To: Management of Camino Jet Engines Corporation
From: Chief Financial Officer
Subject: Analysis and Recommendation for Defective Jet Engines
After carefully analyzing the situation regarding the defective CJE-27 jet engines, I have calculated the relevant costs and benefits associated with both scrapping and reworking the engines. Based on this analysis, I recommend the following course of action:
1. Incremental Income from Selling the Engines as Scrap:
- Selling price per engine as scrap: $375,000
- Incremental income = Selling price per engine as scrap - Cost per unit to manufacture
- Incremental income = $375,000 - $800,000
- Incremental income = -$425,000 (loss)
2. Relevant Benefits and Costs for Reworking and Selling the Units:
- Cost per unit to rework: $440,000
- Selling price per reworked unit: $1,200,000
- Incremental income = Selling price per reworked unit - Cost per unit to rework
- Incremental income = $1,200,000 - $440,000
- Incremental income = $760,000
3. Decision: Based on the calculations, it is recommended to rework the engines instead of scrapping them.
4. Reasoning and Explanation:
- Reworking the engines would result in an incremental income of $760,000 per unit, whereas scrapping them would lead to a loss of $425,000 per unit. Therefore, reworking the engines generates a higher financial benefit.
- If the engines are reworked, the company can sell them at the full price, resulting in increased revenue. This outweighs the option of selling them as scrap and having to build six new engines to fulfill the special order.
- Additionally, by reworking the engines, the company can maintain its reputation by meeting the buyer's specifications and delivering high-quality products.
- Opportunity costs are considered in this analysis, as reworking the engines would prevent the company from building new engines for the special order. However, the incremental income from reworking the existing engines surpasses the potential income from building new ones.
Overall, reworking the defective engines and selling them at the full price is the recommended course of action. This decision maximizes the financial benefit for Camino Jet Engines Corporation and ensures customer satisfaction.
Please refer to the labeled calculations provided above for a detailed breakdown of the analysis.
Sincerely,
[Your Name]
Chief Financial Officer
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Gosnell Company produces two products: squares and circles. The projected income for the coming year, segmented by product line, follows:
Squares Circles Total
Sales P300,000 P2,500,000 P2,800,000
Less: Variable expenses 100,000 500,000 600,000
Contribution margin P200,000 P2,000,000 P2,200,000
Less: Direct fixed expenses 28,000 1,500,000 1,528,000
Product margin P172,000 P 500,000 P 672,000
Less: Common fixed
expenses
100,000
Operating expenses P 572,000
The selling prices are P30 for squares and P50 for circles.
1. Compute the number of units of each product that must be sold for Gosnell Company to break even.
2. Assume that the marketing manager changes the sales mix of the two products so that the ratio is three squares to five circles. Repeat Requirement 1
3. Refer to the original data. Suppose that Gosnell can increase the sales of squares with increased advertising. The extra advertising would cost an additional P45,000, and some of the potential purchasers of circles would switch to squares. In total, sales of squares would increase by 15,000 units, and sale of circles would decrease by 5,000 units. Would Gosnell be better off with this strategy?
To break even, Gosnell must sell 7,000 squares and 14,000 circles. With a 3:5 sales mix, break-even quantities are 10,500 squares and 17,500 circles. Increased advertising reduces profit.
To calculate the number of units needed to break even, we divide the total fixed expenses (direct fixed expenses + common fixed expenses + operating expenses) by the contribution margin per unit. For squares, the contribution margin per unit is P200,000/10,000 units = P20. Therefore, the number of squares needed to break even is 1,528,000/20 = 7,000 units. Similarly, for circles, the contribution margin per unit is P2,000,000/50,000 units = P40. Thus, the number of circles needed to break even is 572,000/40 = 14,000 units.
With a new sales mix of three squares to five circles, the ratio becomes 3/8 and 5/8 respectively. We calculate the new number of squares and circles needed to break even using the same method as before. The number of squares needed would be 1,528,000/20 * (3/8) = 10,500 units, and the number of circles needed would be 572,000/40 * (5/8) = 17,500 units.
With increased advertising for squares, the sales of squares would increase by 15,000 units, resulting in additional sales revenue of 15,000 units * P30 = P450,000. However, the sales of circles would decrease by 5,000 units, leading to a decrease in sales revenue of 5,000 units * P50 = P250,000.
The net effect on total contribution margin would be an increase of P450,000 - P250,000 = P200,000. However, this strategy incurs an additional advertising cost of P45,000. Therefore, the net effect on profit would be an increase of P200,000 - P45,000 = P155,000. Hence, Gosnell Company would be better off with this strategy as it results in higher profit.
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Calculate planned June purchases at cost, given the following
information:
June Sales $175,000
Reductions $20,000
BOM Stock for June $250,000
BOM Stock for July $150,000
Markup 48%
We must take into account the beginning of the month (BOM) stock for June, June sales, reductions, and the targeted ending BOM stock for July in order to determine the planned June purchases at cost.
1. Determine the net sales by dividing the June sales by the reductions.
Net Sales = $20,000 less than $175,000
$155,000 in net sales
2. Determine the cost of the sold products (COGS):
Net Sales / (1 + Markup) equals COGS
COGS = $155,000 / (1 + 0.48)
COGS is equal to $104,729.17, rounded up.
3. Determine the June ending BOM stock as planned:
BOM Stock for July plus COGS less BOM Stock for June equals the ending BOM Stock for June.
$150,000 plus $104,729.17 less $250,000 is the ending BOM stock for June.
Rounding to the closest cent, the ending BOM stock for June is $4,729.17.
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1. Economic models Consider the following production possibilites frontier model for an economy that produces only two goods: barley and tablets. 2. The circular-flow model The following diagram presents a circular-flow model of a simple economy. The outer set of arrows (shown in green) shows the flow of dollars, and the inner set of arrows (shown in red) shows the corresponding flow of inputs and outputs.
The PPF model illustrates the trade-offs an economy faces when allocating its resources between the production of two goods, barley and tablets. The circular-flow model depicts the flow of dollars and the corresponding flow of inputs and outputs in a simple economy.
The production possibilities frontier (PPF) model represents the maximum output combinations an economy can produce given its available resources and technology. In this case, the economy produces two goods, barley and tablets.
The PPF curve shows the different combinations of barley and tablets that can be produced when resources are allocated efficiently. It illustrates the concept of opportunity cost, as producing more of one good requires sacrificing some production of the other. The shape of the PPF curve represents the trade-offs between barley and tablets, indicating diminishing returns or increasing opportunity costs.
The circular-flow model depicts the flow of economic activity within an economy. It shows the interaction between households and firms. The outer set of arrows, shown in green, represents the flow of dollars, indicating the income earned by households through the sale of their resources (labor, capital, etc.) to firms, and the spending by households on goods and services produced by firms.
The inner set of arrows, shown in red, represents the flow of inputs and outputs. Firms use inputs such as labor and capital to produce goods and services, which are then consumed by households.
The circular-flow model emphasizes the interdependence between households and firms and the continuous flow of money and resources in the economy.
It demonstrates the concept of a closed economic system, where the income generated by households is spent on goods and services, creating revenue for firms, which in turn employ households and generate income.
In conclusion, the production possibilities frontier (PPF) model illustrates the trade-offs in the production of barley and tablets, while the circular-flow model depicts the flow of dollars and inputs/outputs in a simple economy, emphasizing the interdependence between households and firms. These models provide insights into the allocation of resources, production possibilities, and economic activity within an economy.
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A television program examining the issue of Mexican immigration stated that most economists believe immigration is a benefit to the United States.
a. State the chain of reasoning underlying this view.
b. From a normative perspective, is the key issue wage effects on native workers or subsidies of immigrants by the host country? Why?
a. The chain of reasoning underlying the view that most economists believe immigration is a benefit to the United States can be summarized as follows:
Economic growth: Immigration is seen as a driver of economic growth. Immigrants contribute to the labor force, which increases the overall production capacity of the economy.
Labor market dynamics: Immigrants often fill gaps in the labor market by taking up jobs that are in high demand but have a shortage of native workers. This helps to alleviate labor market imbalances and leads to greater efficiency.
Innovation and entrepreneurship: Immigrants have been found to have higher rates of entrepreneurship and innovation compared to native-born individuals. They bring new ideas, skills, and perspectives that can stimulate economic development and create new job opportunities.
Consumer spending and demand: Immigrants contribute to consumer spending, which drives demand and stimulates various sectors of the economy, such as housing, retail, and services.
Social Security and public finances: Immigrants, including undocumented immigrants, often contribute to Social Security and pay taxes. Their contributions help support social programs and public finances.
b. From a normative perspective, the key issue is subjective and can vary depending on one's values and policy preferences. However, regarding wage effects on native workers versus subsidies of immigrants by the host country, the normative perspective may differ:
Wage effects on native workers: Some argue that the key issue is the potential impact of immigration on wages of native-born workers. They may argue that an influx of immigrants could lead to increased competition for jobs, potentially lowering wages for certain sectors or skill levels.
Subsidies of immigrants by the host country: Others may focus on the provision of social welfare benefits or public services to immigrants. They may be concerned about the strain on public resources and the potential costs associated with providing subsidies or support to immigrants.
Ultimately, the normative perspective depends on one's values, priorities, and assessment of the overall impact of immigration on various aspects of the economy and society.
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Appoline Juices budgeted sales of 87,000 units of Grape, assuming that the company would have 30 percent of 290,000 units sold in a particular market. The actual results were 78,000 units sold by Appoline, which represented a 26 percent share of the total market. The budgeted contribution margin is $11 per unit.
Required:
Compute the sales activity variance, and break it down into market share variance and the industry volume variance.
Note: Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.
Sales activity variance: -$99,000 (U) Market share variance: -$127,600 (U) Industry volume variance: -$699,600 (U). The unfavorable sales activity variance can be attributed to both the market share variance and the industry volume variance.
To compute the sales activity variance for Appoline Juices, we need to compare the budgeted sales with the actual sales and break it down into the market share variance and the industry volume variance.
Sales activity variance:
Sales activity variance = (Actual sales - Budgeted sales) × Budgeted contribution margin
Sales activity variance = (78,000 - 87,000) × $11
Sales activity variance = -9,000 × $11
Sales activity variance = -$99,000
The sales activity variance is unfavorable (U) because the actual sales were lower than the budgeted sales.
Market share variance:
Market share variance = (Actual market share - Budgeted market share) × Budgeted industry volume × Budgeted contribution margin
Market share variance = (0.26 - 0.30) × 290,000 × $11
Market share variance = -0.04 × 290,000 × $11
Market share variance = -$127,600
The market share variance is unfavorable (U) because the actual market share was lower than the budgeted market share.
Industry volume variance:
Industry volume variance = Budgeted market share × (Actual industry volume - Budgeted industry volume) × Budgeted contribution margin
Industry volume variance = 0.30 × (78,000 - 290,000) × $11
Industry volume variance = 0.30 × -212,000 × $11
Industry volume variance = -$699,600
The industry volume variance is unfavorable (U) because the actual industry volume was lower than the budgeted industry volume.
The market share variance indicates that Appoline Juices captured a lower market share than anticipated, while the industry volume variance shows that the overall industry volume was lower than expected.
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14) What is the distinction between housing as an investment good and consumption good? Select one:
a. This is a distinction made only by the typology and location of houses
b. Some houses are purchased to be owner-occupied, and others as rental properties
c. All houses increase in value, but some more than others
d. Government policy determines which category current properties apply to
b. Some houses are purchased to be owner-occupied, and others as rental properties.
The main distinction between housing as an investment good and a consumption good lies in the purpose for which houses are purchased. Some houses are bought with the intention of being used as a primary residence or for personal consumption, while others are acquired as rental properties with the aim of generating income through tenant occupancy.
Owner-occupied houses are primarily considered consumption goods. They are purchased for personal use, providing shelter and meeting the housing needs of the owner and their family. The value derived from these houses comes from their utility as a place to live rather than as a means of generating financial returns.
On the other hand, houses purchased as rental properties are treated as investment goods. They are acquired with the objective of generating rental income and potential capital appreciation. The value of these houses is largely dependent on their income-generating potential and the performance of the real estate market.
Overall, the distinction between housing as an investment good and consumption good is determined by the purpose of the purchase, whether it is for personal use or as an income-generating asset.
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Where it has been decided to manage all SMSF assets in a single investment pool for a fund with multiple members, what are some of the issues that need to be considered by SMSF trustees when setting the fund investment objectives/strategies? (10 marks)
SMSF trustees need to consider member profiles, asset allocation, diversification, risk management, compliance, performance monitoring, costs, communication, and professional advice.
When managing all SMSF assets in a single investment pool for a fund with multiple members, several factors need consideration for setting investment objectives/strategies. Firstly, member profiles should be assessed to understand their risk tolerance and investment preferences. Asset allocation and diversification strategies must be developed to minimize risk and optimize returns. Risk management practices, compliance with regulatory requirements, and performance monitoring are crucial. Cost-effectiveness and efficient communication with members are important considerations. Seeking professional advice from financial advisors or investment experts can provide valuable guidance in designing appropriate investment objectives and strategies.
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You are the financial analyst for the Glad It’s Finally Over Company. The director of capital budgeting has asked you to analyze a proposed capital investment. The project has a cost of $35,000 and the cost of capital is 7.5%. The project’s expected net cash flows are as follows:
Year: Expected Net Cash Flow:
0 ($35,000)
1 $14,500
2 $11,000
3 $11,000
4 $5,000
The project’s Modified Internal Rate of Return is ______%, (rounded to 2 decimal places).
The project’s Net Present Value is $_______, (rounded to 2 decimal places)
The project’s Internal Rate of Return is ______%, (rounded to 2 decimal places)
Modified Internal Rate of Return (MIRR) = 8.41%
Net Present Value (NPV) = $2,638.86
Internal Rate of Return (IRR) = 7.5%
To calculate the Modified Internal Rate of Return (MIRR), Net Present Value (NPV), and Internal Rate of Return (IRR), we need to discount the cash flows using the cost of capital of 7.5%.
Using a financial calculator or spreadsheet software, we can calculate the MIRR, NPV, and IRR. Here are the calculations:
Year: Cash Flow: Discounted Cash Flow:
0 ($35,000) ($35,000)
1 $14,500 $13,488.37
2 $11,000 $9,932.39
3 $11,000 $9,932.39
4 $5,000 $4,285.71
To calculate MIRR, we need to find the discount rate that equates the present value of the cash inflows (positive cash flows) to the future value of the cash outflows (negative cash flows). The MIRR takes into account both the reinvestment rate and the financing rate. In this case, assuming a reinvestment rate of 7.5% and a finance rate of 7.5%, the MIRR can be calculated as follows:
MIRR = (Future Value of Positive Cash Flows / Present Value of Negative Cash Flows)^(1/N) - 1
MIRR = ($13,488.37 / $35,000)^(1/4) - 1
MIRR = 0.0841 or 8.41%
To calculate NPV, we sum up the present values of the cash flows:
NPV = Sum of Discounted Cash Flows
NPV = ($13,488.37 + $9,932.39 + $9,932.39 + $4,285.71) - $35,000
NPV = $2,638.86
To calculate IRR, we find the discount rate that makes the net present value equal to zero. In this case, the IRR can be calculated as:
IRR = 7.5% (since the project's cost of capital is 7.5%)
Therefore:
Modified Internal Rate of Return (MIRR) = 8.41%
Net Present Value (NPV) = $2,638.86
Internal Rate of Return (IRR) = 7.5%
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if martha is hired to work as a custodian, she has the implied authority to do acts reasonably necessary to carry out her job.
If Martha is hired to work as a custodian, she has the implied authority to do acts reasonably necessary to carry out her job.
Martha has the implied authority to carry out her job because she is hired as a custodian. Implied authority is the authority that is not expressly granted or written down but is inferred from an individual's role, position, or relationship to others. It is necessary for Martha to be authorized to perform certain tasks that are related to her job because she is working as a custodian. Martha's implied authority to act reasonably necessary to carry out her job is a form of authority that is generally granted to individuals in this position. This authority allows Martha to take certain actions that are related to her job duties and responsibilities, even if they are not expressly stated in her job description. The scope of Martha's implied authority is determined by the nature of her job duties and responsibilities. This means that she has the authority to take reasonable actions that are necessary to carry out her job.
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III. Functions of the Sub-Committees under the Board a) Audit Committee b) Remuneration Committee c) Nomination Committee d) Risk Management Committee
a) Audit Committee: Ensures financial accuracy and compliance.
b) Remuneration Committee: Sets compensation policies aligned with goals.
c) Nomination Committee: Identifies board candidates and promotes effective governance.
d) Risk Management Committee: Mitigates strategic and operational risks.
a) Audit Committee:
The audit committee is responsible for overseeing the financial reporting process, internal controls, and the audit function within the organization. Its main functions include:
Financial Reporting: Reviewing and ensuring the accuracy, completeness, and reliability of financial statements and reports.Internal Controls: Assessing the adequacy and effectiveness of internal control systems and risk management processes.External Audit: Selecting, evaluating, and overseeing the work of external auditors to ensure independence and objectivity.Compliance: Monitoring compliance with applicable laws, regulations, and accounting standards.Risk Assessment: Identifying and evaluating significant financial and operational risks and ensuring appropriate risk mitigation strategies are in place.b) Remuneration Committee:
The remuneration committee focuses on setting and reviewing the remuneration policies, packages, and benefits for the company's directors, executives, and key employees. Its main functions include:
Compensation Policies: Developing and recommending compensation policies that align with the company's strategic goals and performance objectives.Executive Compensation: Determining the compensation packages for senior executives, including salary, bonuses, incentives, stock options, and other benefits.Performance Evaluation: Assessing the performance of executives and senior management against predetermined goals and targets.Equity and Incentive Programs: Reviewing and approving equity-based compensation plans, such as stock option grants or restricted stock units.Disclosure and Transparency: Ensuring transparent disclosure of executive compensation in accordance with applicable regulations and best practices.c) Nomination Committee:
The nomination committee is responsible for identifying, evaluating, and recommending candidates for appointment or reappointment to the board of directors. Its main functions include:
Board Composition: Assessing the skills, knowledge, experience, diversity, and independence required for effective board composition.Director Recruitment: Identifying potential candidates, conducting due diligence, and evaluating their qualifications, integrity, and suitability for board positions.Succession Planning: Developing and maintaining a succession plan for key board positions and executive leadership roles.Board Evaluation: Facilitating board performance evaluations to assess the effectiveness and contribution of individual directors and the board as a whole.Governance Policies: Developing and recommending corporate governance policies, including board independence, term limits, and board diversity.d) Risk Management Committee:
The risk management committee focuses on identifying, assessing, and managing the organization's strategic, operational, financial, and compliance risks. Its main functions include:
Risk Identification: Identifying and analyzing risks across various business areas, including market risks, operational risks, legal and regulatory risks, and reputational risks.Risk Assessment: Evaluating the likelihood and potential impact of identified risks and prioritizing them based on their significance.Risk Mitigation: Developing and implementing risk mitigation strategies, controls, and policies to minimize the impact of identified risks.Monitoring and Reporting: Monitoring risk management activities, assessing the effectiveness of risk controls, and reporting to the board on key risks, emerging trends, and risk management performance.Compliance: Ensuring compliance with relevant laws, regulations, and industry standards related to risk management and corporate governance.These sub-committees play vital roles in enhancing corporate governance, ensuring financial integrity, attracting and retaining top talent, and effectively managing risks within the organization.
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Karl is involved in a complicated project at his firm. For some of the tasks in the team’s workplan he is a "I" on the RACI chart.
A.This means he is in the loop and will be informed of any major changes or issues on the task
B.This means he is ultimately responsible for whether the task is completed
C.This means he is actually doing the work
D.This means he is involved and will have a chance to give his opinion on important elements of this task
In the RACI chart, Karl's role as an "I" signifies that he is in the loop and will be informed of any major changes or issues related to the tasks in the project.
In the RACI (Responsible, Accountable, Consulted, Informed) chart, each letter represents a different level of involvement in a task or project. The "I" stands for "Informed," indicating that Karl will be kept in the loop regarding any significant changes or issues that arise in the tasks assigned to him.
Being in the loop means that Karl will receive regular updates and relevant information regarding the progress, developments, and challenges related to the tasks he is involved in. This allows him to stay informed and aware of the project's status and any potential impacts on his own work.
While Karl is not ultimately responsible for completing the task (as indicated by the "R" for "Responsible" in the RACI chart) and may not be directly involved in performing the work (as indicated by the "C" for "Consulted"), his role as an "I" ensures that he remains informed about important elements, changes, or issues that may require his attention or input. This enables him to contribute effectively to the project and align his own work accordingly.
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Critically discuss the four theories that explain the term
structure of interest rates
The four theories that explain the term structure of interest rates are: Expectations Theory, Liquidity Preference Theory, Segmented Markets Theory, Preferred Habitat Theory
The term structure of interest rates refers to the relationship between the yield to maturity and the time to maturity of a bond. There are four primary theories that explain the term structure of interest rates. These are as follows:
1. Expectations Theory- Expectations theory explains the term structure of interest rates by suggesting that long-term interest rates are merely an average of expected future short-term interest rates.
2. Liquidity Preference Theory- Liquidity preference theory asserts that investors demand a premium on securities with longer maturities due to the greater risk of loss from changes in interest rates. This is because the further into the future an investment extends, the greater the risk of changes in inflation, government regulations, and other factors.
3. Segmented Markets Theory- Segmented markets theory suggests that different bonds are demanded by different groups of investors with varying maturity preferences.
4. Preferred Habitat Theory- The preferred habitat theory holds that while investors have a preferred maturity range, they may choose to invest in securities outside of this range if there is a sufficient yield premium to compensate for the additional risk. Investors are assumed to have a preferred maturity range, or "habitat," for their investments, but they may be willing to invest outside of this range if it is attractive enough.There are a variety of factors that may influence the term structure of interest rates, and the theories discussed above provide a framework for understanding how these factors may interact to shape interest rate movements.
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Axe Appliances in Vancouver produces a new coffee machine worth $700. - Bob's Brews in Toronto takes $600 of beans from another deuntry, and produces roasted coffee worth $2000. - Coffee with Karen in Calgary buys Axe's coffee machine and Bob's roasted coffee to produce $7000 worth of coffee to its customers. The contribution of these transactions to the Canadian GDP is $ Round to two decimal places. Do not enter the $ sign.
The contribution of the transactions to the Canadian GDP is $7000.
To calculate the contribution to GDP, we consider the final value of goods and services produced. In this case, Axe Appliances produces a coffee machine worth $700, which is included in the GDP. Bob's Brews takes $600 worth of beans and produces roasted coffee worth $2000. The value of the roasted coffee ($2000) is also included in the GDP. Finally, Coffee with Karen buys the coffee machine from Axe Appliances and the roasted coffee from Bob's Brews, and produces $7000 worth of coffee for its customers. The value of the final product, which is $7000, is added to the GDP.
Therefore, the contribution of these transactions to the Canadian GDP is $7000. This represents the total value of the final goods and services produced in these transactions and is an indicator of the economic activity generated within the country.
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the technique for quantitative problem solving and decision making involving the scientific method and mathematical models applied to a management problem, process, or operation is
The technique you are referring to is called Operations Research (OR). Operations Research is a discipline that combines mathematical modeling, statistical analysis, and optimization techniques to solve complex problems and make informed decisions in various areas of management, including business, industry, and government.
OR typically involves the following steps:
1. Problem Formulation: Clearly defining the problem, its objectives, and constraints.
2. Model Building: Developing mathematical or statistical models that represent the problem and its variables, parameters, and relationships.
3. Data Collection: Gathering relevant data needed for the model and analysis.
4. Analysis and Solution: Using mathematical techniques, such as optimization, simulation, or queuing theory, to solve the model and generate insights or solutions.
5. Validation and Testing: Assessing the accuracy and reliability of the model and its results using real-world data and scenarios.
6. Implementation and Decision Making: Presenting the findings and recommendations to decision-makers, who use the results to make informed decisions and take appropriate actions.
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Which of these situations would follow the general rule for basis of inherited property?
a Barney gave his brother appreciated stock on August 15, 2020. Barney's brother died on February 16, 2021, and Barney was his only heir.
b Eddie died on June 30, 2021. He named his brother Gabe as the beneficiary of his 401(k) plan.
c Ginger died on January 6,2021 , leaving each of her three daughters a share in her IRA.
d Saanvi died on October 16, 2021, leaving her estate to her brother, Sabal.
Situation (d) would follow the general rule for the basis of inherited property.
According to the general rule for the basis of inherited property, when a person inherits property, their basis in the property is stepped-up (or stepped down) to the fair market value of the property on the date of the decedent's death. This means that the beneficiary's basis in the inherited property is generally the property's value at the time of the decedent's death.
In situation (d), Saanvi died on October 16, 2021, and her estate was left to her brother, Sabal. Since Sabal inherited the property as a beneficiary, the general rule for basis applies. The basis of the inherited property would be stepped-up (or stepped down) to its fair market value on the date of Saanvi's death. This means that Sabal's basis in the inherited property would be its value at the time of Saanvi's death, rather than its original basis.
In contrast, situations (a), (b), and (c) involve transfers of property before the death of the original owner. In these cases, the general rule for basis does not apply, and the basis of the property would generally be determined differently, such as using the donor's adjusted basis or other specific rules for certain types of assets.
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Suppose you have the following function, f(x) = xh(x)/z(x), where the function f(x) is composed by other general functions
with respect to x, h(x) and z(x). Obtain the expression for the derivative of this function. [Hint: Notice that it is similar to the quotient, but the numerator is multiplied by x]
The expression for the derivative of the function[tex]f(x) = xh(x)/z(x) is f'(x) = [x * h'(x) * (z(x))^2 + (h(x) * z(x) - x * h(x) * z'(x))] / (z(x))^2.[/tex]
To obtain the expression for the derivative of the function f(x) = xh(x)/z(x), we can use the quotient rule of differentiation. The quotient rule states that if we have a function of the form f(x) = g(x)/h(x), where g(x) and h(x) are differentiable functions, the derivative can be calculated as:
[tex]f'(x) = (g'(x) * h(x) - g(x) * h'(x)) / (h(x))^2[/tex]
Applying the quotient rule to the function f(x) = xh(x)/z(x), we have:
[tex]f'(x) = [(x * h'(x) * z(x) + h(x) * z'(x)) * z(x) - xh(x) * z'(x)] / (z(x))^2[/tex]
Simplifying this expression, we can expand the numerator:
[tex]f'(x) = [x * h'(x) * (z(x))^2 + h(x) * z(x) * z'(x) - x * h(x) * z'(x)] / (z(x))^2[/tex]
Finally, we can rewrite the expression:
[tex]f'(x) = [x * h'(x) * (z(x))^2 + (h(x) * z(x) - x * h(x) * z'(x))] / (z(x))^2[/tex]
So, the expression for the derivative of the function
[tex]f(x) = xh(x)/z(x) is f'(x) = [x * h'(x) * (z(x))^2 + (h(x) * z(x) - x * h(x) * z'(x))] / (z(x))^2.[/tex]
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Which type of accounting change may be accounted for in current and future periods only?
O correction of an error
O change in accounting policy
O change in inventory costing method
O change in accounting estimate
Which of the following is not one of the suggested approaches to reporting changes in the accounts?
O selective period.
O current period.
O prospective.
O retrospective.
Which type of accounting change should always be accounted for in current and future periods?
O change in accounting principle.
O change in accounting estimate.
O correction of an error.
O change in reporting entity.
The type of accounting change that may be accounted for in current and future periods only is a change in accounting estimate.
A change in accounting estimate occurs when there is a revision to an estimate used in the preparation of financial statements. This could be due to new information, additional experience, or changes in circumstances that result in a revision to the estimate's amount or timing. Examples include changes in the useful life of an asset, the expected collectability of receivables, or the assessment of contingent liabilities.
When a change in accounting estimate occurs, it is applied prospectively, meaning it affects the current and future periods but does not require restatement of prior period financial statements. The effect of the change is recognized in the period of the change and future periods, but it does not adjust previously reported financial statements. Therefore, a change in accounting estimate is accounted for in current and future periods only.
2. One of the suggested approaches to reporting changes in the accounts is the retrospective approach, which involves restating prior period financial statements as if the new accounting method had always been used. This approach provides users of financial statements with the ability to compare the results of different periods on a consistent basis.
3. The type of accounting change that should always be accounted for in current and future periods is a change in accounting principle. A change in accounting principle occurs when there is a change from one acceptable accounting method to another. This change requires the retrospective application, meaning that prior period financial statements are restated to reflect the impact of the new accounting principle. This ensures comparability and consistency in financial reporting.
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Apple, a United States based MNC, purchasing processing chips from Korea could best be described as:
Trade
Joint Venture
Franchise
Licensing
The best description for Apple, a United States-based multinational corporation (MNC), purchasing processing chips from Korea is trade.
In this scenario, Apple's purchase of processing chips from Korea can be categorized as a trade activity. Trade refers to the exchange of goods and services between different countries or entities. Apple, as an MNC, engages in international trade by sourcing its processing chips from Korea.
A joint venture involves the establishment of a new entity jointly owned by two or more parties to pursue a specific business opportunity. Franchise refers to a business arrangement where a franchisor grants the rights to operate under its established brand to a franchisee. Licensing involves granting the rights to use intellectual property, such as patents or trademarks, to another party.
However, in the given context, the relationship between Apple and the Korean chip supplier is primarily focused on the purchase and exchange of goods, making it best described as trade.
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The company XYZ has scheduled to put $7,271 of excess earnings in a savings account at the end of each of the following eight years. The interest rate of the account is 2.7% p.a.. How much will the company have saved after 8 years?
The company will have saved $1,468.54 after 8 years.
The given information are:
Excess earnings to be saved: $7,271
Interest rate: 2.7% p.a
Number of years: 8
To find: How much will the company have saved after 8 years?
Solution:
To calculate how much the company will have saved after 8 years, we need to calculate the amount of interest earned on the savings account each year and then add that interest to the initial amount of savings.So, the formula for calculating the amount of interest earned in one year is: Interest earned = Principal amount × Rate of interest × Time. We know that: Principal amount = $7,271Rate of interest = 2.7% = 0.027Time = 1 yearPutting these values in the formula, we get:Interest earned = $7,271 × 0.027 × 1 = $196.17. Thus, the interest earned on the savings account in the first year is $196.17.
Since the company is saving $7,271 at the end of each year for 8 years, the initial amount of savings is $7,271. To find the total amount saved after 8 years, we need to add up the initial savings amount with the interest earned on it over 8 years. So, the total amount saved after 8 years is:Total amount saved = Initial savings amount + Interest earned in 1st year + Interest earned in 2nd year + ... + Interest earned in 8th year= $7,271 + $196.17 + $203.36 + ... + $241.97 (We need to calculate the interest earned on $7,271 each year for 8 years. So, we will substitute the principal amount as $7,271 in the formula to calculate the interest earned in each year.)
We can simplify this calculation by using the formula for the sum of a geometric series:
Sn = a(1 − rⁿ) / (1 − r)whereSn = sum of n termsa = first termr = common ratio. Since we are calculating the sum of 8 terms, n = 8. Since we are calculating the interest earned on the savings account each year, the common ratio is the same as the rate of interest, which is 0.027.So, using the formula, we get:
Total amount saved = $7,271 × [1 − (0.027)⁸] / [1 − 0.027]= $7,271 × 0.1958 / 0.973= $7,271 × 0.2018= $1,468.54. Thus, the company will have saved $1,468.54 after 8 years.
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Identify the conditions that must be met by a company implementing a reconstruction scheme.
implementing a reconstruction scheme may vary based on local laws, regulations, and nature of the company's financial distress. Consulting legal and financial professionals experienced in corporate restructuring
When a company decides to implement a reconstruction scheme, there are several conditions that must be met to ensure the successful execution of the plan. These conditions may vary based on legal and regulatory requirements in different jurisdictions, but generally, the following conditions apply:
1. Financial Distress: The company must be experiencing financial distress or facing the risk of insolvency. The need for a reconstruction scheme arises when the company's current financial situation is unsustainable, and there is a genuine concern about its ability to continue operating.
2. Feasibility of Reconstruction: The reconstruction plan must be feasible and capable of resolving the financial difficulties faced by the company. It should be realistic and have a reasonable chance of success, taking into consideration the company's specific circumstances, market conditions, and available resources.
3. Approval from Creditors: The proposed reconstruction scheme typically requires the approval of the company's creditors. This may involve obtaining the consent of a certain percentage or majority of creditors, as specified by relevant laws or regulations.
4. Court Approval: In some cases, the implementation of a reconstruction scheme may require court approval or supervision. The company may need to seek court intervention to ensure compliance with legal procedures and protect the rights of stakeholders. The court will assess the fairness and reasonableness of the scheme before granting approval.
5. Communication and Disclosure: The company must communicate the reconstruction plan effectively to all relevant stakeholders, including shareholders, creditors, employees, and regulatory authorities. Full disclosure of the company's financial situation, proposed actions, and expected outcomes is crucial to gain support and cooperation from stakeholders.
6. Compliance with Laws and Regulations: The reconstruction scheme must adhere to applicable laws, regulations, and governance requirements. It should comply with insolvency laws, company law, contractual obligations, and any other relevant legal frameworks governing the restructuring process. Non-compliance can lead to legal challenges and hinder the success of the reconstruction.
7. Preservation of Stakeholder Interests: The reconstruction scheme should aim to protect the interests of all stakeholders to the extent possible. This includes safeguarding the rights of shareholders, ensuring fair treatment of creditors, preserving employment opportunities for employees, and considering the impact on customers and suppliers. Balancing the interests of different stakeholders is essential for achieving a sustainable and equitable reconstruction.
8. Long-term Viability: The reconstruction scheme should provide a roadmap for the company's long-term viability and future success. It should address the underlying issues that caused the financial distress and propose measures to improve the company's financial position, operational efficiency, and competitive advantage. is essential to ensure compliance and maximize the chances of a successful reconstruction.
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A company is considering two alternatives for the financing a project. These two alternatives are:
a. Issue 60,000 ordinary shares at $50 per share
b. Issue 30 bonds, 6%, 10-year bonds. Bonds issued at face value for $10,000 each. Total of $300,000
It is estimated that the company will earn $ 1,000,000 EBIT as a result of the project. The company has 100,000 ordinary shares outstanding prior to the new financing. Tax rate 25%.
Instructions:
Determine the effect on net income and ernings per share for these two methods of financing.
a. Effect on Net Income and Earnings per Share (EPS) for issuing ordinary shares:
- Net Income: Net income will decrease due to the additional interest expense from the bond issuance.- EPS: Earnings per share will decrease as the number of shares outstanding increases.
b. Effect Income and Earnings per Share (EPS) for issuing bonds:
- Net Income: Net income will be higher compared to issuing ordinary shares due to the interest expense being tax-deductible.
- EPS: Earnings per share will increase since the interest expense reduces the taxable income, resulting in a lower tax burden.
a. Issuing Ordinary Shares:When the company issues 60,000 ordinary shares at $50 per share, the company receives additional equity financing. As a result, there is no interest expense associated with this financing method. However, the net income will be affected by an increase in the number of shares outstanding.
To determine the effect on net income, we need to calculate the interest expense that would have been incurred if the bonds were issued:
Interest Expense = Face Value of Bonds * Interest Rate = $300,000 * 6% = $18,000
Net Income = EBIT - Interest Expense * (1 - Tax Rate) = $1,000,000 - $18,000 * (1 - 0.25) = $985,500
To calculate the new earnings per share (EPS), we divide the new net income by the total number of shares outstanding after the new financing:EPS = Net Income / Total Shares Outstanding = $985,500 / (100,000 + 60,000) = $6.11
b. Issuing Bonds:
When the company issues 30 bonds at face value of $10,000 each, with a 6% interest rate, the company receives debt financing. The interest expense associated with the bonds is tax-deductible, resulting in a lower tax burden.
Net Income = EBIT - Interest Expense * (1 - Tax Rate) = $1,000,000 - ($10,000 * 30 * 0.06) * (1 - 0.25) = $1,090,500
EPS = Net Income / Total Shares Outstanding = $1,090,500 / (100,000) = $10.91
In summary, issuing ordinary shares (a) will lead to a decrease in net income and earnings per share, while issuing bonds (b) will result in higher net income and earnings per share due to the tax-deductibility of the interest expense associated with the bonds.
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2. What use of fiscal policy would you use to fight recession? Use \( A S-A D \) curve to show the impact on GDP, price levels, and unemployment. (2.5)
To fight a recession using fiscal policy, the government can implement expansionary fiscal measures. This involves increasing government spending and/or reducing taxes to stimulate economic activity and aggregate demand.
Using the AS-AD (Aggregate Supply-Aggregate Demand) model, the impact of expansionary fiscal policy on GDP, price levels, and unemployment can be illustrated as follows:
Aggregate Demand (AD) curve: Expansionary fiscal policy shifts the AD curve to the right, indicating an increase in total spending in the economy. This is achieved through increased government expenditure or tax cuts, which leads to higher consumption and investment.
Aggregate Supply (AS) curve: In the short run, the AS curve is relatively fixed. As aggregate demand increases, output (GDP) expands due to increased production and employment. However, in the long run, the AS curve may shift to accommodate the changes in the economy's productive capacity.
GDP: The shift in the AD curve results in an increase in real GDP. Higher government spending or tax cuts stimulate consumption and investment, leading to increased economic activity and production.
Price levels: With increased demand for goods and services, there may be upward pressure on prices. However, the extent of price level changes depends on various factors such as the elasticity of supply and the presence of spare capacity in the economy.
Unemployment: As economic activity increases and output expands, unemployment tends to decrease. The increased demand for goods and services creates job opportunities, reducing unemployment rates.
It's important to note that the effectiveness of fiscal policy in fighting a recession depends on several factors, including the magnitude and timing of the policy measures, the responsiveness of the economy, and other external factors influencing the business cycle.
Please keep in mind that this is a simplified explanation of the impact of expansionary fiscal policy using the AS-AD model, and the real-world dynamics can be more complex.
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Freedom Corporation acquired a fixed asset for $160,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rate of 9% and an income tax rate of 40%. (Use Exhibit 12.4, Appendix C, TABLE 1 and Appendix C, TABLE 2.)
Required:
1. What is the incremental present value of the tax benefits resulting from calculating depreciation using the sum-of-the-years’-digits (SYD) method rather than the straight-line (SLN) method on this asset? Use the SYD and SLN functions in Excel to calculate depreciation charges.
2. What is the incremental present value of the tax benefits resulting from calculating depreciation using the double-declining-balance (DDB) method rather than the straight-line (SLN) method on this asset? Use the SLN and DDB functions in Excel to calculate depreciation charges.
3. What is the incremental present value of the tax benefits resulting from using MACRS rather than straight-line (SLN) depreciation? The asset qualifies as a 3-year asset. Use the half-year convention.
The present value of incremental tax savings from using the SYD method over the SLN method is $6,726.76
How to find?When the SYD (Sum-of-the-Years'-Digits) method is used to calculate depreciation on an asset instead of the SLN (Straight-line) method, the incremental present value of tax benefits is calculated as follows:-
Depreciation expenses for each year according to SYD: $24,000, $16,000, $9,600, and $7,200, respectively.
- Depreciation expenses for each year according to SLN: $40,000 per year for four years.
- The present value of the incremental tax savings resulting from the use of SYD instead of SLN can be computed by multiplying the incremental tax savings each year by the appropriate discount factor.
The present value of incremental tax savings from using the SYD method over the SLN method is $6,726.76 (rounded to $6,727).
2. Incremental present value of tax benefits:
When the DDB (Double Declining Balance) method is used to calculate depreciation on an asset instead of the SLN (Straight-line) method, the incremental present value of tax benefits is calculated as follows:-
Depreciation expenses for each year according to DDB: $64,000, $38,400, $23,040, and $13,824, respectively.- Depreciation expenses for each year according to SLN: $40,000 per year for four years.- The present value of the incremental tax savings resulting from the use of DDB instead of SLN can be computed by multiplying the incremental tax savings each year by the appropriate discount factor.The present value of incremental tax savings from using the DDB method over the SLN method is $13,484.10 (rounded to $13,484).3. Incremental present value of tax benefits:
When the MACRS (Modified Accelerated Cost Recovery System) is used to calculate depreciation on an asset instead of the SLN (Straight-line) method, the incremental present value of tax benefits is calculated as follows:-
Depreciation expenses for each year according to MACRS:
$53,333, $85,333, $28,444, and $9,481, respectively.
- Depreciation expenses for each year according to SLN: $40,000 per year for four years.
- The present value of the incremental tax savings resulting from the use of MACRS instead of SLN can be computed by multiplying the incremental tax savings each year by the appropriate discount factor.
The present value of incremental tax savings from using MACRS over the SLN method is $10,370.57 (rounded to $10,371).Hence, the required answers are:
$6,727 for the incremental present value of tax benefits resulting from calculating depreciation using the SYD method instead of the SLN method on this asset.
$13,484 for the incremental present value of tax benefits resulting from calculating depreciation using the DDB method instead of the SLN method on this asset.
$10,371 for the incremental present value of tax benefits resulting from using MACRS instead of straight-line (SLN) depreciation on this asset.
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G Co Ltd- a famous US based firm requires 10 million pound (GBP) by way of loan to finance a new venture in UK. But the firm being unknown to British investors is unable to get financing from UK debt market nor any UK bank. Hence, the firm decides to raise fund from US debt market through dollar-denominated 3 years’ bond at annual coupon of 10% PA. It will then convert the dollar ($) into GBP at prevailing spot rate of GBP/ $ = $1.70.
Over the each of next 3 years it plans to use the revenue earned in GBP from UK market out of new business to make its annual debt payment. G Co engages in currency swap agreement with a counter-party in which it will convert GBP to USD at an exchange rate of $1.70 per GBP at the end of each of next 3 years.
Answer the following questions –
a. How many dollars should G Co Ltd borrow initially to support new UK venture? (5 Marks)
b. How many pound should G specify in the swap agreement that will swap over each of the next 3 years in exchange of USD so that it can make its annual coupon payment to the US creditors?
a. G Co Ltd should borrow approximately 4.23 million dollars initially to support the new UK venture.
b. G Co Ltd should specify approximately 2.49 million pounds in the swap agreement to swap over each of the next 3 years in exchange for dollars to make its annual coupon payment to the US creditors.
a. To determine the amount of dollars G Co Ltd should borrow initially, we need to calculate the present value of the future coupon payments in dollars. The coupon payment is 10% of the initial borrowing amount, which is 10 million pounds. The bond has a 3-year maturity.
Using the present value formula, we can calculate the initial borrowing amount:
PV = C × [1 -[tex](1 + r)^(^-^n^)] / r[/tex]
Where:
PV = Present value
C = Coupon payment
r = Interest rate
n = Number of periods
In this case, C = 10% of 10 million pounds = 1 million pounds, r = 10% per year, and n = 3 years.
PV = 1 million pounds ×[tex][1 - (1 + 0.10)^(^-^3^)][/tex]/ 0.10
PV = 1 million pounds × [1 - 0.7513148] / 0.10
PV = 1 million pounds × 0.2486852 / 0.10
PV = 2.486852 million pounds
Now, we convert the present value in pounds to dollars using the spot exchange rate:
Amount in dollars = PV × GBP/$ exchange rate
Amount in dollars = 2.486852 million pounds × 1.70 dollars/pound
Amount in dollars = 4.2258484 million dollars
Therefore, G Co Ltd should borrow approximately 4.23 million dollars initially to support the new UK venture.
b. In the swap agreement, G Co Ltd needs to specify the amount of pounds to be swapped into dollars each year for the annual coupon payment. The annual coupon payment is 10% of the initial borrowing amount, which is 4.23 million dollars. The swap agreement specifies an exchange rate of $1.70 per pound.
Amount in pounds = Coupon payment in dollars / GBP/$ exchange rate
Amount in pounds = 4.23 million dollars / 1.70 dollars/pound
Amount in pounds = 2.4882353 million pounds
Therefore, G Co Ltd should specify approximately 2.49 million pounds in the swap agreement to swap over each of the next 3 years in exchange for dollars to make its annual coupon payment to the US creditors.
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If a bond has a coupon rate that is greater than the bond’s YTM,
the bond:
Question 1 options:
will sell at a discount.
will not be called.
will sell at par.
will sell at a premium
If a bond has a coupon rate that is greater than the bond's yield to maturity (YTM), it means the bond is offering a higher interest rate than what is currently available in the market. In such a scenario, the bond is likely to sell at a premium.
The coupon rate of a bond refers to the fixed annual interest payment as a percentage of the bond's face value. The yield to maturity (YTM) represents the total return an investor can expect from a bond if held until maturity, taking into account the bond's current price, coupon rate, and time to maturity.
When the coupon rate is higher than the YTM, it implies that the bond is providing a higher interest payment compared to the prevailing market rates. This makes the bond more attractive to investors seeking higher yields. As a result, investors are willing to pay a premium to purchase the bond and receive the higher coupon payments.
Therefore, if a bond has a coupon rate that is greater than the bond's YTM, the bond is expected to sell at a premium. The premium represents the difference between the bond's market price and its face value, reflecting the additional value investors are willing to pay for the higher coupon rate.
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Maryam bought a house for $1 million in 2021. This house is valued at $1.5 million in 2022.
Q: How will this transaction affect the GDP in 2021 and the GDP in 2022? Explain in detail.
The transaction of Maryam buying a house for $1 million in 2021 would have an impact on the Gross Domestic Product (GDP) of that year. GDP measures the total value of goods and services produced within a country's borders over a specific period.
When Maryam buys the house, it is considered a final consumption expenditure, which contributes to the GDP. Therefore, the purchase of the house would increase the GDP by $1 million in 2021.
In 2022, the valuation of the house at $1.5 million does not directly affect the GDP. GDP primarily focuses on the production of goods and services rather than changes in asset values. However, there could be some indirect effects on the GDP in 2022 due to the increased value of the house. Firstly, if Maryam decides to sell the house in 2022, the sale would be recorded as a financial transaction, which is not directly included in GDP. Secondly, if the increased valuation leads Maryam to invest more in the house, such as renovations or improvements, it would contribute to the GDP as investment expenditure. These indirect effects would impact the GDP in 2022 but are contingent on Maryam's actions regarding the house.
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Consider the new Keynesian Phillips curve with indexation, equation 7.76 under the assumptions of perfect foresight and β = 1, together with our usual aggregate demand equation, yt = mt - pt.
Consider an anticipated, permanent, one-time increase in m: mt = 0 for t < 0, mt = 1 for t ≥ 0.
The anticipated, permanent, one-time increase in money supply leads to higher inflation and increased output in the short run.
In response to the anticipated, permanent, one-time increase in money supply (mt = 1 for t ≥ 0), the new Keynesian Phillips curve with indexation predicts an increase in inflation (pt) in the short run, while the aggregate demand equation suggests an increase in output (yt).
The new Keynesian Phillips curve with indexation describes the relationship between inflation and output. In this case, with perfect foresight and a one-time increase in money supply (mt = 1 for t ≥ 0), the Phillips curve predicts an increase in inflation as the increase in money supply stimulates demand in the economy.
On the other hand, the aggregate demand equation (yt = mt - pt) indicates that an increase in money supply leads to an increase in output. This is because the additional money injected into the economy stimulates spending and investment, thereby boosting production and output levels.
Overall, the anticipated, permanent, one-time increase in money supply is expected to result in both higher inflation and increased output in the short run, as predicted by the new Keynesian Phillips curve with indexation and the aggregate demand equation, respectively.
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In November and December 20×2, Herald Company, a newly organized news paper publisher, received $90,000 for 2,000 three-year subscriptions at $15 per year, starting with the January 20×3 issue of the magazine. The fiscal year end at Dec 31. Required: How much should Herald report in its 20×2 income statement for subscriptions revenue on an accrual basis?
Herald Company should report $30,000 in its 20×2 income statement for subscriptions revenue on an accrual basis.
In accrual accounting, revenue is recognized when it is earned, regardless of when the cash is received. Since the subscriptions were received in November and December 20×2, Herald Company should recognize a portion of the revenue in the same period.
Each subscription is for a three-year period, and the annual subscription fee is $15. Therefore, the total revenue from the 2,000 subscriptions is $90,000 ($15 × 2,000).
To determine the revenue that should be recognized in the 20×2 income statement, we need to consider the portion of the subscriptions that corresponds to the current fiscal year, which ends on December 31. Since the subscriptions start with the January 20×3 issue, only one month of the three-year subscription pertains to the 20×2 fiscal year.
Hence, Herald Company should report $30,000 ($90,000 × 1/36) in its 20×2 income statement for subscriptions revenue on an accrual basis
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An oil refinery find's that it is necessary to freat the waste liquids from a new process before discharging them into a stream. The treatment will cost 520,000 the first year, but process improvernents will aliow the costs to decline by $2,000 each year. As an altemative, an outside company will process the wastes for the fixed price of $10,000 year throughout the 12 year period, payable at the beginning of each year, Either way, there is no need to treat the wastes after 12 years. Use the annual worth method to determine how the wastes should be processed. The company's MARR is 14% Click the icon to yew the interest and annuty table for discrere compouriding when the MARR is 14% per. yeat The AW of the in-house treatment is
Since the AW of the in-house treatment is greater than the AW of outsourcing, it is more financially favorable to process the wastes in-house.
To determine the annual worth (AW) of the in-house treatment and compare it with the cost of outsourcing, we need to calculate the present worth (PW) of each option.
For the in-house treatment:
PW = -520,000 + (520,000 - 2,000) / (1 + 0.14) + (520,000 - 2,000) / (1 + 0.14)^2 + ... + (520,000 - 2,000) / (1 + 0.14)^12
Using the annuity table for discrete compounding at a 14% MARR, the PW of the in-house treatment is found to be approximately $3,354,960.
For the outsourcing option:
PW = -10,000 / (1 + 0.14) + -10,000 / (1 + 0.14)^2 + ... + -10,000 / (1 + 0.14)^12
Again using the annuity table, the PW of the outsourcing option is approximately $68,826.
Comparing the PWs, we can determine the AW by dividing the PW by the annuity conversion factor (ACF):
AW = PW / ACF
The ACF can be found from the annuity table for 12 periods at a 14% MARR, which is 5.216.
AW (in-house treatment) = $3,354,960 / 5.216 ≈ $642,216
AW (outsourcing) = $68,826 / 5.216 ≈ $13,198
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A tariff is a
a) tax.
b) subsidy.
c) quantity limit.
d) price ceiling.
A tariff is a tax.
The correct option is a) tax.
A tariff is a tax imposed on goods or services that are imported or exported. It is a form of trade barrier implemented by governments to regulate international trade and protect domestic industries. Tariffs are typically levied on imported goods, increasing their price and making them less competitive compared to domestically produced goods.
The purpose of imposing tariffs can vary, but they are often used to protect domestic industries from foreign competition, promote domestic production, and generate revenue for the government. Tariffs can be specific, where a fixed amount is charged per unit of imported goods, or ad valorem, where a percentage of the goods' value is charged as a tariff.
By imposing tariffs, governments aim to influence the flow of goods and services across borders, impacting the quantity and price of imports and exports. Tariffs can alter the cost structure of international trade, affecting consumers, producers, and the overall economy. They can also lead to retaliatory measures from other countries, triggering trade disputes and affecting global trade relationships.
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