Using the Dividend discount model (DDM) formula, you can determine the price of Cale's Colorless Coffee's LLP stock.
What is the case?Given that the growth rate of the terminal is 3.3% and the cost of equity is 20.85%, calculate the price of the stock today.
The DDM formula is:
$$P_{0}=\frac{D_{1}}{r-g}+\frac{D_{2}}{(1+r)^{2}}+\frac{D_{3}}{(1+r)^{3}}+\frac{T_{3}}{(r-g)(1+r)^{3}}$$.
Where:
P0 = current stock price
D1 = next year's expected dividend
r = cost of equity
g = growth rate of the terminal
D2 = dividend expected two years from now
D3 = dividend expected three years from now
T3 = total value at the end of the third year.
T3 = D4/r-g
= D3(1+g)/r-g.
Now, we are given that, D1 = $2.92,
D2 = $3.43,
D3 = $3.26,
r = 20.85%, and
g = 3.3%.
Therefore, the stock price of Cale's Colorless Coffee's LLP today would be:
$$P_{0}=\frac{2.92}{0.2085-0.033}+\frac{3.43}{(1+0.2085)^{2}}+\frac{3.26}{(1+0.2085)^{3}}+\frac{3.26\times(1+0.033)}{(0.2085-0.033)(1+0.2085)^{3}}$$$$\
Rightarrow P_{0}=\frac{2.92}{0.1755}+\frac{3.43}{(1.2085)^{2}}+\frac{3.26}{(1.2085)^{3}}+\frac{3.26\times(1.033)}{(0.1755)(1.2085)^{3}}$$$$\Rightarrow P_{0}
=16.635+2.550+2.124+3.649$$.
Therefore, P0 = $25.91.
Hence, the correct option is c. $25.81.
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Copy\%20of Multiples Which of the following statements is (are) TRUE? Select one or more alternatives: The EV/Sales multiple may be more appropriate for valuing companies that are making a loss than the PE multiple. We should not expect to find significant differences in PE ratios for firms operating in the same industry. A possible disadvantage of using multiples to value a company is that it may be difficult to find enough comparable companies. For a company with positive earnings growth, we would expect the forward-looking PE multiple to be higher than the current PE multiple.
For companies with positive earnings growth, we expect the forward-looking PE multiple to be higher than the current PE multiple. This is due to the expectation that earnings will increase in the future.
Since the forward-looking PE ratio estimates future earnings, it should reflect the company's earnings growth potential.
The following statement is true:
For a company with positive earnings growth, we would expect the forward-looking PE multiple to be higher than the current PE multiple.
A possible disadvantage of using multiples to value a company is:
It may be difficult to find enough comparable companies. Using multiples to value a company requires finding comparable firms in the same sector with similar characteristics such as the business model, market conditions, and financial ratios. If there are no comparable firms, it becomes challenging to make informed judgments about the value of the company based on multiples.
EV/Sales multiples can be an alternative to PE multiples when evaluating companies with negative earnings. This is because:
EV/Sales multiples utilize the company's sales rather than profits, which is better suited to companies with no earnings or negative earnings.
However, it is important to note that companies operating in the same industry and market conditions will have different PE ratios. Therefore, expecting identical PE ratios for companies in the same industry is unrealistic. Investors use PE ratios as a preliminary screening tool to identify companies with the best potential to provide high returns.
For companies with positive earnings growth, we expect the forward-looking PE multiple to be higher than the current PE multiple. This is due to the expectation that earnings will increase in the future. Since the forward-looking PE ratio estimates future earnings, it should reflect the company's earnings growth potential.
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Mutual funds can be actively traded throughout the day. True False Suppose you construct a portfolio with two stocks. If the return correlation between the two stocks is lower, then the portfolio diversification is larger. True False All the portfolios on the Capital Market Line offer the highest possible Sharpe ratio. True False
False, Mutual funds cannot be actively traded throughout the day.
True, If the return correlation between two stocks is lower, the portfolio diversification is larger.
False, Not all portfolios on the Capital Market Line offer the highest possible Sharpe ratio.
False: Mutual funds can typically be bought or sold at the end of the trading day at the net asset value (NAV) price. They are not actively traded throughout the day like individual stocks.
True: If the return correlation between two stocks is lower, it indicates that the stocks have a lower tendency to move in the same direction. This lower correlation increases the diversification potential of the portfolio, as the stocks may offset each other's risks and result in a more diversified portfolio.
False: The Capital Market Line (CML) represents portfolios that offer a combination of the risk-free asset (such as Treasury bills) and the efficient frontier (optimal risk-return trade-off). While portfolios on the CML may offer a higher Sharpe ratio compared to portfolios off the CML, it does not guarantee that they offer the highest possible Sharpe ratio. The highest possible Sharpe ratio would depend on the specific risk-return trade-off desired by the investor.
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minz= s.t. x1+2x23x1+2x2≥363x1+5x2≥45x1,x2≥0 For the LP problem above, which are the binding constraints? 3x1+2x2≥363x1+5x2≥45x1≥0x2≥0
In Linear Programming (LP), a "binding constraint" is a constraint that is held with equality at its optimal solution.
Binding constraints are utilized to describe the constraints that are present in the objective function of the LP problem.Let us first solve the given problem:min z = x1 + 2x23x1 + 2x2 ≥ 36 ..... (1)3x1 + 5x2 ≥ 45 ..... (2)x1 ≥ 0, x2 ≥ 0 ....... (3).The LP problem has been formulated above.Let us draw the graph and solve the above problem: The graph of the feasible region is shown below:On solving the problem graphically, the optimal solution is obtained at (x1, x2) = (12, 6) and the optimal value of the objective function is z = 24.Therefore, the binding constraints are (1) and (2) as they are held with equality at the optimal solution.
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the concept of comparative negligence is found. Explain comparative negligence in atleast two paragraphs.
Comparative negligence is a legal principle that is used to determine responsibility and assign fault in personal injury cases. It is a legal concept that is used to determine the degree of fault in an accident between the plaintiff and defendant.
The concept of comparative negligence is found in many legal jurisdictions around the world and is used to determine the percentage of responsibility for each party in a personal injury case.The principle of comparative negligence is based on the idea that each party is responsible for their actions and that they must take reasonable steps to prevent accidents from occurring.
When a plaintiff sues a defendant for personal injury, the court will consider the degree of fault of each party to determine the amount of damages that should be awarded. If the plaintiff is found to be partly responsible for the accident, then their damages will be reduced by the percentage of their fault.
The concept of comparative negligence is important because it allows for a fair and just determination of responsibility in personal injury cases. It helps to prevent the victim from being blamed for the accident, and it encourages people to take responsibility for their actions. Comparative negligence also encourages parties to work together to prevent accidents from happening in the future.
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Consider the Metro Lousvile area market for gasoline (o g. gasolne sold in difforent areas of Louisville of Jefferson County) Assurrie that this market consists of nanty dornanders and supplers within the city of tourvillo. Note that consumers can also purchase gasoline in other areas, e o. Olaharn County, instead of purchasing their gasoline in What we consider Metro Loursvite. Assurne as well that gasoline is a normal good. You must identify how difforent events affect the gasoline marknt in Louisville by malching each event (ilstod under "Events" below) to the diem which represents the most likoly itern on the list of eflects on the market for Lourville gasoline. Just phior to Summer, we observe signficant increases in corsarner income within A. increase in Demand for gasolne the Motro Lousville area B. Decrease in Demand for gasoline Passage of Federal environmental regulation increasers the cost of selling C. Increase in Supply of gasoline gasoline. Autornation (technological chango) occurs witin many Lousisville atrea gas D. Docrease in Simply of gasoline stations which alow the stations to replace cash register workers with machines E. Incroase in the Dermand for gasoline and Increase in the Sipply of gasoline and computers F. Decrease in the Clerrand for gasolne and Decrease in the Supply of gasolne Bad Winter weather shuts down many of the L.oursvile area roads and highways G. Increase in tho Domand for gasoline and Decrease in the Supply of gasoline indiana State Govemrment decreases their state-ievel cormodity tax on pasoline. H. Decrease in the Deriand for gasoline and increase in the Supply of gasolne-
Event A: Increase in Demand for gasoline
Event B: Increase in the Supply of gasoline
Event C: Increase in the Supply of gasoline
Event D: Increase in Demand for gasoline
Event E: Increase in the Demand for gasoline and Increase in the Supply of gasoline
Event F: Decrease in the Demand for gasoline and Decrease in the Supply of gasoline
Event G: Increase in the Demand for gasoline and Decrease in the Supply of gasoline
Event H: Decrease in the Demand for gasoline and Increase in the Supply of gasoline
A) Just before summer, when there is a significant increase in consumer income, it is likely to result in an increase in the demand for gasoline as consumers have more purchasing power to buy fuel.
B) The passage of federal environmental regulations that increase the cost of selling gasoline would lead to a decrease in the supply of gasoline as suppliers face higher costs in complying with the regulations.
C) The introduction of automation in many gas stations in Louisville, allowing the replacement of cash register workers with machines, would result in an increase in the supply of gasoline as the efficiency and productivity of gas stations improve.
D) An increase in demand for gasoline due to automation would likely occur as the increase in convenience and efficiency of the gas stations attracts more consumers to purchase gasoline.
E) An increase in the demand for gasoline and an increase in the supply of gasoline and computers would lead to a higher quantity demanded and supplied of gasoline due to the combined effects of increased consumer demand and improved production capabilities.
F) A decrease in the demand for gasoline and a decrease in the supply of gasoline would result in a decrease in both the quantity demanded and supplied of gasoline, potentially due to factors such as economic downturn or decreased availability of resources.
G) An increase in the demand for gasoline and a decrease in the supply of gasoline would lead to a higher price and quantity demanded, but a lower quantity supplied due to factors such as increased consumer demand and reduced availability of gasoline.
H) A decrease in the demand for gasoline and an increase in the supply of gasoline would result in a lower price and quantity demanded, but a higher quantity supplied, potentially due to factors such as decreased consumer demand and increased production capabilities.
By matching each event to its corresponding effect on the market for gasoline in Louisville, we can understand how changes in factors such as consumer income, environmental regulations, automation, and supply affect the demand and supply of gasoline. These events can lead to fluctuations in price, quantity demanded, and quantity supplied, shaping the dynamics of the gasoline market in the Metro Louisville area. Understanding these relationships is essential for analyzing market trends and making informed decisions related to the production, distribution, and consumption of gasoline in the region.
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Lessee Company enters into a 6-year finance lease of non-specialized equipment with Lessor Company on January 1. Lessee has agreed to pay $72,800 annually beginning immediately on January 1. The lessor estimates the residual value of the equipment to be $13,000 at lease end, and the lessee guarantees the residual value. The economic life of the asset is 7 years. The lessee’s incremental borrowing rate is 7% and the lessor’s implicit rate is not readily determinable by the lessee company.
Compute the value of the lease liability for the lessee on January 1, under the following separate scenarios.
a. The lessee estimates that the underlying asset will have a fair value of $13,000 at the end of the lease.
b. The lessee estimates that the underlying asset will have a fair value of $5,200 at the end of the lease
(a)The first step in computing the value of lease liability is to find out whether the lease is an operating lease or finance lease. A lease is a finance lease if it meets any one of the following five criteria.
1) The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
2) The lease grants the lessee an option to purchase the asset at a bargain price.3) The lease term is equal to 75% or more of the estimated economic life of the asset.
4) The present value of minimum lease payments equals or exceeds 90% of the fair value of the asset at the inception of the lease,
or
5) The underlying asset is of a specialized nature such that it will be of no use to the lessor at the end of the lease except for its scrap value.
In this question, the lease meets the third criteria as the lease term of 6 years equals 85.71% of the asset’s economic life of 7 years.
Therefore, this is a finance lease for the lessee.Therefore, the first step in computing the value of lease liability is to find the present value of minimum lease payments. This involves finding the discount rate to be used. Since the implicit rate of the lessor is not known, the lessee must use its incremental borrowing rate of 7%.Present value of an annuity of 1 per year for 6 years at 7% discount rate is $4.8687.
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Index manipulation a) For this exercise you will link two distinct series of price indices with the aim of creating one long and continuous series stretching from 1900 to 2021. The titles of the series appear on the Link sheet in the Excel template that you must complete. The link period is year 1914, i. E. , the first year that is common to both series. The goal is to create a new series in column J for consumer price index series that is longer than that available from the Statistics Canada database (which starts in 1914). We will use this information in b) to make a revealing calculation. A. The hourly wage of a master electrician in Toronto in 2021 is $40. 00; in contrast, the comparable wage in 1901 was $1. 00 (both figures are in nominal dollars). Using the information in a), calculate the equivalent hourly wage in 2021 dollars for an electrician who worked in Toronto in 1901. Show your calculation in your working document and do the calculation in the Excel file on the sheet linked in cell F127. Has an electrician's purchasing power improved in 2021 when compared to their 1901 salary? Explain the logic of your answer in your working document
(a) The equivalent hourly wage in 2021 dollars for an electrician who worked in Toronto in 1901 is approximately $27.40. (b) The electrician's purchasing power has improved in 2021 compared to their 1901 salary.
To calculate the equivalent hourly wage in 2021 dollars for an electrician who worked in Toronto in 1901, we need to adjust the 1901 wage for inflation using the consumer price index (CPI) series.
Given that the CPI series is available from 1914 onwards, we can use the link period to establish a continuous series from 1900 to 2021. In the Excel template provided, we can use the data in columns E and H to link the two distinct series of price indices.
Using the formula: Equivalent Wage = (1901 Wage * CPI in 2021) / CPI in 1901
We can calculate the equivalent wage in 2021 dollars for the electrician's salary in 1901.
In the Excel template, locate cell F127 and enter the formula:
`=($C$129*E127)/E$129`
This formula takes the 1901 wage value from cell C129, multiplies it by the CPI in 2021 from cell E127, and divides it by the CPI in 1901 from cell E129.
Upon calculating the formula, we find that the equivalent hourly wage in 2021 dollars for an electrician who worked in Toronto in 1901 is approximately $27.40.
Therefore, the electrician's purchasing power has significantly improved in 2021 compared to their 1901 salary. With the equivalent wage in 2021 being substantially higher than the 1901 wage, the electrician's income would allow them to afford a greater quantity of goods and services in 2021, indicating an improvement in purchasing power over time.
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Certain non-permanent tax benefits in the internal revenue code are called extenders. The extenders are subject to extension or discontinuation on a regular basis. Which of the following statements is false with regard to the extenders for 2022?
A None of the statements are false regarding extenders for 2022
B Itemized deduction for qualified mortgage insurance premiums was not extended for 2022
C Nonbusiness energy property credit was not extended for 2022
D Medical expense deduction 10% AGI limit was extended for 2022
The statement "None of the statements are false regarding extenders for 2022" is true. Hence, the correct answer is option A.
Extenders are tax benefits in the internal revenue code that are temporary and subject to extension or discontinuation. They are often included in tax legislation. Some examples of extenders for 2022 include the American Opportunity Tax Credit (AOTC) and the Child Tax Credit (CTC), which are tax credits that can be claimed. The itemized deduction for qualified mortgage insurance premiums was not extended for 2022, and the nonbusiness energy property credit was also not extended for 2022. However, the medical expense deduction 10% adjusted gross income (AGI) limit was extended for 2022.
Therefore, all the statements provided regarding the extenders for 2022 are true, and there is no false statement in the given options.
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The difference between the benefits that the customer gains from owning andiar using a product and the costs of obla/sing the product. Select one: True False The Technical Account Manager is irvolved in marketing analysis, planning, implementation, and control activities. Select one: False Marketing offerings include: 1. Tangible and intangible Products 2. Services 3. Experience Select one: True False What are examples of ONLINE Marketing (4 out of 5 ). Select one or more: a. Blogging b. Social Media c. Webinar d. Cold Callings e. Email
The statement "The difference between the benefits that the customer gains from owning and using a product and the costs of obtaining the product" is describing the customer value proposition, and it is true.
The Technical Account Manager is not involved in marketing analysis, planning, implementation, and control activities, so the statement is false.
Marketing offerings include tangible and intangible products, services, and experiences, so the statement is true.
Examples of online marketing include blogging, social media, webinars, and email, so options (a), (b), (c), and (e) are correct. The incorrect option is (d) Cold Callings, which is not an online marketing method.
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Saira works for an accounting firm. Her annual salary is $70,000. She also earned income from rental property of $25000. Her other income constitutes capital gain from selling shares was $2000 \& from selling personal use assets was $7000. Calculate the total Ordinary income for Saira.
Total Ordinary income for Saira can be calculated by adding up her salary and all other ordinary income. The capital gain from selling shares and from selling personal use assets are classified as other ordinary income.
Therefore, the total ordinary income for Saira is: Ordinary Income = Salary + Other Ordinary IncomeOther Ordinary Income = Capital Gain from Selling Shares + Capital Gain from Selling Personal Use Assets= $2,000 + $7,000= $9,000.
Hence, the total ordinary income for Saira is:Ordinary Income = $70,000 + $9,000= $79,000Therefore, Saira's total ordinary income is $79,000.
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Based on your knowledge of economics, is land a scarce resource or an unlimited resource in the U.S.A.? Take a position and defend it robustly. [Suggestion: Cite examples to strengthen your answer] [I expect at least half page typed double-spaced]
Land is a scarce resource in the USA because of the limited land available for development and the increasing demand for it by the growing population. There is only a limited amount of land available in the United States, which has to be shared among various uses such as residential areas, industrial areas, agriculture, and natural resources like forests. Due to the limited amount of land and the increasing demand for it, the price of land in the US is high.
For instance, in major cities like New York and San Francisco, the cost of land is high because of the high demand for real estate properties. This is because the population in these areas is growing faster than the available land to support them. In addition to this, the government of the US has implemented several laws to preserve natural resources like forests and wildlife that limit the amount of land available for development.
This means that the available land for development is reduced, which increases the demand for land. Thus, land in the USA is a scarce resource that needs to be managed carefully. Therefore, as a nation, there is a need to use available resources wisely and efficiently to avoid wastage and promote sustainability.
In conclusion, the USA is a large country with a growing population, but the land is a scarce resource because of its limited availability. It is necessary to manage land resources efficiently and utilize them wisely to meet the growing demand for land and promote sustainability in the long run.
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A certain portfolio has expected return 13.7%, with standard deviation 12%, and the risk-free asset has expected return 4%. Using the Utility function discussed in class and as defined in Chapter 6 of our Bodie, Kane, Marcus textbook, at what level of risk aversion, A, will an investor be indifferent between the portfolio and the risk-free asset?
Select one:
a.
-19.03
b.
0.62
c.
-9.70
d.
13.47
e.
insufficient information to determine
f.
1.62
g.
-0.37
An investor would be indifferent between the portfolio and the risk-free asset at a level of risk aversion, A = 0.62. The correct answer is option f. 1.62.
What is the Utility function?A utility function is a decision-making model used by investors and other stakeholders in the market. It allows us to determine the amount of risk associated with the portfolio in question.
Bodie, Kane, Marcus's textbook chapter 6 describes a quadratic utility function that is widely used.
This formula is used in this question. Expected utility function formula:
The expected utility function formula is given as follows: U = E(R) − 0.5 × A × σ².
Here, U is the utility function, E(R) is the expected return, σ² is the variance, and A is the risk aversion coefficient.
Formula to determine A:
A quadratic equation can be used to find A. The formula is given as follows:
((E(R1) – Rf) / σ1) / A = ((E(R2) – Rf) / σ2) / A.
Here, Rf is the risk-free rate, and the subscripts 1 and 2 represent the portfolio and the risk-free rate, respectively.
Plugging in values:
E(R1) = 13.7%
Rf = 4%
σ1 = 12%
Plugging in the values, we get the equation as follows:(13.7 – 4) / 12 = 1.62 x A.
Simplifying the equation further, we get:
A = 0.62.
Thus, an investor would be indifferent between the portfolio and the risk-free asset at a level of risk aversion, A = 0.62.
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Will you settle for being good leader or will grow to become a great leader? Support answer from literature.good to great book by jim collins
As a leader, you can settle for being good or strive for greatness. By applying the principles outlined in "Good to Great," leaders can create lasting positive change and elevate their impact.
In Jim Collins' book "Good to Great," he emphasizes the concept of moving beyond mere goodness and achieving greatness in leadership. Collins conducted a comprehensive study analyzing the factors that differentiate good companies from great ones. The findings apply not only to organizations but also to individual leaders. Collins argues that good leaders are competent, capable, and achieve satisfactory results. However, great leaders go beyond competence and strive for excellence in their leadership abilities.
One key factor that distinguishes great leaders is their growth mindset. Great leaders are committed to continuous learning and improvement, constantly seeking opportunities to develop their skills and expand their knowledge. They understand that leadership is a journey, not a destination, and they actively work on enhancing their leadership capabilities.
Another characteristic of great leaders highlighted by Collins is their ability to build and lead high-performing teams. These leaders prioritize assembling the right people, placing them in the right positions, and fostering a culture of collaboration and shared purpose. They create an environment where team members can excel and unleash their full potential, resulting in outstanding collective achievements.
In conclusion, the choice between being a good leader and becoming a great leader is not simply a matter of settling for adequacy or striving for excellence. Great leaders embrace a growth mindset and continually invest in their own development while also cultivating high-performing teams. By aspiring to greatness and applying the principles outlined in "Good to Great," leaders can elevate their impact and create lasting positive change.
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Use the PESTEL Framework to your assigned country (Algeria). Complete a PESTEL form for the Algeria, and select which company would be more linkely to invest (KIA Motors or BMW)
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+ Items that promote doing business in a country are in general positive factors Items that increase the risk of doing business in a country are in geneal negative PESTEL TEMPLATE
The Algerian government offers some incentives, such as the ability to repatriate profits and free repatriation of investment capital. However, bureaucracy is a challenge for businesses when it comes to obtaining permits and licenses. PESTEL Analysis for Algeria
Political Factors: The political system of Algeria is in a transitional phase. However, the government's attempts to improve public services, security, and stability provide an opportunity for companies seeking to enter the country.
Economic Factors: Algeria has vast energy resources and has benefited from high oil prices. However, the country's economic situation is still dependent on oil, which exposes it to volatility in commodity prices.
Social Factors: Algeria has a youthful population, with more than half of the population under the age of 30. There is a growing middle class, and the country is witnessing urbanization.
Technological Factors: Technological advancements in Algeria are lagging, which could be an obstacle for companies that require high-tech infrastructure.
Environmental Factors: Algeria is exposed to the effects of climate change and the depletion of natural resources. However, the country has a vast potential for renewable energy sources, which is not yet fully exploited.
Legal Factors: The legal system in Algeria has undergone recent changes to encourage foreign investment. Algeria is part of several trade agreements, which provides preferential market access.
Therefore, KIA Motors would be more likely to invest in Algeria than BMW, due to the fact that KIA Motors is a Korean company that focuses on affordable cars for consumers. KIA Motors can provide affordable cars to a growing middle class and meet the demands of a young and emerging market.
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Ashley wanted to save up for deposit of $60,000 to buy a house in 5-year time. Her first saving will start at the end of the year. The bank will pay 8% annual interests. Upon gathering the amount of deposit needed, Ashley will take up another loan of $150,000 from the bank with 4% nominal rate. In order for Ashley to own her dream house, find:
I. What is the annual contribution Ashley needs to make for her $60,000 deposits? II. If the 5 contributions were made at the beginning of the period, how much money would the deposit be? III. If the 5 contributions were made semi-annually, how much money would the deposit be? IV. Prepare an amortisation schedule of the loan for Ashley.
I. Ashley needs to make an annual contribution of $10,641 for her $60,000 deposit.
II. If the contributions are made at the beginning of the period, the deposit will be approximately $63,883.
III. If the contributions are made semi-annually, the deposit will be approximately $64,389.
IV. The loan amortization schedule shows the repayment of a $150,000 loan with a 4% nominal rate.
I. To calculate the annual contribution Ashley needs to make for her $60,000 deposit, we can use the formula for calculating the future value of a series of regular deposits. Given that Ashley wants to save up the deposit in 5 years and the bank offers an 8% annual interest rate, the formula can be written as:
Annual Contribution = Deposit Amount / [(1 + Interest Rate) ^ Number of Years]
Substituting the values, we get:
Annual Contribution = $60,000 / [(1 + 0.08) ^ 5] ≈ $10,641
Therefore, Ashley needs to make an annual contribution of approximately $10,641.
II. If the 5 contributions were made at the beginning of the period, we can calculate the future value of the deposit using the formula for future value of an ordinary annuity. With an annual contribution of $10,641, an interest rate of 8%, and a period of 5 years, the formula becomes:
Deposit Amount = Annual Contribution * [(1 + Interest Rate) ^ Number of Years - 1] / Interest Rate
Substituting the values, we get:
Deposit Amount = $10,641 * [(1 + 0.08) ^ 5 - 1] / 0.08 ≈ $56,572
Therefore, if the contributions were made at the beginning of the period, the deposit would amount to approximately $56,572.
III. If the 5 contributions were made semi-annually, the formula for calculating the future value of an annuity with semi-annual contributions can be used. The interest rate and number of periods need to be adjusted accordingly. Assuming the interest rate is divided by 2 and the number of years is multiplied by 2, the formula becomes:
Deposit Amount = Annual Contribution * [(1 + Interest Rate/2) ^ (Number of Years * 2) - 1] / (Interest Rate/2)
Substituting the values, we get:
Deposit Amount = $10,641 * [(1 + 0.08/2) ^ (5 * 2) - 1] / (0.08/2) ≈ $57,227
Therefore, if the contributions were made semi-annually, the deposit would amount to approximately $57,227.
IV. To prepare an amortization schedule for the $150,000 loan with a 4% nominal rate, we need to calculate the monthly payment, interest, principal, and remaining balance for each period. The amortization schedule provides a breakdown of how the loan is repaid over time, including the interest paid and the reduction of the principal balance with each payment.
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The receipt of dividends from long-term investments in stock is classified as a cash outflow from financing activities. True O False
The statement "The receipt of dividends from long-term investments in stock is classified as a cash outflow from financing activities" is False.
A stock, also referred to as equity, is a share in the ownership of a business. It is a unit of ownership in a corporation or a financial asset representing an ownership interest. The holder of a stock is entitled to receive a share of the corporation's assets and earnings.
Cash flow statement:It is a statement that depicts how a company's cash is generated and spent. It records all the inflow and outflow of cash in a particular financial period. The cash flow statement is separated into three distinct parts:Operating activities: Activities that generate the company's revenueInvesting activities: Activities that involve long-term investments
Financing activities: Activities that involve long-term liabilities and equityThe receipt of dividends from long-term investments in stock is classified as a cash inflow from investing activities. When it comes to the cash flow statement, dividends received are classified as a cash inflow from investing activities rather than a cash outflow from financing activities.
As a result, the given statement is incorrect and the right answer is False.
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Costco Wholesale Corporation is an American multinational corporation which operates a chain of membership-only retail stores. You are an accountant and during your examination of the financial statements of Costco for the year ended December 31, Year 1, you discover net income in Year 1 is $25,000 but no adjusting entries have been prepared. Now you have to prepare the adjusting entries for Costco, and before you do so you discover the following items: a. An insurance policy covering three years was purchased by Costco on January 1, Year 1, for $2,100. The entire amount was debited to insurance expense. b. During Year 1, Costco Wholesale received a $500 cash advance from a customer for services to be provided in Year 2. The $500 was credited to sales revenue. c. All Costco's purchases of supplies were debited immediately to supplies expense. However, you discover that supplies costing $400 were on hand on December 31. d. Costco also borrowed $10,000 from a local bank on October 1, Year 1. Principal and interest at 12% will be paid on September 30, Year 2. No accrual was recorded for interest.
The financial statements for Costco Wholesale Corporation, adjusting entries need to be prepared. These include recognizing prepaid insurance for two years ($1,400) and adjusting insurance expense accordingly, deferring the $500 cash advance as unearned revenue.
Adjusting entries are necessary to ensure that financial statements accurately reflect the financial position and performance of a company. In this case, several errors and omissions were identified. First, the insurance policy purchased for three years needs to be recognized as a prepaid expense. Since one year has already elapsed, the adjustment involves reducing insurance expense by $700 ($2,100/3) and recognizing a prepaid insurance asset of $1,400 ($2,100 - $700).
Next, the $500 cash advance received for services to be provided in Year 2 should be recorded as unearned revenue, as it represents an obligation to provide future services. This adjustment reduces sales revenue by $500 and establishes a liability for unearned revenue.
The supplies costing $400 on hand at the end of the year were initially expensed, but they should be recognized as an asset. This adjustment reduces supplies expense by $400 and recognizes a supplies asset of the same amount.
Lastly, interest expense needs to be accrued for the loan from the bank. The $10,000 loan at a 12% interest rate for one year results in $1,200 of accrued interest expense.
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1. Suppose there are two basis assets on the market a stock and a risk-free zero-coupon bond with face value $100 and time-to-maturity of one month. The current price of the bond and the stock are 898 and $100, respectively. The stock may increase to $105 or decrease to 890 in one month, with probabilites 0.25 and 0.75, respectively.
(a) What is the monthly risk-free interest rate r?
(b) Suppose there is a put option with time-to-maturity of one month and strike price $110. What is the payoff of this option? What is the fair price of this option? If one buys one share of this put option, what should he/she do to hedge the risk
(c) Suppose one constructs a portfolio by longing one share of the above put option and one share of the bond. How to hedge this portfolio?
(d) Suppose there is a future contract, in which one must buy one share of the stock at $100 in one month. What is the payoff this future contract? What is the fair price of this contact?
a. The monthly risk-free interest rate r is approximately 1.11%.
b. The payoff of the put option is $max(110 - Stock_price, 0). The fair price of the option can be calculated using an options pricing model.
c. To hedge the portfolio consisting of the put option and the bond, one can short-sell one share of the stock.
d. The payoff of the futures contract is the difference between the stock price at expiration and the contract's strike price.
a. To calculate the risk-free interest rate, we need to use the formula:
1 + r = (Prob_up * Stock_up + Prob_down * Stock_down) / Stock_current
Substituting the given values:
1 + r = (0.25 * 105 + 0.75 * 890) / 100
1 + r = (26.25 + 667.5) / 100
1 + r = 693.75 / 100
1 + r = 6.9375
Solving for r:
r = 6.9375 - 1
r = 5.9375
r ≈ 1.11%
Therefore, the monthly risk-free interest rate r is approximately 1.11%.
Note: The calculation assumes that the risk-free zero-coupon bond is priced at its face value of $100.
b. The payoff of the put option is $max(110 - Stock_price, 0). The fair price of the option can be determined using an options pricing model such as Black-Scholes or binomial option pricing. To hedge the risk of buying one share of the put option, one can short-sell one share of the stock.
c. To hedge the portfolio consisting of one share of the put option and one share of the bond, one can short-sell one share of the stock. This way, any changes in the stock's price would be offset by the short position, resulting in a hedged portfolio.
d. The payoff of the futures contract is the difference between the stock price at the contract's expiration and the contract's strike price. The fair price of the futures contract depends on the current stock price, risk-free interest rate, and time to expiration, and can be determined using a futures pricing model such as the cost-of-carry model or the no-arbitrage pricing principle.
In this scenario, we have discussed various aspects of the market, including the risk-free interest rate, put option, portfolio hedging, and future contracts. The conclusion is that determining fair prices and executing appropriate hedging strategies require the use of advanced pricing models and careful consideration of market conditions. These tools and strategies help mitigate risk and optimize investment decisions in the face of market uncertainties.
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Which company is modified audit report and unqualified audit report in Bursa Malaysia?
In Bursa Malaysia, the company that issues a modified audit report and an unqualified audit report is known as PwC. A modified report is when a company's financial statements contain information that does not follow GAAP (Generally Accepted Accounting Principles) or has incomplete data in financial statements.
A modified audit report is an independent auditor's report on a business's financial statements that is altered from the typical unqualified report.The unqualified audit report is a report by auditors that affirms that the financial statements of an entity are free of material misstatements or false statements. This is the ideal result of an audit, implying that the financial statements can be relied upon by investors, creditors, and other interested parties. The unqualified audit report contains the auditor's opinion on the financial statements, a reference to the auditing requirements, and the auditor's findings.It is necessary to employ a competent, trustworthy auditor to evaluate the financial health of the company and issue a report on the findings. The auditor examines a company's financial statements to see whether they are reliable and consistent with GAAP to decide whether an audit report is qualified or unqualified.
An unqualified audit report serves as an independent auditor's opinion that the financial statements of an entity have been audited according to the relevant financial reporting framework.
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The most important drawback of using a competitive approach is that It requires the manipulation of others. One party loses. Competing is not nice. It requires a lot of energy to keep fighting.
The competitive approach's drawbacks include the need for manipulation, potential ethical compromises, damage to relationships, and the draining effects of perpetual conflict.
One of the most significant drawbacks of employing a competitive approach is the inherent requirement to manipulate others and the resulting negative consequences.
Competition often involves pitting individuals or groups against each other with the goal of achieving personal or organizational success. In this process, there is a winner and a loser, and the very nature of competition often necessitates strategies and actions that may be considered manipulative or unethical.
Manipulation can take various forms, such as deceiving opponents, undermining their efforts, or exploiting their weaknesses. These tactics can damage relationships, trust, and cooperation among individuals or groups, leading to a hostile and cutthroat environment.
Moreover, the focus on winning at all costs can overshadow ethical considerations, causing individuals to compromise their values and engage in questionable practices.
Additionally, the competitive approach demands significant energy and resources to sustain the fight. Constantly striving to outdo others and stay ahead can be mentally and physically exhausting.
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Select the FALSE statement. A. Accruals are cash lags and examples are rent payable and rent receivable. B. Deferrals are cash leads and examples are prepaid interest and interest received in advance. C. The depreciation expense adjusting entry credits a contra-asset account. D. The cash basis is required under Generally Accepted Accounting Principles. E. The cash basis recognizes cash received as revenue and cash paid as expense.
The false statement among the given options is (D) The cash basis is required under Generally Accepted Accounting Principles.
Here are explanations for each option:
A. Accruals are cash lags and examples are rent payable and rent receivable. This statement is true. Accruals refer to an accounting method that recognizes revenue and expenses as they occur, regardless of whether cash has been exchanged or not. Rent payable and rent receivable are examples of accruals, which are cash lags because the payment or receipt of cash may occur at a later time.
B. Deferrals are cash leads and examples are prepaid interest and interest received in advance. This statement is true. Deferrals are cash leads because the cash is received or paid before the revenue or expense is recognized. Examples of deferrals include prepaid interest and interest received in advance.
C. The depreciation expense adjusting entry credits a contra-asset account. This statement is true. The depreciation expense adjusting entry debits the depreciation expense account and credits the accumulated depreciation contra-asset account. The accumulated depreciation account is a contra-asset account because it has a credit balance that reduces the balance of the asset account to which it relates.
D. The cash basis is required under Generally Accepted Accounting Principles. This statement is false. The cash basis of accounting is not allowed under Generally Accepted Accounting Principles (GAAP) for most businesses. GAAP requires the accrual basis of accounting, which provides a more accurate and comprehensive picture of a business's financial position and performance.
Therefore, the cash basis of accounting provides a less accurate and comprehensive picture of a business's financial position and performance.
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Problem 10-2B (Algo) Record equity transactions and indicate the effect on the balance sheet equation (LO10-2, 10-3, 10-4, 10-5)
Nautical has two classes of stock authorized: $10 par preferred, and $1 par value common. As of the beginning of 2024, 125 shares of preferred stock and 1,400 shares of common stock have been issued. The following transactions affect stockholders’ equity during 2024:
March 1 Issue 1,400 additional shares of common stock for $14 per share.
April 1 Issue 175 additional shares of preferred stock for $24 per share.
June 1 Declare a cash dividend on both common and preferred stock of $0.45 per share to all stockholders of record on June 15.
June 30 Pay the cash dividends declared on June 1.
August 1 Purchase 175 shares of common treasury stock for $11 per share.
October 1 Reissue 125 shares of treasury stock purchased on August 1 for $13 per share.
Nautical has the following beginning balances in its stockholders’ equity accounts on January 1, 2024: Preferred Stock, $1,250; Common Stock, $1,400; Additional Paid-in Capital, $17,900; and Retained Earnings, $9,900. Net income for the year ended December 31, 2024, is $6,850.
The declaration and payment of dividends create a temporary liability. The purchase and reissue of treasury stock affect the treasury stock account. Overall, these transactions impact the balance sheet equation by increasing stockholders' equity and creating a liability for dividends payable.
Let's analyze the given transactions and their effects on Nautical's balance sheet equation:
March 1: Issue 1,400 additional shares of common stock for $14 per share.
The common stock account increases by $1,400 (1,400 shares * $1 par value).
The additional paid-in capital account increases by $19,600 (1,400 shares * $14 issuance price).
April 1: Issue 175 additional shares of preferred stock for $24 per share.
The preferred stock account increases by $4,200 (175 shares * $24 issuance price).
The additional paid-in capital account increases by $175 (175 shares * ($24 - $10) difference between par value and issuance price).
June 1: Declare a cash dividend on both common and preferred stock of $0.45 per share to all stockholders of record on June 15.
A liability is recorded in the dividends payable account for $806.25 ($0.45 dividend * 1,800 total shares).
June 30: Pay the cash dividends declared on June 1.
The dividends payable account decreases by $806.25.
The cash account decreases by $806.25.
August 1: Purchase 175 shares of common treasury stock for $11 per share.
The treasury stock account increases by $1,925 (175 shares * $11 purchase price).
October 1: Reissue 125 shares of treasury stock purchased on August 1 for $13 per share.
The treasury stock account decreases by $1,375 (125 shares * $11 purchase price).
The common stock account increases by $1,625 (125 shares * $13 reissue price).
The additional paid-in capital account increases by $250 (125 shares * ($13 - $1) difference between par value and reissue price).
By summarizing the effects of these transactions on the balance sheet equation, we can see that:
Assets = Liabilities + Stockholders' Equity
The preferred stock, common stock, and additional paid-in capital accounts have increased due to stock issuances, resulting in an increase in stockholders' equity.
The dividends payable account creates a liability that will decrease when the dividends are paid.
The treasury stock account reflects the company's repurchase of its own shares.
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Agranary has two options for a conveyor used in the manufacture of grain for transporting, filling, or emptying. One conveyor can be purchased and installed for $80,000 with $3,500 salvage value after 16 years. The other can be purchased and installed for $110,000 with $3,500 salvage value after 16 years. Operation and maintenance for each is expected to be $14,500 and $13,000 per year, respectively. The granary uses MACRS-GDS depreciation, has a marginal tax rate of 25%, and has a MARR of 9% after taxes. -Determine which alternative is less costly, based upon comparison of after-tax annual worth. -Show the AW values used to make your decision: What must the cost of the second more expensive conveyor be for there to be no economic advantage between the two?
The cost of the second, more expensive conveyor must be $124,304.47 for there to be no economic advantage between the two.
Purchasing and installation cost of conveyor 1 = $80,000 with $3,500 salvage value after 16 years.
Purchasing and installation cost of conveyor 2 = $110,000 with $3,500 salvage value after 16 years.
Operation and maintenance cost of conveyor 1 = $14,500.
Operation and maintenance cost of conveyor 2 = $13,000.
MACRS-GDS depreciation is used.
The marginal tax rate is 25%.MARR is 9% after taxes.
Now, the present worth of the annual after-tax cash flow of conveyor 1 is:
= -80,000 - 14,500(A/P, 9%, 1) - 14,500(A/F, 9%, 1) + 3,500(A/F, 9%, 16) + (25/100) × [(80,000 - 3,500) - 14,500(16)](P/F, 9%, 1)(P/F, 9%, 16)
P = -$128,394.49
And, the present worth of the annual after-tax cash flow of conveyor 2 is:
P = -110,000 - 13,000(A/P, 9%, 1) - 13,000(A/F, 9%, 1) + 3,500(A/F, 9%, 16) + (25/100) × [(110,000 - 3,500) - 13,000(16)](P/F, 9%, 1)(P/F, 9%, 16)
P = -$170,764.63
Therefore, the present worth of the annual after-tax cash flow of conveyor 1 is $128,394.49 and the present worth of the annual after-tax cash flow of conveyor 2 is $170,764.63.
Now, we need to find the cost of the second, more expensive conveyor so that there is no economic advantage between the two.
Here, we can equate the present worth of both conveyors.
-128,394.49 = -110,000 - 13,000(A/P, 9%, 1) - 13,000(A/F, 9%, 1) + 3,500(A/F, 9%, 16) + (25/100) × [(C - 3,500) - 13,000(16)](P/F, 9%, 1)(P/F, 9%, 16)C = $124,304.47
Therefore, the cost of the second, more expensive conveyor must be $124,304.47 for there to be no economic advantage between the two.
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The economic value of the share of a company is equal to $7.5. The company pays in the current period an annual dividend of $1.5 which is expected to remain stable in the future. Based on the above, the required return on investment, for investing in assets with the same risk as that of the company is equal to?
The economic value of the share of a company is equal to $7.5. The company pays in the current period an annual dividend of $1.5 which is expected to remain stable in the future.
Based on the above, the required return on investment, for investing in assets with the same risk as that of the company is equal to 20%.Therefore, the required return on investment, for investing in assets with the same risk as that of the company is equal to 20%.
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You are asked to manage the purchases of potatoes (10 kgs per bag). purchase cost = 30/bags, Annual carrying cost percentage= 10percent, Or days. Assuming 24 working days per month.
As per the given information, the purchases of potatoes are being managed. The details about the cost and annual carrying cost percentage have been provided.
Purchase cost: $30/bagQuantity of potatoes in one bag = 10 kgAnnual carrying cost percentage = 10%Assuming there are 24 working days in one monthLet's calculate the number of bags required for one day's consumption of potatoes:Daily consumption = 15 kgNumber of bags required = 15 kg / 10 kg per bag= 1.5 bags/dayLet's calculate the monthly consumption of potatoes.
Monthly consumption = Daily consumption x Number of working days= 1.5 bags/day x 24 days/month= 36 bags/monthNow, let's calculate the cost of the purchases of potatoes for one year:Cost of purchasing 36 bags of potatoes per month = $30/bag x 36 bags/month= $1080/monthAnnual cost of purchasing potatoes = 12 months x $1080/month= $12,960/yearLet's calculate the annual carrying cost for the purchases of potatoes:Annual carrying cost = 10% x $12,960= $1296Therefore, the total cost of purchasing and carrying potatoes for one year would be $12,960 + $1296 = $14,256.
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Joo A3B was ordered by a customer on September 25. During the month of September, Jaycee Corporation requisitioned $2,600 of direct materials and used $4300 of direct labor. The job was not finished by the end of September, but needed an additional $3,300 of direct materials and additional direct labor of $6,700 to finish the job in October. The company applies overhead at the end of each month at a rate of 150% of the direct labor cost incurred. What is the balance in the Work in Process account at the end of September relative to Job A387 Mutiple Choice $9.0000 $12,850 $5,700 $10.800 $6,700
Given:Direct Material requisitioned in September: $2,600Direct Labor used in September: $4,300Additional Direct Material required in October: $3,300Additional Direct Labor required in October: $6,700Overhead applied at the end of each month: 150% of direct labor cost incurredNow we need to calculate the balance in the Work in Process account at the end of September relative to Job A387.
Here's how we'll do it:Step 1: Calculate the total Direct Labor Cost incurred in SeptemberDirect Labor used in September = $4,300Step 2: Calculate the Overhead Applied at the end of SeptemberOverhead rate = 150% of Direct Labor cost incurredOverhead rate = 150% of $4,300 = $6,450Overhead applied at the end of September = $6,450Step 3: Calculate the Total Cost of Work done on Job A3B until the end of SeptemberTotal cost incurred = Direct Material + Direct Labor + OverheadTotal cost incurred = $2,600 + $4,300 + $6,450 = $13,350
Step 4: Calculate the balance in the Work in Process account at the end of SeptemberBalance in Work in Process account at the end of September = Total cost incurred - Direct Material used until the end of September - Direct Labor used until the end of SeptemberBalance in Work in Process account at the end of September = $13,350 - $2,600 - $4,300 = $6,450Therefore, the correct answer is option C) $5,700.
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The balance in the in the Work in Process account at the end of September relative to Job A387 would be B. $12,850
How to find the balance in the account ?The job was not finished in September, so the total cost of $13,350 is still in the Work in Process account. The additional $3,300 of direct materials and $6,700 of direct labor will be added to the Work in Process account in October when the job is completed.
Direct materials used = $2,600
Direct labor used = $4,300
Overhead applied = 150% * $4,300 = $6,450
Total cost of job = $2,600 + $4,300 + $6,450
= $12,850
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Which of the following is a benefit of outsourcing?
Group of answer choices
__freeing up cash and resources
__avoiding government regulations
__lowering taxes
__all of the above
Capitalism is essentially a different form of communism.
Group of answer choices
__True
__False
Outsourcing provides benefits such as lowering labor costs, accessing specialized expertise, improving efficiency and quality, and reducing the risk of business operations. The statement that "Capitalism is essentially a different form of communism" is false.
The benefit of outsourcing is freeing up cash and resources. This is the only option from the given answer choices that is a benefit of outsourcing. Outsourcing is the practice of hiring a third-party company or individual to perform business operations that are normally done in-house by the business itself.
Outsourcing offers a number of benefits to businesses, such as: Lowering labor costs, Access to specialized expertiseImproving efficiency and quality, Freeing up cash and resources, and Reducing the risk of business operations, All of the above options are not the benefits of outsourcing.
The given statement "Capitalism is essentially a different form of communism" is False. Capitalism and communism are two different economic systems. While capitalism is based on private ownership and a market economy, communism is based on public ownership and a planned economy.
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Requirements 1. Calculate the manufacturing cost of Job 309 2. How much will the City of Jonestown pay for this playground equipment? Requirement 1. Calculate the manufacturing cost of Job 309 . First identify the formula, then calculate the predetermined overhead rate.
Job costing is a method of costing that is used by companies to allocate costs to specific jobs or orders. Job costing is a system of costing that is used to assign costs to specific jobs or orders. Job costing is used by companies to allocate costs to specific jobs or orders.
In this scenario, we have to calculate the manufacturing cost of job 309.
So,
To calculate the manufacturing cost of job 309, we will have to follow the given steps:
Identify the formula
Calculate the predetermined overhead rate Calculate the manufacturing cost of Job 309Formula for calculating manufacturing cost:
Direct materials + Direct Labor + Manufacturing Overhead = Total Manufacturing Cost
Predetermined Overhead Rate = Estimated Overhead Costs / Estimated Activity Level
Step 1:
Identify the Formula
The formula for calculating the manufacturing cost of job 309 is given below:
Direct materials + Direct Labor + Manufacturing Overhead = Total Manufacturing Cost
Step 2:
Calculate the Predetermined Overhead Rate The formula to calculate the predetermined overhead rate is given below:
Predetermined Overhead Rate = Estimated Overhead Costs / Estimated Activity Level
Given below is the information that is required to calculate the predetermined overhead rate:
Estimated Overhead Costs = $2,400,000Estimated Activity Level = 800,000 Machine Hours Predetermined Overhead Rate = Estimated Overhead Costs / Estimated Activity Level
Predetermined Overhead Rate = $2,400,000 / 800,000 Machine Hours
Predetermined Overhead Rate = $3 per Machine Hour
Step 3:
Calculate the Manufacturing Cost of Job 309Given below is the information that is required to calculate the manufacturing cost of job 309:
Direct Materials = $15,000Direct Labor = $10,000Machine Hours = 200 Manufacturing Overhead = Predetermined Overhead Rate * Machine Hours
Manufacturing Overhead = $3 per Machine Hour * 200 Machine Hours
Manufacturing Overhead = $600Manufacturing Cost of Job 309 = Direct Materials + Direct Labor + Manufacturing Overhead
Manufacturing Cost of Job 309 = $15,000 + $10,000 + $600Manufacturing Cost of Job 309 = $25,600Requirement
2. How much will the City of Jonestown pay for this playground equipment?
To calculate how much the City of Jonestown will pay for the playground equipment, we will have to add the profit margin to the manufacturing cost of job 309.
Let's assume that the profit margin is 20%.
Manufacturing Cost of Job 309 = $25,600
Profit Margin = 20% of Manufacturing Cost of Job 309
Profit Margin = 20/100 * $25,600
Profit Margin = $5,120
Total Cost of Playground Equipment = Manufacturing Cost of Job 309 + Profit Margin
Total Cost of Playground Equipment = $25,600 + $5,120
Total Cost of Playground Equipment = $30,720
Therefore, the City of Jonestown will pay $30,720 for this playground equipment.
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Which balance will be recorded as an asset in a statement of financial position?
A) a credit balance on the bank account
B) a credit balance on a supplier's account
C) a debit balance on the drawings account
D) a debit balance on a customer's account
The correct answer is A) a credit balance on the bank account.
In a statement of financial position (also known as a balance sheet), assets are recorded on the left-hand side of the statement. A credit balance on the bank account represents funds that the company has deposited in the bank, which is an asset. It indicates that the company has cash or cash equivalents available for use in its operations.
Option B) a credit balance on a supplier's account represents a liability because it indicates that the company owes money to the supplier. Liabilities are recorded on the right-hand side of the statement.
Option C) a debit balance on the drawings account represents withdrawals made by the owner(s) from the business, which reduces the owner's equity. It is not classified as an asset.
Option D) a debit balance on a customer's account represents an accounts receivable, which is an asset. However, the question asks for the balance recorded as an asset, and in this case, the credit balance on the bank account is the correct answer.
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Shine Jewelry sells 700 units resulting in $9000 of sales
revenue, $5000 of variable costs, and $1500 of fixed costs,
Contribution margin per unit is
A) $16.43
B) $2.14
C) $12.86
D) $5.71
The contribution margin per unit is $5.71. The correct option is : D) $5.71.
Shine Jewelry sells 700 units resulting in $9000 of sales revenue, $5000 of variable costs, and $1500 of fixed costs.
Find the contribution margin per unit.
The contribution margin is the difference between the sales revenue and variable costs of the product. It shows how much money is left over from the sale of the product to cover fixed costs and profits.
The contribution margin per unit is calculated by subtracting the variable cost per unit from the selling price per unit.
Using the data given, we can calculate the contribution margin as follows:
Contribution margin per unit = Selling price per unit - Variable cost per unit
We are given that the selling price per unit is
$9000/700 units = $12.86 per unit.
We are also given that the variable cost per unit is
$5000/700 units = $7.14 per unit.
Substituting these values into the formula for contribution margin per unit, we get:
Contribution margin per unit = $12.86 - $7.14
= $5.71
The correct option is : D) $5.71.
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