a) Calculating Cost of equity for the company using CAPM: Given that, Data for the risk premium sensitivities (b, s, and h) as well as the beta coefficient for the CAPM of two companies are listed in the following :
a) Using CAPM:
Cost of equity for Company C = 1% + 1.2(5%) = 7%
Cost of equity for Company M = 1% + 2(5%) = 11%
Using Fama French:
Cost of equity for Company C = 1% + 1.2(5%) + 0.4(5%) - 0.3(5%) = 8%
Cost of equity for Company M = 1% + 0.6(5%) + 0.1(5%) - 0.6(5%) = 2%
b) Two factors affecting the cost of equity (besides those included in CAPM and Fama French) are:
1. Industry Risk: The risk associated with the industry in which a company operates can impact its cost of equity. Industries with higher volatility, regulatory uncertainties, resulting in a higher cost of equity.
2. Management Quality: The quality of a company's management team can affect the perception of risk by investors.This can lead to a lower cost of equity as investors have more confidence in the company's ability to generate returns.
These factors influence the cost of equity as they affect the perceived risk and expected returns associated with investing in a particular company's stock.
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Outback Airlines is considering the replacement of an existing international aircraft to accommodate greater volumes of passengers on flights between Sydney and London over the next 15 years.
The current Boeing 737-700 aircraft was purchased 11 years ago at a cost of $120 million and was planned to be depreciated over a 15-year useful life. It is anticipated this aircraft could be sold today for $80 million, with a 30% marginal tax rate to be used for evaluation purposes. The new Boeing 777-200ER replacement aircraft will cost $180 million in total (inclusive of training and modification costs) and is planned to be depreciated over a 15-year useful life.
Annual revenues associated with this flight path are projected to increase from $61.5 million to $82.7 million if this project was undertaken. Annual operating expenses would also increase from $49.2 million to $54.3 million. Outback Airlines plans to dispose of the aircraft in an eco-friendly manner at the end of the 15-year project, however associated costs and/or proceeds are assumed by management to be zero at this time.
Q1
Calculate the after-tax proceeds from selling the existing aircraft as of today.
Q2
Calculate the project’s net investment as of today.
Q3
Calculate the projects annual after-tax net operating cash flows for years 1 through 15, as well as any termination cash flow occurring in the last year of the project.
Q4
Assuming Outback Airlines’ cost of capital is 6%, should they accept this asset replacement project? Why or why not? Please support your answer with appropriate calculations, and briefly explain your answers.
Q1: The after-tax proceeds from selling the existing aircraft today is $56 million.
Q2: The project's net investment as of today is $124 million.
Q3: The project's annual after-tax net operating cash flows for years 1 through 15 are $19.88 million. There is no termination cash flow.
Q4: Outback Airlines should accept the asset replacement project since the NPV, considering a 6% cost of capital, is positive.
Q1: To calculate the after-tax proceeds from selling the existing aircraft today, we need to subtract the tax on the sale from the sale price. The current sale price is $80 million, and the marginal tax rate is 30%.
Tax on sale = Sale price * Marginal tax rate
Tax on sale = $80 million * 0.30
Tax on sale = $24 million
After-tax proceeds = Sale price - Tax on sale
After-tax proceeds = $80 million - $24 million
After-tax proceeds = $56 million
Therefore, the after-tax proceeds from selling the existing aircraft today would be $56 million.
Q2: The net investment as of today includes the cost of the new aircraft and the after-tax proceeds from selling the existing aircraft.
Net investment = Cost of new aircraft - After-tax proceeds from selling existing aircraft
Net investment = $180 million - $56 million
Net investment = $124 million
Thus, the net investment as of today for the project would be $124 million.
Q3: To calculate the project's annual after-tax net operating cash flows, we need to consider the changes in revenues and operating expenses.
Annual after-tax net operating cash flow = (Annual revenues - Annual operating expenses) * (1 - Marginal tax rate)
Annual after-tax net operating cash flow = ($82.7 million - $54.3 million) * (1 - 0.30)
Annual after-tax net operating cash flow = $28.4 million * 0.70
Annual after-tax net operating cash flow = $19.88 million
For years 1 through 15, the annual after-tax net operating cash flows would be $19.88 million.
Additionally, since the termination cash flow in the last year is assumed to be zero, there is no termination cash flow.
Q4: To determine if Outback Airlines should accept the asset replacement project, we need to calculate the project's net present value (NPV) using the cost of capital of 6%. If the NPV is positive, the project should be accepted.
NPV = Sum of [Annual after-tax net operating cash flows / (1 + Cost of capital)^n] - Net investment
Calculating the NPV for years 1 through 15:
NPV = ($19.88 million / (1 + 0.06)^1) + ($19.88 million / (1 + 0.06)^2) + ... + ($19.88 million / (1 + 0.06)^15) - $124 million
By evaluating the NPV using the given formula, if the result is positive, Outback Airlines should accept the project. If it is negative, the project should be rejected.
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A company decided to replace an old machine with a new machine. Which of the following is considered a releyant cost?
a the book value of the old equipment
b depreciation expense on the old equipenent
c the loss on the disposal of the old equipment
d the current disposal price of the old equipment
The relevant cost in the decision to replace an old machine with a new machine is the current disposal price of the old equipment. This cost is considered relevant because it directly affects the cash flow and the overall financial impact of the decision.
The current disposal price of the old equipment represents the amount the company can receive by selling or disposing of the old machine in the market. It is relevant because it represents the cash inflow that the company can generate from the disposal of old equipment. By considering this cost, the company can assess the net cost or benefit of replacing the old machine with the new one.
On the other hand, the book value of the old equipment, depreciation expense, and the loss on disposal are not considered relevant costs in this decision. The book value represents the historical cost of the equipment and is not indicative of its current market value.
Depreciation expense is a non-cash expense and does not affect the cash flow. The loss on disposal is an accounting concept and does not directly impact the financial implications of the decision. Therefore, the current disposal price of the old equipment is the relevant cost to consider in this scenario.
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Which is the most accurate statement about projected drought in Australia? Extreme droughts are expected to increase Moderate droughts are expected to increase Severe and moderate droughts are project
The most accurate statement about projected drought in Australia is:
Severe and moderate droughts are projected to increase.
Australia is a continent known for its variability in climate, and droughts are a recurring challenge in many parts of the country. Climate change projections and scientific studies indicate that Australia is likely to experience an increase in severe and moderate droughts in the future. This is due to factors such as rising temperatures, changes in rainfall patterns, and increased evaporation rates, which can contribute to drier conditions and water scarcity. It is important to note that while extreme droughts can occur, the statement does not specifically mention them and focuses on the increase in severe and moderate droughts, which is a commonly reported trend in climate change research related to Australia.
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At the beginning of the year, Mitt Corporation bought machinery, shelving, and a forklift. The machinery initially cost $27,600 but had to be overhauled (at a cost of $1,600 ) before it could be installed (at a cost of $800 ) and finally put into use. The machinery's total life was estimated as 40,000 hours, with an estimated residual value of $1,000. The machinery was actually used 5,000 hours in year 1 and 7,000 hours in year 2 . Repair costs were $400 in each year.
The shelving cost $9,550 and was expected to last 5 years, with a residual value of $650. The forklift cost $13,050 and was expected to last six years, with a residual value of $2,100.
Compute year 2 units-of-production depreciation expense for the machinery. (Do not round intermediate alculations.)
The year 2 units-of-production depreciation expense for the machinery can be determined by multiplying the number of hours used in year 2 by the depreciation rate per hour.
To calculate the depreciation expense for year 2, we need to determine the depreciation rate per hour for the machinery. The machinery has a total estimated life of 40,000 hours and an estimated residual value of $1,000. Therefore, the depreciable base is the initial cost minus the residual value, which is $27,600 - $1,000 = $26,600.
The depreciation rate per hour can be calculated by dividing the depreciable base by the total estimated hours of usage, which is $26,600 / 40,000 hours = $0.665 per hour.
In year 2, the machinery was used for 7,000 hours. To calculate the depreciation expense, we multiply the number of hours used in year 2 by the depreciation rate per hour: $0.665 per hour * 7,000 hours = $4,655. Therefore, the year 2 units-of-production depreciation expense for the machinery is $4,655.
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Use the Keynesian cross model to predict the impact on equilibrium GDP of the following. In each case, state the direction of the change and give a formula for
the size of the impact.
i. An increase in government purchases
11. An increase in taxes
in. Equal-sized increases in both government purchases and taxes
Using the Keynesian cross model, an increase in government purchases will lead to an increase in equilibrium GDP, while an increase in taxes will result in a decrease in equilibrium GDP.
In the Keynesian cross model, equilibrium GDP is determined by the intersection of aggregate demand (AD) and aggregate supply (AS). AD is composed of consumption (C), investment (I), government purchases (G), and net exports (NX).
(i) An increase in government purchases (G) leads to an increase in AD. The formula for the impact on equilibrium GDP can be expressed as ΔY = ΔG * (1 - MPC), where ΔY represents the change in equilibrium GDP, ΔG represents the change in government purchases, and MPC represents the marginal propensity to consume.
(ii) An increase in taxes (T) reduces disposable income and decreases consumption (C), leading to a decrease in AD. The formula for the impact on equilibrium GDP can be expressed as ΔY = -ΔT * MPC.
(iii) When there are equal-sized increases in both government purchases (ΔG) and taxes (ΔT), the impact on equilibrium GDP depends on the relative magnitude of the changes. If ΔG > ΔT, the net effect would be an increase in equilibrium GDP, and if ΔG < ΔT, the net effect would be a decrease in equilibrium GDP. The formula for the impact on equilibrium GDP can be expressed as ΔY = (ΔG - ΔT) * (1 - MPC).
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if a perfectly competitive ndustry is n long run equilibrium which of the following is most likely to be true
If a perfectly competitive industry is in long run equilibrium, is that firms are earning zero economic profits.
In the long run, a perfectly competitive market is in equilibrium when all of its firms are producing at the least-cost point and all the firms earn zero economic profit. Long-run equilibrium occurs when all firms in the industry are earning zero economic profit, and there is no incentive for firms to enter or leave the market.
Because there is no market power in a perfectly competitive market, firms cannot raise their prices. As a result, the demand curve for the industry is perfectly elastic, which means that the price equals the marginal cost of production.
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A hedge fund manager decided to implement a 3-month carry trade strategy using currencies Z and Y. At the inception of the trading strategy, the 3-month interest rates of currencies Z and Y were 4% and 6%, respectively, and the exchange rate between currency Z and Y was 3 (1 unit of Y buys 3 units of Z ). At the end of the 3-month period, the exchange rate between currency Z and Y was 2.5. The amount invested by the hedge fund manager in this strategy was 10,000,000 in terms of currency Z. a) What do you expect to be the design of the carry trade strategy that this hedge fund manager has implemented? Explain your answer. [5 marks] b) "The carry trade strategy brings no relevant exposure to financial risks". Do you agree with this statement? Explain your answer. [10 marks] c) What is the result of this strategy for the hedge fund manager? Explain your answer. [10 marks] d) Given your answers to Questions 3 b and 3c, which futures-based hedging strategy would you suggest to the hedge fund manager? Explain your answer.
a) The strategy of a carry trade is to invest in currencies where the interest rate is greater than another currency. This allows investors to borrow at a lower interest rate in one currency and lend at a higher interest rate in another currency.
In this case, the manager invested in currency Z, which had a 4% interest rate and then exchanged the Z currency to currency Y, which had a 6% interest rate. Therefore, the hedge fund manager invested in currency Y through a borrowing in currency Z, expecting that over the 3-month period, the appreciation of the Y currency would offset the difference in interest rates.
b)I disagree with the statement that the carry trade strategy brings no relevant exposure to financial risks. This is because the carry trade strategy has an exchange rate risk and interest rate risk.
Since the strategy requires the exchange of two currencies, the exchange rate risk comes from the uncertainty of the exchange rate fluctuations. The interest rate risk comes from the change in the interest rates, which may affect the value of the investment.
In this case, the exchange rate of Z to Y moved from 3 to 2.5, resulting in a loss for the hedge fund manager. Therefore, the carry trade strategy is exposed to both exchange rate risk and interest rate risk.
c)In this case, the hedge fund manager invested 10,000,000.
Z and Y converted them into 3,333,333.33
After 3 months, the value of Y would have grown to 3,888,888.89 based on the interest rates. However, the exchange rate changed to 2.5. As a result, the manager converted the Y back to Z and obtained 9,722,222.22.
The manager, therefore, experienced a loss of 277,777.78
d)The futures-based hedging strategy that would best suit the hedge fund manager in this scenario is the currency futures contract.This contract is used to buy or sell a currency at a specific exchange rate at a particular date in the future.
Since the hedge fund manager expects the appreciation of the Y currency, the manager can enter into a futures contract for the purchase of Y currency at the current exchange rate. If the exchange rate fluctuates, the manager is protected since they can buy Y currency at the predetermined exchange rate.
The currency futures contract, therefore, allows the manager to protect themselves from exchange rate risk and avoid the loss experienced in the 3-month period.
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ZAZ Ltd is considering to make an investment. The management of ZAZ Ltd
uses a hurdle (target rate of 3 years payback period. ZAZ Ltd have to
decide either to invest in Project A which has a payback period of 4 years
or either Project B which has a payback period of 3.5 years.
Considering the hurdle rate, ZAZ Ltd should:
A: Invest in Project A
B: Invest in Project B
C: Invest in both projects
D: Reject both projects
ZAZ Ltd is considering making an investment. The management of ZAZ Ltd uses a hurdle (target rate of 3 years payback period.
ZAZ Ltd has to decide either to invest in Project A which has a payback period of 4 years or in Project B which has a payback period of 3.5 years.Considering the hurdle rate, ZAZ Ltd should invest in Project B as it has a payback period of 3.5 years and the hurdle rate is 3 years.What is a hurdle rate?The hurdle rate is also known as the minimum acceptable rate of return (MARR). It is the minimum rate of return that an investor requires from an investment to be worthwhile.
The hurdle rate reflects the minimum required rate of return that an investor is willing to accept for investing in a project. It is calculated based on the riskiness of the project, the cost of capital, and the market rate of return.
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True or false: A standard portion size is the quantity of a given product that a given employee decides to serve on the days that he works.
The statement is False. A standard portion size is the quantity of a given product that a given employee decides to serve on the days that he works.
A standard portion size is a predetermined and consistent quantity of a given product that is established by a company or establishment. It is typically based on guidelines or specifications set by the organization to ensure consistency in serving sizes and portion control. It is not determined by individual employees based on their personal decisions or preferences.
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The next questions are about applying the model of contingent renewal that we studied in Section 7 ("Benetton model") to the job contract, after relabeling variables appropriately (as discussed in Section 8 of the course). (a) First, consider an imaginary industry in which workers' effort can be exactly monitored and measured, so that enforceable contracts can be written, that specify both the wage (w) and the level of effort (e). Anwser the following questions.
Will the employers in this industry be able to set any wage and effort level at their choice? If not, what would the employers be constrained by?
Would the employment contract in this industry be Pareto efficient? Why or why not?
(b) Now assume that an enforceable complete contract cannot be written. A contract can specify the wage w but not the effort level e. What is the employer now constrained by? How will the outcome be different relative to the case in which effort can be regulated by the contract? Will the outcome be Pareto efficient? Explain.
The inability to contractually specify effort levels introduces uncertainty and challenges in achieving optimal outcomes, making Pareto efficiency difficult to attain.
(a) In an imaginary industry where workers' effort can be exactly monitored and measured, employers would not be able to set any wage and effort level at their choice. They would be constrained by several factors:
Workers' Reservation Utility: Employers would need to offer wages and effort levels that are attractive enough for workers to accept and remain in the job. If the wage and effort levels are too low, workers may choose to leave for better opportunities.
Labor Market Competition: The employers would also be constrained by market forces and competition with other firms. They would need to offer competitive wages and effort levels to attract and retain skilled workers. If they set wages and effort levels too low compared to other firms, they may struggle to recruit and retain qualified employees.
Productivity Considerations: Employers would consider the productivity gains resulting from higher effort levels. They would aim to set effort levels that maximize productivity and contribute to the profitability of the company. Setting effort levels too low may result in suboptimal output and performance.
Regarding the Pareto efficiency of the employment contract in this industry, it would not necessarily be Pareto efficient. Pareto efficiency occurs when it is impossible to make one individual better off without making another individual worse off. In this case, the contract may not achieve Pareto efficiency because there could be possible improvements in the allocation of wages and effort levels that would benefit both employers and workers without negatively impacting others. The presence of information asymmetry or other factors may prevent the attainment of Pareto efficiency.
(b) When an enforceable complete contract cannot be written and only the wage (w) can be specified, the employer is constrained by the inability to directly regulate the effort level (e) of workers. In this scenario, workers have discretion in determining their effort level based on their own incentives and preferences.
The outcome, in this case, would differ from the scenario where effort can be regulated by the contract. The employer's ability to align effort levels with productivity goals and incentives would be diminished. Without the ability to specify effort levels, the employer relies on workers' intrinsic motivation and discretionary effort.
The outcome may not be Pareto efficient in this situation. The lack of control over effort levels and potential variations in worker effort could lead to suboptimal productivity and allocation of resources. Additionally, without explicit effort provisions in the contract, there may be a risk of moral hazard, where workers may exert less effort than desired by the employer, resulting in a less efficient outcome.
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What about the quantity of number of items a salesperson shows to a customer at one time should be considered?
a. planned
b. specific
c. limited
d. unrestricted
c. limited a salesperson should consider limiting the quantity of items shown to a customer at one time. This ensures focus and avoids overwhelming the customer.
By presenting a limited selection, the salesperson can provide more attention to each item, leading to better understanding, decision-making, and potential sales. It also prevents decision fatigue and allows the customer to absorb information effectively, leading to a more satisfying shopping experience.
When considering the quantity of items a salesperson shows to a customer at one time, it is important to prioritize limiting the selection. This approach has several benefits. Firstly, by presenting a limited number of items, the salesperson can dedicate more attention and detail to each product, enabling the customer to fully understand its features and benefits. Moreover, a smaller selection prevents overwhelming the customer with too many choices, reducing decision fatigue and making the decision-making process more manageable. By keeping the options focused and concise, the customer can absorb the information effectively and make a more informed purchasing decision. This approach ultimately leads to a more satisfying and successful shopping experience for the customer.
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21) Which of the following refers to the authority a manager has to advise other managers or employees?
A) staff authority
B) line authority
C) functional authority
D) corporate authority
The correct answer is C) functional authority.
Let's discuss each option
Functional authority refers to the authority that a manager has to advise and guide other managers or employees within a specific functional area. It is typically associated with areas such as finance, human resources, marketing, or operations. Managers with functional authority have expertise and knowledge in their respective fields and provide advice, recommendations, and support to other managers and employees who require assistance in those areas.
Staff authority (option A) refers to the authority given to individuals or departments that provide support, advice, and expertise to line managers, but they do not have direct authority over other employees.
Line authority (option B) refers to the direct authority that a manager has over subordinates in their chain of command. It involves making decisions, giving instructions, and being responsible for the performance of those who report directly to them.
Corporate authority (option D) generally refers to the overall authority and decision-making power held by the top management or executives of a company. It encompasses the highest level of authority in the organization and involves strategic decision-making, setting goals, and defining the company's overall direction.
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Henderson Office Supplies is considering a more liberal credit policy to increase sales, but it expects that 5 percent of the new accounts will be uncollectible. Collection costs are 4 percent of new sales, production costs are 80 percent of sales, and accounts receivable turnover is four times. Assume an increase in sales of $73,000. No other asset buildup will be required to service the new accounts.
a. What is the level of investment in accounts receivable to support this sales expansion?
Investment in accounts receivable $
b. What would be Henderson’s incremental before‐tax return on investment?
Return on incremental investment %
a. The level of investment in accounts receivable to support this sales expansion is $299,684.21. b. Henderson's incremental before-tax return on investment would be approximately 3.29%.
To calculate the level of investment in accounts receivable and the incremental before-tax return on investment for Henderson Office Supplies, we need to consider the given information:
Sales increase: $73,000
Uncollectible accounts: 5% of new accounts
Collection costs: 4% of new sales
Production costs: 80% of sales
Accounts receivable turnover: 4 times
a. Calculation of investment in accounts receivable:
The investment in accounts receivable can be calculated using the formula:
Investment in accounts receivable = (Accounts receivable turnover) * (Average accounts receivable balance)
Since the accounts receivable turnover is given as four times, we need to find the average accounts receivable balance.
Average accounts receivable balance = (Total sales / Accounts receivable turnover)
Total sales = Sales increase + Current sales
Current sales = Sales increase / (1 - Uncollectible accounts)
Current sales = $73,000 / (1 - 0.05) = $73,000 / 0.95 = $76,842.11
Average accounts receivable balance = ($73,000 + $76,842.11) / 2 = $74,921.05
Investment in accounts receivable = 4 * $74,921.05 = $299,684.21
Therefore, the level of investment in accounts receivable to support this sales expansion is $299,684.21.
b. Calculation of incremental before-tax return on investment:
Incremental before-tax return on investment can be calculated using the formula:
Return on incremental investment = (Incremental profit before tax / Incremental investment) * 100
Incremental profit before tax = Incremental sales * (1 - Collection costs - Production costs)
Incremental sales = Sales increase - Uncollectible accounts
Incremental sales = $73,000 - (0.05 * $73,000) = $69,350
Incremental profit before tax = $69,350 * (1 - 0.04 - 0.8) = $9,870
Return on incremental investment = ($9,870 / $299,684.21) * 100 ≈ 3.29%
Therefore, Henderson's incremental before-tax return on investment would be approximately 3.29%.
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Benefit segmentation is often effective because it is relatively easy to portray a product's or service's benefits in the firm's ____ strategies
Benefit segmentation is often effective because it is relatively easy to portray a product's or service's benefits in the firm's marketing strategies.
By understanding the specific needs and desires of different consumer segments, companies can tailor their messaging and positioning to highlight the unique advantages their offerings provide.
Benefit segmentation is a marketing strategy that involves dividing a market into distinct segments based on the specific benefits consumers seek from a product or service. Rather than targeting the entire market with a one-size-fits-all approach, benefit segmentation allows companies to focus on particular groups of consumers who value and prioritize specific benefits.
One of the reasons benefit segmentation is effective is that it allows companies to clearly communicate the advantages of their product or service to the target audience. By identifying the key benefits that resonate with each segment, companies can tailor their marketing messages to highlight those benefits. This targeted approach increases the relevance and appeal of the product or service to the intended consumers, making it more likely to capture their attention and generate interest.
Furthermore, portraying a product's benefits in marketing strategies is relatively easy compared to other segmentation approaches. Benefits are tangible and measurable attributes that can be communicated through various marketing channels. Whether it's emphasizing convenience, cost savings, durability, or any other benefit, companies can showcase these features through persuasive advertising, product demonstrations, customer testimonials, and other promotional activities.
By aligning the product's benefits with the specific needs and desires of different consumer segments, companies can create a stronger value proposition. This enables them to differentiate their offerings from competitors and build a stronger connection with their target market. Benefit segmentation helps companies position their products or services as solutions that address the specific challenges or aspirations of each segment, ultimately increasing the chances of attracting and retaining loyal customers.
In conclusion, benefit segmentation is an effective strategy because it allows companies to highlight the advantages of their offerings in their marketing strategies. By understanding the unique benefits sought by different consumer segments, companies can tailor their messaging to resonate with each group. This targeted approach enhances the relevance and appeal of the product or service, making it more likely to attract and retain customers in an increasingly competitive marketplace.
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Which of the following is correct regarding the delivery of the written narrative concerning investment advisory services for Autumn?
a. The planner will be in violation of the delivery requirements.
b. The written narrative will fulfill the disclosure requirements under the Investment Advisers Act.
c. The written narrative will not meet the brochure rule requirements because it is not a direct copy of Part II of Form ADV.
d. The written narrative automatically fulfills CFP Board's disclosure requirements.
The written narrative will not meet the brochure rule requirements because it is not a direct copy of Part II of Form ADV. The correct answer is c.
Under the Investment Advisers Act, investment advisors are required to provide clients with a written disclosure document known as Form ADV Part II, also referred to as the brochure. The brochure rule mandates that the written disclosure document contains specific information about the advisor's business practices, fees, disciplinary history, and other relevant details.
While the written narrative provided by the planner may contain important information about investment advisory services, it is not a direct copy of Part II of Form ADV.
Therefore, it does not fulfill the brochure rule requirements. Investment advisors must ensure that they provide clients with the required disclosures as outlined by the regulatory guidelines to comply with the law.
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Which of the following statements about the voucher package is false? Multiple Choice
It is prepared by the purchasing department to initiate the purchasing process.
It is typically reviewed and approved by an individual like an assistant controller prior to recording as a payable
It is reviewed by the treasurer before checks are signed.
It is the authorization to record a bill as an account payable and an authorization for subsequent payment
Which of the following pairs of departments in the expenditure cycle are primarily custody functions?
Multiple Choice
- Accounts Payable and the Purchasing Department
- Receiving Department and the Accounts Payable Department
- Receiving Department and the Treasury Department
- Sales Department and the Shipping Department
Which of the following pairs of departments in the expenditure cycle are primarily authorization functions?
Multiple Choice
- Requisitioning Department and Receiving Department
- Treasury Department and the Accounts Payable Department
- Purchasing Department and the Requisitioning Department
- Purchasing Department and the Accounts Payable Department
The false statement about the voucher package is: "It is prepared by the purchasing department to initiate the purchasing process."
The departments primarily responsible for custody functions in the expenditure cycle are: Receiving Department and the Accounts Payable Department.
The departments primarily responsible for authorization functions in the expenditure cycle are: Purchasing Department and the Requisitioning Department.
The false statement about the voucher package is that it is prepared by the purchasing department to initiate the purchasing process. In reality, the voucher package is prepared after the purchasing process to authorize the recording of a bill as an account payable and subsequent payment. It consolidates relevant documents such as purchase orders, receiving reports, and invoices.
The departments primarily responsible for custody functions in the expenditure cycle are the Receiving Department and the Accounts Payable Department. The Receiving Department is responsible for physically receiving and inspecting goods or services, ensuring their accuracy and condition. The Accounts Payable Department is responsible for processing invoices, verifying their accuracy, and recording the liability.
The departments primarily responsible for authorization functions in the expenditure cycle are the Purchasing Department and the Requisitioning Department. The Purchasing Department authorizes and oversees the acquisition of goods or services, ensuring compliance with organizational policies. The Requisitioning Department initiates the request for goods or services and provides the necessary details for the purchase.
These functional responsibilities help establish internal controls and segregation of duties within the expenditure cycle to mitigate risks and ensure proper authorization, custody, and recording of transactions.
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Optimal Transfer Programs 1) What is the lesson of Akerlof (1978) for the optimal design of a transfer program? 2) Describe the "paradox of ordeal mechanisms" as illustrated in Nichols and Zeckhauser (1982). 3) How might an ordeal mechanism worsen, rather than improve, targeting efficiency? Give a specific example (even if it's hypothetical). 4) Some have argued that providing cash assistance to poor individuals will actually reduce their total income (from all sources). How is this possible?
1. Akerlof's lesson: optimize transfer program design considering adverse selection problem, reducing transfer application and efficiency for individuals with higher needs. 2. Paradox of ordeal mechanisms occurs when burdensome requirements deter eligible individuals from applying for benefits, resulting in low take-up rates. 3. Ordeal mechanisms can hinder targeting efficiency by deterring eligible individuals from accessing welfare programs due to extensive paperwork, interviews, and waiting periods. 4. Cash assistance to poor individuals can reduce their total income if it leads to the elimination of means-tested benefits. If an individual becomes ineligible for housing subsidies or food stamps, the reduction in these benefits may offset or exceed the cash assistance gain, resulting in a net reduction.
1. Akerlof's insight highlights the importance of addressing adverse selection in transfer programs. Adverse selection occurs when those with greater needs or higher probabilities of being in disadvantaged circumstances are more likely to participate in the program, while those with lesser needs or lower probabilities of being in disadvantaged circumstances are more likely to opt out.
This adverse selection can lead to an imbalance in program costs and benefits, ultimately impacting program effectiveness and efficiency. The optimal design of transfer programs should consider mechanisms that mitigate adverse selection, such as means-testing, to ensure that resources are allocated to those who truly need them.
2. The paradox of ordeal mechanisms, as illustrated by Nichols and Zeckhauser, refers to situations where the conditions or requirements imposed to access benefits are intentionally burdensome or unpleasant. The idea behind ordeal mechanisms is to deter ineligible or undeserving individuals from applying for benefits.
However, the paradox arises when the hurdles or ordeals become so onerous that they discourage even eligible individuals from seeking assistance. The result is a low take-up rate, meaning that the intended beneficiaries are being deterred from accessing the benefits they genuinely qualify for.
3. While ordeal mechanisms can be seen as a way to improve targeting efficiency by weeding out undeserving applicants, they can have unintended negative consequences. For example, suppose a welfare program requires applicants to navigate complex paperwork, attend multiple interviews, and endure long waiting periods.
These ordeals can be particularly burdensome for low-income families who may have limited resources, transportation difficulties, or time constraints. As a result, eligible individuals may be discouraged from applying, leading to the exclusion of those who genuinely require assistance.
In this scenario, the ordeal mechanism fails to effectively target the intended beneficiaries, undermining the program's efficiency and exacerbating inequalities.
4. The argument that cash assistance may reduce total income for poor individuals stems from the interaction between different means-tested benefit programs. Means-tested programs consider an individual's income and assets when determining eligibility. If a poor individual starts receiving cash assistance, it increases their income, potentially crossing the threshold for eligibility in other means-tested programs.
As a consequence, the individual may experience reductions or complete elimination of other benefits, such as housing subsidies, healthcare subsidies, or food stamps. The loss of these benefits could offset or exceed the gain from the cash assistance, resulting in a net reduction in the individual's total income.
Thus, while the provision of cash assistance may address immediate needs, the interaction with other means-tested programs can create disincentives and unintended consequences that affect the overall income of the individual.
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Hand wrtine
DOCUMENT AND WORKFLOW MANAGEMENT
calculate the average cycle time CT : Assume there are 200 business days per year. If the total number of applications received over the last year is 2000, we can infer that the average number of applications per day is 9 (i.e., λ=9). By sampling (e.g., checking every week), we observed that on average there were 100 applications concurrently active (i.e., WIP=100)
The average cycle time is approximately 11.11 days.
To calculate the average cycle time (CT), we need to have the formula for the Little's law that says:CT = WIP / λWhere CT stands for the average cycle time, WIP is the work in progress, and λ represents the rate of demand.
The given scenario stated that the total number of applications received over the last year is 2000, which we can assume to have 200 business days per year. Thus, we can infer that the average number of applications per day is 9 (i.e., λ = 9).
Meanwhile, by sampling (e.g., checking every week), we observed that on average there were 100 applications concurrently active (i.e., WIP = 100). Therefore, using the Little's law formula, the average cycle time (CT) can be calculated as follows:CT = WIP / λCT = 100 / 9CT ≈ 11.11 days.Therefore, the average cycle time is approximately 11.11 days.
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what is the first step in the procurement process?
The first step in the procurement process is identifying the need.
The procurement process begins by identifying the need for goods or services within an organization. This involves understanding the requirements and specifications of the desired product or service. It may include analyzing the current inventory, assessing demand, and considering factors such as quality, quantity, and budget. By clearly identifying the need, organizations can establish a solid foundation for the subsequent steps in the procurement process, such as vendor selection, negotiation, and contract management.
Identifying the need serves as the basis for the entire procurement process. It enables organizations to align their procurement activities with their operational and strategic goals. By clearly defining the need, organizations can effectively communicate their requirements to potential suppliers, streamline the sourcing process, and make informed decisions throughout the procurement cycle. This step also helps in accurately estimating the budget, timeline, and resources required for the procurement process. Ultimately, a well-defined need sets the stage for successful procurement outcomes by providing a clear direction and purpose for subsequent activities.
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8 years ago, a new machine cost $7,000,000 to purchase and an additional $640,000 for the installation. The machine was to be linearly depreclated to zero over 25 years. The company has just sold the machine for $4,200,000, and its marginal tax rate is 25%. Part 1 Attempt 1/5 for 10 pts. What is the annual depreciation? Part 2 1. Attempt 1/5 for 10 pts. What is the current book value? Part 3 B Attempt 1/5 for 10 pts. What is the after-tax salvage value?
Part 1: To calculate the annual depreciation, we must first ascertain the machine's depreciable cost. Depreciable cost equals machine cost plus installation cost, or $7,000,000 plus $640,000. = $7,640,000 Depreciable cost divided by useful life, or $7,640,000 divided by 25, equals annual depreciation of $305,600.
Consequently, the machine's annual depreciation is $305,600. Part 2: The accumulated depreciation can be subtracted from the machine's initial purchase price to determine the current book value. Depreciation over time is calculated as Annual Depreciation x Number of Years, which equals $305,600 x 8 to $2,444,800. Initial cost minus accumulated depreciation is ($7,000,000 + $640,000) - $2,444,800 = $5,195,200. Current book value is the result. Consequently, the machine's current book value is $5,195,200. Part 3: We must apply the tax rate to the machine's selling revenues in order to calculate the after-tax salvage value. Sales revenue equals $4,200,000 25% tax rate Tax on Gain = (Revenue from Sale - Purchase Price) * Tax Rate = ($4,200,000 - $7,000,000) * 0.25 = -$700,000 (negative figure denotes a tax benefit). Salvage value after taxes equals proceeds from sale plus gain tax, which is $4,200,000 - $700,000, or $3,500,000. The machine's salvage value is therefore $3,500,000 after taxes.
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26. What document(s) must be filed with the state to form a Limited Liability Company?
a. Articles of Organization and an Operating Agreement;
b. Articles of Organization;
c. nothing needs to be filed, there is very little regulation of LLCs.
d. Articles of Affiliation.
The correct answer is option a: Articles of Organization and an Operating Agreement. When forming an LLC, the primary document that needs to be filed with the state is the Articles of Organization.
This document contains essential information about the LLC, such as its name, address, registered agent, and members' names. It is a formal requirement to establish the legal existence of the LLC.
In addition to the Articles of Organization, an Operating Agreement is typically required. Although an Operating Agreement is not always a statutory requirement, it is highly recommended for LLCs to have one. This agreement outlines the internal operating rules, rights, and responsibilities of the LLC members, and it helps establish clarity and structure within the company.
Option c, stating that nothing needs to be filed and there is very little regulation of LLCs, is incorrect. While the level of regulation for LLCs varies from state to state, there are certain formalities and filings that must be completed to establish an LLC's legal status.
Option d, Articles of Affiliation, is not a common document required for forming an LLC. The term "Articles of Affiliation" is not typically used in relation to LLC formation documents. It is possible that this option is referring to another type of legal entity or specific regulations in a particular jurisdiction, but it is not the standard requirement for forming an LLC.
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Billy Ltd acquired the identifiable assets, liabilities and
contingent liabilities of Bryan Ltd for $536,000. The items
acquired, stated at fair value, are: plant $288,000; inventory
$160,000; account
The amount of goodwill recognized by Billy Ltd is $88,000.
Billy Ltd acquired the identifiable assets, liabilities, and contingent liabilities of Bryan Ltd for a total consideration of $536,000. The acquired assets include plant with a fair value of $288,000 and inventory with a fair value of $160,000.
To determine the amount of goodwill or gain on bargain purchase, we need to compare the total consideration with the fair value of the identifiable net assets acquired.
Identifiable net assets acquired = Fair value of plant + Fair value of inventory
= $288,000 + $160,000
= $448,000
Next, we compare the total consideration with the identifiable net assets acquired:
Total consideration = $536,000
Since the total consideration exceeds the identifiable net assets acquired, there is an excess payment made by Billy Ltd. This excess payment is known as goodwill.
Goodwill = Total consideration - Identifiable net assets acquired
= $536,000 - $448,000
= $88,000
Therefore, the amount of goodwill recognized by Billy Ltd is $88,000.
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Dividing Partnership Net Income Steve Conyers and Chelsy Dane formed a partnership, dividing income as follows: 1. Annual salary allowance to Conyers of $107,970. 2. Interest of 7% on each partner's capital balance on January 1 . 3. Any remaining net income divided to Conyers and Dane, 1:2. Conyers and Dane had $69,000 and $111,000, respectively, in their January 1 capital balances. Net income for the year was $183,000. Required: How much net income should be distributed to Conyers and Dane?
The net income of $183,000 should be distributed between Steve Conyers and Chelsy Dane. Conyers will receive an annual salary allowance of $107,970, and both partners will earn 7% interest on their respective capital balances. The remaining net income will be divided between Conyers and Dane in a 1:2 ratio.
To calculate the net income distribution, we need to consider the three components mentioned in the problem: Conyers' annual salary allowance, interest on capital balances, and the remaining net income.
First, Conyers will receive an annual salary allowance of $107,970. This amount is fixed and does not depend on the partnership's net income.
Next, both partners will earn 7% interest on their capital balances. Conyers had a capital balance of $69,000, so he will earn $69,000 * 0.07 = $4,830 in interest. Dane had a capital balance of $111,000, so she will earn $111,000 * 0.07 = $7,770 in interest.
The remaining net income after accounting for the salary allowance and interest is calculated as follows: Net Income - Salary Allowance - Interest = $183,000 - $107,970 - ($4,830 + $7,770) = $62,430.
Finally, the remaining net income of $62,430 will be divided between Conyers and Dane in a 1:2 ratio. Conyers will receive 1/3 of the remaining net income, while Dane will receive 2/3. Calculating the distribution, Conyers will receive $62,430 * 1/3 = $20,810, and Dane will receive $62,430 * 2/3 = $41,620.
In conclusion, the net income distribution to Conyers and Dane is as follows: Conyers will receive a salary allowance of $107,970 plus $4,830 in interest, totaling $112,800. Dane will receive $7,770 in interest and $41,620 from the remaining net income, totaling $49,390.
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1. Explain how private property rights and marketplace competition are different in market economies and command economies. What might be the difference in these two factors between strong command economies and moderate command economies? Do these economic forms influence the rate of development in less- or least-developed countries?
The difference in the factors between strong command economies and moderate command economies can impact the rate of development in less- or least-developed countries.
In market economies, private property rights refer to individuals or entities having legal ownership and control over assets, resources, and means of production. This allows individuals to use, transfer, and benefit from their property as they see fit, fostering incentives for investment, innovation, and efficiency.
In command economies, private property rights may be limited or absent, as the state controls the means of production and resource allocation. The government makes decisions regarding production, distribution, and pricing, often without competition or individual ownership. Strong command economies have more centralized control, while moderate command economies may allow some degree of private ownership or market mechanisms.
The influence of these economic forms on the rate of development in less- or least-developed countries can vary. Market economies, with their emphasis on private property rights and competition, have been associated with higher economic growth and development.
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A manager choosing a marketing strategy for a new product indicates that she would be indifferent between the following: achieving a 6% market share for certain within three years or adopting a risky strategy, which would yield either the best possible market share of 11% within three years with a probability of 0.7 and the worst possible market share of 1% with a probability of 0.3. Assuming that utilities are measured on a 0 -to-1 scale, her utility for a 6% market share is:
a. Impossible to determine based on the information given
b. 0.3
c. 0.5
d. 0.7
To determine the utility for a 6% market share, we need to consider the information given in the scenario. The manager is indifferent between achieving a 6% market share with certainty and adopting a risky strategy with potential outcomes of 11% (with a probability of 0.7) or 1% (with a probability of 0.3).
Since the manager is indifferent between these options, we can assume that the utility for a 6% market share is equal to the expected utility of the risky strategy. The expected utility can be calculated by multiplying each possible market share outcome by its corresponding probability and summing them.
Expected utility = (0.7 * 11%) + (0.3 * 1%) = 7.7% + 0.3% = 8%
However, the utility scale mentioned in the question ranges from 0 to 1. Since a 6% market share falls below the best possible outcome of 11%, the utility for a 6% market share would be less than 1 but greater than 0. Therefore, the closest answer choice would be:
d. 0.7
This indicates that the manager's utility for a 6% market share is 0.7 on the 0-to-1 scale.
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Question 2
Which of the following is not a potential disadvantage to free trade?
Group of answer choices
Free trade can force countries to consume a combination of goods inside their own production possibilities frontier.
Free trade can lock countries into producing goods in which they have a short-run comparative advantage.
Free trade can allow powerful countries to capture most of the gains from trade.
Free trade can lead to a "race to the bottom" in social and environmental regulations.
Free trade refers to the removal of barriers to trade and the creation of a global marketplace in which countries are free to trade goods and services with each other without government intervention. Free trade can be beneficial for countries as it increases efficiency, promotes economic growth, and leads to the specialization of countries in the production of goods and services they are most efficient at producing.
However, free trade can also have negative effects on society and the environment. Powerful countries can capture most of the gains from trade as they have more bargaining power and can impose their own rules and regulations on weaker countries. This leads to a concentration of economic power in the hands of a few countries and can result in economic inequality between countries.
Free trade can also lead to a "race to the bottom" in social and environmental regulations. As countries compete to attract foreign investment and increase exports, they may lower their social and environmental standards to reduce costs. This can lead to exploitation of workers, pollution, and damage to the environment.Overall, while free trade can provide economic benefits, it is important to ensure that it is conducted in a way that is fair, equitable, and sustainable for all countries involved.
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Write a comprehensive PESTEL report that analyzes and describes how each of the two forces/factors:
1.- political and
2.- technological
Political factors and technological forces have a significant impact on the business environment of an organization. A PESTEL report analyzes both of these factors in detail to determine how they affect the company's operations.
PESTEL stands for Political, Economic, Social, Technological, Environmental, and Legal factors. These six forces are essential components of a PESTEL analysis and play a crucial role in shaping the business environment of an organization. Political factors refer to government policies and regulations that impact a company's operations. These factors include trade restrictions, tariffs, taxation policies, and labor laws. For instance, if the government imposes high tariffs on imported goods, it could affect the company's supply chain, resulting in increased production costs. Technological forces refer to the innovations and advancements that impact an organization's operations. These factors include research and development, automation, and the Internet of things (IoT). For instance, if the company adopts new automation technologies, it could lead to reduced production costs and increased efficiency. In conclusion, PESTEL analysis is a crucial tool that helps organizations understand the impact of external factors on their operations. By analyzing political and technological forces, companies can adapt to the changing business environment and stay competitive.
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Alaska Pty Ltd (Alaska) is considering to invest in a new project which will require an initial investment of $2,500,000. This capital will be depreciated over five years using straight-line depreciation toward a zero salvage value. Estimated additional net operating income for year one is $5,000 which will be increased by 10% each year. This investment requires 3% additional working capital each year of the additional EBIT for years 1-4 which will be liquidated in year 5.
a) If Alaska faces a 30% tax rate, what expected project FCFs for each of the next five years will be resulted from the investment in this new project?
b) If Alaska uses a 7% discount rate (WACC) to analyze its investments, what is the project's NPV? Should the project be accepted? Why?
c) If for an investment opportunity WACC < IRR, would NPV be positive or negative? Why?
The expected project free cash flows (FCFs) for each of the next five years, considering a 30% tax rate, are calculated based on the initial investment, net operating income, depreciation, and working capital requirements. The FCFs gradually increase each year, reflecting the growth in net operating income.
For year one, the net operating income is $5,000. Applying the 30% tax rate, the tax expense amounts to $1,500. The annual depreciation is calculated using straight-line depreciation over five years, resulting in $500,000 for year one. By subtracting the tax expense and adding back the depreciation, the net cash flow for year one is $503,500.
For the subsequent years, the net operating income increases by 10% annually. The tax expense and depreciation remain the same each year. Additionally, the investment requires 3% additional working capital of the additional net operating income for years 1-4, which will be liquidated in year 5. The working capital requirements are not explicitly provided in the question, but assuming the net operating income is the basis, the working capital requirement for each year can be calculated accordingly.
By applying the same methodology to each year, the expected project FCFs can be calculated for years two to five. These FCFs reflect the incremental cash flows generated by the investment over the five-year period.
In the end, the net cash flows for each year can be used to calculate the project's net present value (NPV) by discounting them at the given discount rate (WACC). If the NPV is positive, it indicates that the project's expected cash inflows exceed the initial investment and the required rate of return, making it a viable investment. Conversely, a negative NPV suggests that the project's returns do not meet the required rate of return, indicating that the project may not be economically feasible.
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What is the United States Equal Employment Opportunity
Commission? summarize its history.
The United States Equal Employment Opportunity Commission (EEOC) is a federal agency responsible for enforcing laws that prohibit workplace discrimination based on race, color, religion, national origin, disability, and age. It was established to promote equal employment opportunities and protect employees' rights in the United States.
The EEOC was created through the Civil Rights Act of 1964, which aimed to address and eradicate discriminatory practices in the workplace. The commission officially began operating on July 2, 1965. Its formation was a significant milestone in the civil rights movement, as it centralized the enforcement of equal employment opportunity laws and provided individuals with a platform to file discrimination complaints.Throughout its history, the EEOC has played a crucial role in investigating and litigating cases of workplace discrimination. It has the authority to enforce federal laws related to equal employment opportunity and initiate legal actions against employers who engage in discriminatory practices.
Over the years, the EEOC has expanded its scope to include additional protected classes and areas of discrimination. It has worked to promote diversity and inclusion in the workplace, raise awareness about employees' rights, and provide guidance to employers on preventing discrimination.
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Q6. The Classy Realty Corporation has just signed a 13 year lease on an asset with 18-year life. The minimum leased payments are 14,400 per year and are to be discounted back to the present at a 7 percent annual discount rate. The value of the property is $159,000. Calculate the present value of the lease payments as a percentage to the value of the property. Should the lease be recorded as a capital lease or an operating lease. 67 (Hint: Under US accounting standards a capital lease is a lease which meets at least one of four criteria: 1. "The PV of the lease payments equals or exceeds 90% of the total original cost of the equipment or property".) 68 69 Q6. solution steps Rate 7% 70 1. compute present value of lease payments 2. calculate PV of lease payments as a percentage to the fair market value. Asset life 3. is the PV of lease payments less than or greater 72 than 90% of origianal cost of property? Lease pymts 14,400 73 Value 159,000 74 75 1. PV of Lease Payments 76 77 2% of PV to FMV 78 79 Term 13 71 18 PV FMV On
The present value of the lease payments is $139,648.62, which is approximately 87.76% of the value of the property. Since the present value of the lease payments is less than 90% of the total original cost of the property, the lease should be recorded as an operating lease.
To calculate the present value of the lease payments, we use the formula for present value of an annuity:
PV = PMT × [(1 - (1 + r)^(-n)) / r],
where PV is the present value, PMT is the annual lease payment, r is the discount rate, and n is the number of years.
Substituting the given values into the formula, we have:
PV = $14,400 × [(1 - (1 + 0.07)^(-13)) / 0.07] = $139,648.62.
To calculate the percentage of the present value of the lease payments to the value of the property, we divide the present value by the value of the property and multiply by 100:
Percentage = ($139,648.62 / $159,000) × 100 ≈ 87.76%.
The present value of the lease payments is approximately 87.76% of the value of the property. Since this percentage is less than 90%, the lease should be recorded as an operating lease.
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