8 * (1+0.03) / (0.12 - 0.03)
P0 = $20.6
Price in three years
To calculate the current price of P0 we use the dividend for Year 1 or D1. Similarly, to calculate the price in three years or P3, we will use D4.
P3 = 1.8 * (1+0.03)^4 / (0.12 - 0.03)
P3 = $22.5101762 rounded off to $22.51
Price in fifteen years
We will use D16.
P15 = 1.8 * (1+0.03)^16 / (0.12 - 0.03)
P15 = $32.09412 rounded off to $32.09
The just meaningful difference (JMD) refers to: A. The process by which consumers give humanlike characteristics to inanimate objects. B. The smallest amount of change in a stimulus that would influence consumer consumption and choice. C. A situation where a stimulus is sufficiently stronger than another so that someone can actually notice that the two are not the same. D. The way in which consumers interpret information in ways that are biased by their previously held beliefs. E. The process of screening out certain stimuli and purposely exposing oneself to other stimuli.
Answer:
B. The smallest amount of change in a stimulus that would influence consumer consumption and choice.
Explanation:
The just meaningful difference (JMD) refers to the smallest amount of change in a stimulus that would influence consumer consumption and choice.
For instance, when the price of a particular product rises from $5.0 to $6.5, consumers wouldn't be motivated to buy such a product again and may choose to go for its close substitutes.
Hence, in marketing it is important to introduce a stimulus plan that will significantly increase consumer consumption and choice in order to increase sales and make profit.