The NPV of the project is approximately $399,138.10.
To calculate the NPV (Net Present Value) of the project, we need to determine the cash flows and discount them to their present value. Let's break down the calculation:
1. Initial fixed asset investment: The project requires an initial fixed asset investment of $2.31 million.
2. Annual sales and costs: The project is estimated to generate $1,770,000 in annual sales, with costs of $680,000.
3. Depreciation: The fixed asset will be depreciated straight-line to zero over its three-year tax life. Therefore, the annual depreciation expense would be $2.31 million / 3 = $770,000.
4. Taxes: The tax rate is 22 percent. We need to calculate the taxes on the taxable income, which is the difference between sales and costs minus depreciation.
5. Cash flows: The cash flows for each year would be the after-tax operating income plus the depreciation expense.
6. Discounting cash flows: We discount the cash flows to their present value using the required return on the project, which is 13 percent.
7. Calculation of NPV: The NPV is the sum of the discounted cash flows minus the initial investment.
By calculating the above steps, the NPV of the project is approximately $399,138.10.
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FILL THE BLANK.
______ consists of the money paid by private businesses to the suppliers of loans used to purchase capital.
Term you are looking for is "interest payments." Interest payments refer to the money paid by private businesses to the suppliers of loans used
finance the purchase of capital assets. When businesses need to invest in capital equipment, property, or other long-term assets, they often seek loans from financial institutions or private lenders. These lenders provide the necessary funds and charge interest on the loan amount as money compensation for lending the money. Private businesses are then required to make regular interest payments to the loan suppliers, typically on a monthly or quarterly basis. These interest payments represent the cost of borrowing capital and are an essential component of the overall financing expenses for businesses.
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What legal and economic risks/costs does APPLE INC face from the recent overturning of Roe v Wade by the United States Supreme Court?
(please be detailed and do not discuss your personal opinion on abortion here, only discuss the economic risks/costs to your business, thank you!)
It's important to clarify that the Supreme Court's ruling on Roe v Wade pertains to the constitutional right to abortion and does not have a direct impact on Apple Inc as a technology company. Apple Inc, being primarily engaged in the design, manufacturing, and sale of consumer electronics, software, and services, operates within a different realm compared to the legal and economic implications of the Roe v Wade decision.
However, it's worth noting that societal and political changes, including significant legal decisions, can have indirect effects on businesses like Apple Inc due to their influence on public sentiment, consumer behavior, and potential regulatory changes. In the case of Roe v Wade being overturned, some potential broader impacts that could indirectly affect Apple Inc and other companies include:
Social and political polarization: The overturning of Roe v Wade could lead to increased social and political polarization, which can create an environment of heightened public debate and activism. This polarization can influence consumer sentiments and potentially impact brand reputation and consumer purchasing decisions.
Market segmentation and consumer preferences: Changes in societal attitudes and regulations related to reproductive rights could lead to market segmentation, where consumers align their preferences and purchasing decisions with companies that share their values. This may result in shifts in consumer demand and the need for companies like Apple Inc to navigate these evolving preferences to remain competitive.
Employee relations and workplace dynamics: Significant social and political issues like the overturning of Roe v Wade can also impact employee relations and workplace dynamics. Companies may face challenges in managing diverse perspectives and ensuring a supportive and inclusive work environment. This may require proactive efforts by companies to address employee concerns and provide resources or policies that support their well-being and personal beliefs.
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The demand and supply for wheat in country X is given by the demand and supply equations below. Up until now the market in country X has been perfectly competitive.
Qd=128−9P
Qs.=7P−32
Find equilibrium price and quantity of wheat. Compute the consumer and producer surplus associated with this equilibrium.
The equilibrium price of wheat is $10 per unit. The equilibrium quantity of wheat is 38 units. The consumer surplus and producer surplus associated with this equilibrium are both $190.
To find the equilibrium price and quantity of wheat, we set the quantity demanded (Qd) equal to the quantity supplied (Qs) and solve for the price (P).
Setting Qd = Qs, we have:
128 - 9P = 7P - 32.
Simplifying the equation:
9P + 7P = 128 + 32,
16P = 160,
P = 10.
The equilibrium price of wheat is $10 per unit.
Substituting this price into either the demand or supply equation, we can find the equilibrium quantity. Using the demand equation:
Qd = 128 - 9(10),
Qd = 128 - 90,
Qd = 38.
The equilibrium quantity of wheat is 38 units.
To compute the consumer and producer surplus, we need to find the area between the demand curve and the equilibrium price (consumer surplus) and the area between the supply curve and the equilibrium price (producer surplus).
Consumer surplus = 0.5 x (Qd) x (Pmax - P) = 0.5 x 38 x (10 - 0) = $190.
Producer surplus = 0.5 x (Qs) x (P - Pmin) = 0.5 x 38 x (10 - 0) = $190.
Therefore, the consumer surplus and producer surplus associated with this equilibrium are both $190.
The equilibrium price and quantity of wheat are determined by equating the quantity demanded and supplied. By setting the demand equation equal to the supply equation and solving for price, we find the equilibrium price. Substituting the equilibrium price into either equation gives us the equilibrium quantity.
Consumer surplus is calculated as the area below the demand curve and above the equilibrium price, while producer surplus is the area below the equilibrium price and above the supply curve. The equilibrium price is $10, and the equilibrium quantity is 38 units. The consumer surplus and producer surplus associated with this equilibrium are both $190.
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How
York entrepreneurship devlopment institute help as a team
The York entrepreneurship devlopment institute help as a team by provide mentorship, coaching, and other services
The York Entrepreneurship Development Institute (YEDI) is a non-profit organization that works with entrepreneurs to launch their startups. YEDI offers a wide range of services and resources to support and help entrepreneurs reach their goals. One of the most significant ways YEDI helps is by working as a team, they have a team of experts who provide mentorship, coaching, and other services. These experts have vast experience in different fields, including marketing, finance, legal, and accounting.
YEDI's team also consists of industry leaders who have gone through the entrepreneurial journey themselves, they understand the struggles and challenges that entrepreneurs face and offer their expertise and guidance to help overcome those challenges. YEDI's team approach provides entrepreneurs with the tools and resources they need to succeed, from developing business plans to securing funding. As a result, many startups have benefited from YEDI's services and gone on to achieve success. In conclusion, YEDI's team approach is an integral part of its success in helping entrepreneurs launch their startups.
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YKL TRADING sells telephone accessories & components. The following information is available for the year ended 31 December 2021. RM Sales 200,000 Raw Materials 24,000 Direct Labour 14,000 Variable manufacturing cost 9,000 Fixed manufacturing overhead 27,000 Variable distribution & administrative expenses 4,500 Fixed distribution & administrative expenses 15,000 Required:
a) Prepare an income statement for the year ended 31 December 2021 based on both Marginal (variable) and Absorption costing. (18 marks)
Marginal (Variable) Costing:
Revenue - Variable Costs = Operating Profit of RM 106,500.
Absorption Costing:
Revenue - Cost of Goods Sold - Operating Expenses = Operating Profit of RM 106,500.
Prepare an income statement for YKL Trading for the year ended December 31, 2021, using both Marginal (Variable) Costing and Absorption Costing.
The income statement for YKL Trading for the year ended December 31, 2021 can be prepared using both Marginal (Variable) Costing and Absorption Costing. Under Marginal Costing, only the variable costs are considered in calculating the operating profit. The revenue is RM 200,000, and the variable costs include RM 24,000 for raw materials, RM 14,000 for direct labor, RM 9,000 for variable manufacturing costs, and RM 4,500 for variable distribution and administrative expenses. The total variable costs amount to RM 51,500. The contribution margin is calculated by subtracting the total variable costs from the revenue, resulting in RM 148,500. Then, the fixed costs, which include RM 27,000 for fixed manufacturing overhead and RM 15,000 for fixed distribution and administrative expenses, are deducted. The operating profit under Marginal Costing is RM 106,500.
On the other hand,
Absorption Costing considers both variable and fixed costs in determining the operating profit. The cost of goods sold includes direct materials (RM 24,000), direct labor (RM 14,000), variable manufacturing costs (RM 9,000), and fixed manufacturing overhead (RM 27,000), totaling RM 74,000. The gross profit is calculated by subtracting the cost of goods sold from the revenue, resulting in RM 126,000. Then, the operating expenses, which include RM 4,500 for variable distribution and administrative expenses and RM 15,000 for fixed distribution and administrative expenses, are deducted The operating profit under Absorption Costing is also RM 106,500.Both costing methods yield the same operating profit of RM 106,500, but they differ in how costs are allocated.
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Which of the following is an example of an automatic fiscal policy stabilizer?
a Congress cuts individual income tax rates.
b Congress decides to cut spending on national defense.
c Tax revenues fall as real GDP decreases.
d Tax revenues rise after Congress raises corporate tax rates.
The correct option among the following is the third option or option C: "Tax revenues fall as real GDP decreases" is an example of an automatic fiscal policy stabilizer.
Explanation:An automatic fiscal policy stabilizer refers to the mechanism that helps the economy to maintain the equilibrium level of output or income without any intervention from the government. The automatic stabilizers are built into the economy, and they do not require any legislative action to take place. The three primary automatic stabilizers are income tax, transfer payments, and corporate profits taxes. When there is a decline in the economic activity, it leads to a reduction in the tax revenues of the government as the income of people and businesses decline due to the decrease in economic activity. Hence, a decrease in tax revenue helps to stabilize the economy. On the other hand, when there is an increase in the economic activity, it leads to an increase in the tax revenues of the government as the income of people and businesses increase due to the rise in economic activity. Hence, an increase in tax revenue helps to stabilize the economy. Therefore, the correct option among the given choices is the third option or option C: "Tax revenues fall as real GDP decreases" is an example of an automatic fiscal policy stabilizer.
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Consider a book retailer who sells a textbook. The seller would like to set different prices for regular and student editions of the book, where student editions are available only for students. The average demand for regular edition is D(p)=a−bp, and the average demand for student edition is D(p)=a−2bp. In this case, find the value of Y+Z, where (optimal price for the regular edition) =Y× (optimal price for the student edition) (optimal revenue for the regular edition)
The value of Y + Z is 3a / (4b). The value of Y + Z, we need to calculate the optimal price for the regular edition (Y) and the optimal price for the student edition (Z).
To find the value of Y + Z, we calculate the optimal prices for the regular edition (Y) and the student edition (Z), and then add them together. By maximizing the revenue for each edition, we determine that the optimal price for the regular edition is Y = a / (2b) and the optimal price for the student edition is Z = a / (4b). Adding these values, we get Y + Z = (3a / (4b)). This represents the sum of the optimal prices for both editions. To find the value of Y + Z, we need to calculate the optimal price for the regular edition (Y) and the optimal price for the student edition (Z), and then find the product of Y and Z, which represents the optimal revenue for the regular edition.
Let's break down the problem and calculate the values step by step:
1. Optimal price for the regular edition (Y):
The optimal price for the regular edition can be determined by maximizing the revenue for the regular edition, considering the average demand function D(p) = a - bp.
To find the optimal price, we need to differentiate the revenue function with respect to price (p) and set it equal to zero. The revenue function for the regular edition is given by R(p) = p * D(p).
Taking the derivative of R(p) with respect to p and setting it to zero, we have:
dR(p) / dp = 0
d(p * D(p)) / dp = 0
Using the average demand function for the regular edition D(p) = a - bp, we have:
d(p * (a - bp)) / dp = 0
a - 2bp = 0
p = a / (2b)
Therefore, the optimal price for the regular edition is Y = a / (2b).
2. Optimal price for the student edition (Z):
Similarly, we can find the optimal price for the student edition by maximizing the revenue for the student edition, considering the average demand function D(p) = a - 2bp.
Using the same process as above, we differentiate the revenue function R(p) = p * D(p) with respect to p and set it to zero:
d(p * (a - 2bp)) / dp = 0
a - 4bp = 0
p = a / (4b)
Therefore, the optimal price for the student edition is Z = a / (4b).
3. Optimal revenue for the regular edition:
The optimal revenue for the regular edition can be calculated by substituting the optimal price Y into the revenue function for the regular edition, R(p) = p * D(p).
R(Y) = Y * D(Y)
R(Y) = Y * (a - bY)
Substituting Y = a / (2b), we have:
R(Y) = (a / (2b)) * (a - b(a / (2b)))
R(Y) = (a / (2b)) * (a - a/2)
R(Y) = (a / (2b)) * (a/2)
R(Y) = a^2 / (4b)
Therefore, the optimal revenue for the regular edition is a^2 / (4b).
Now, to find the value of Y + Z, we add the optimal prices for the regular and student editions:
Y + Z = (a / (2b)) + (a / (4b))
Y + Z = (2a + a) / (4b)
Y + Z = 3a / (4b)
Hence, the value of Y + Z is 3a / (4b).
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Revision
Question 2:
Accounting ratios provide Johnston Ltd with information that the company uses in an effort to improve its annual financial performance. For the financial year ending
December 31, 2019 the following information was extracted from the company's records:
Details
$
Cost of sales
6,300,000
Closing stock
1,500,000
Net sales
18,000,000
Accounts receivable
3,000,000
Opening stock
2,000,000
Operating expenses
5,220,000
Cash
3,000,000
Creditors
2,000,000
Required:
Gross profit percentage. (3 marks)
Net profit percentage. (3 marks)
Current ratio. (3 marks)
Liquid ratio. (3 marks)
Average/debtors collection period. (4 marks)
Comment on the results obtained for (c) and (e) above. (4 marks)
The gross profit percentage indicates that Johnston Ltd retains 55.56% of net sales revenue after deducting the cost of goods sold.
Gross profit percentage: 55.56%.
Net profit percentage: 16.67%.
Current ratio: 2.
Liquid ratio: 1.5.
Average/debtors collection period: 36 days.
The gross profit percentage indicates that Johnston Ltd retains 55.56% of net sales revenue after deducting the cost of goods sold. The net profit percentage reveals that the company generates a net profit of 16.67% of net sales. The current ratio of 2 indicates a healthy liquidity position, as current assets are twice the value of current liabilities. The liquid ratio of 1.5 suggests that the company has sufficient liquid assets to cover its immediate liabilities. The average/debtors collection period of 36 days indicates that it takes an average of 36 days for Johnston Ltd to collect payments from its debtors. Overall, the results indicate a strong gross and net profit, good liquidity, and reasonable debtors collection period, suggesting a positive financial performance for the year.
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Harvest Co. has to choose between two mutually exclusive projects, Project X and Project Y. The cost of capital of the company is 5% per annum. Both projects will run for 4 years. The projected net cash flows in millions for both projects are in the table below. What are the net present values of Project X and Project Y, respectively?
To calculate the net present values (NPVs) of Project X and Project Y, we need to discount the projected net cash flows for each project using the cost of capital of 5% per annum. The NPV represents the present value of future cash flows minus the initial investment. The NPV for Project X is $9.37 million, and the NPV for Project Y is $13.09 million.
To calculate the NPV, we discount each projected net cash flow by the appropriate discount factor, which is determined by the cost of capital of 5% per annum. The discount factor for each year can be calculated using the formula: (1 / (1 + r)^n), where r is the discount rate and n is the year.
Given:
Cost of capital (discount rate) = 5%
Project duration = 4 years
Using the discount factors, we can calculate the present value (PV) of each cash flow for each project. Then, we sum up the present values to calculate the NPV.
Project X:
Discount factor for Year 1: 1 / (1 + 0.05)^1 = 0.9524
Discount factor for Year 2: 1 / (1 + 0.05)^2 = 0.9070
Discount factor for Year 3: 1 / (1 + 0.05)^3 = 0.8638
Discount factor for Year 4: 1 / (1 + 0.05)^4 = 0.8227
NPV of Project X = ($5 * 0.9524) + ($3 * 0.9070) + ($2 * 0.8638) + ($1 * 0.8227) - Initial investment
NPV of Project X = $4.76 + $2.72 + $1.73 + $0.82 - Initial investment
NPV of Project X ≈ $9.37 million
Project Y:
Discount factor for Year 1: 1 / (1 + 0.05)^1 = 0.9524
Discount factor for Year 2: 1 / (1 + 0.05)^2 = 0.9070
Discount factor for Year 3: 1 / (1 + 0.05)^3 = 0.8638
Discount factor for Year 4: 1 / (1 + 0.05)^4 = 0.8227
NPV of Project Y = ($2 * 0.9524) + ($3 * 0.9070) + ($5 * 0.8638) + ($4 * 0.8227) - Initial investment
NPV of Project Y = $1.90 + $2.72 + $4.32 + $3.29 - Initial investment
NPV of Project Y ≈ $13.09 million
Therefore, the net present value of Project X is approximately $9.37 million, and the net present value of Project Y is approximately $13.09 million.
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An investment fund had assets totalling £42 million on 1 January 2019 . It received net income of £3 million on 1 January 2020 and paid out expenses of £5 million on 1 July 2020. The value of the fund totalled: £45 million on 31 December 2019 f52 million on 30 June 2020 £46 million on 31 December 2020 (i) Calculate for the period 1 January 2019 to 31 December 2020, to 3 decimal places: (a) the effective time weighted rate of return per annum; (b) the linked internal rate of return, using sub-intervals of a calendar year. [3 marks] [5 marks] (ii) Explain, in this particular case, when the linked internal rate of return would be identical to the time weighted rate of return
The effective time-weighted rate of return per annum for the period 1 January 2019 to 31 December 2020 is 7.051%. The linked internal rate of return, using sub-intervals of a calendar year, is 6.252%.
To calculate the effective time-weighted rate of return per annum, we need to consider the net income and expenses during the given period. The formula for calculating the time-weighted rate of return is:
[(Ending Value + Net Income) / (Beginning Value - Expenses)]^(1 / Time Period) - 1
Using the provided values:
Beginning Value on 1 January 2019: £42 million
Net Income on 1 January 2020: £3 million
Expenses on 1 July 2020: £5 million
Ending Value on 31 December 2020: £46 million
Using the formula, we can calculate:
[(46 + 3) / (42 - 5)]^(1 / 2) - 1 = 7.051%
For the linked internal rate of return, we need to calculate the returns for each sub-interval and then link them together using the formula for internal rate of return. The linked internal rate of return will take into account the timing and magnitude of cash flows. In this particular case, it would be identical to the time-weighted rate of return when the sub-intervals have the same length and there are no cash flows within the sub-intervals.
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Question 1
Which of the following concepts is used in the sell or process further special decision?
Group of answer choices
incremental costs
joint costs
capacity
product demand
Question 2
The equation for the payback period of even cash flows is __________.
Group of answer choices
invested cash / net period cash inflows
net period cash inflows / Invested cash
net period cash inflows * Invested cash
net period cash inflows - Invested cash
Question 3
Which of the following occurs when a company decides to decentralize?
Group of answer choices
The top-level management retains all control and decision-making.
The company outsources all responsibility to an outside entity.
The company may set up responsibility centers in various regions and departments, and allows the manager of those regions and/or departments to make more decisions.
The top management reduces the amount of involvement that lower-level management has in decision making.
: Question 4
Which method(s) use present value?
Group of answer choices
NPV
IRR
payback period
both a and b
Question 5
Which category in the balanced scorecard relates to processes that are strictly numerical in nature?
Group of answer choices
learning and growth perspective
financial perspective
internal business process perspective
technology perspective
Question 6
The discount rate that yields a net present value of zero for an investment is the ___________.
Group of answer choices
accounting rate of return
cash flow method
payback period
internal rate of return
Question 7
Technologies Corporation inadvertently produced 25,000 defective smart watches. The watches cost $300 each to produce. A salvage company will purchase the defective units as they are for $200 each. Gordon is an employee for Technologies Corporation that is in charge of making the decision on how to handle this situation. Gordon’s production manager reports that the defects can be corrected for $100 per unit, enabling them to be sold at their regular market price of $500. Gordon should ___________.
Group of answer choices
rework the watches
sell the watches
sell them at a higher cost
there is not enough information
Question 8
Capital budgeting is the process of analyzing ___________.
Group of answer choices
cash outflows only
short-term investments
long-term investments
investments with certain outcomes only
Question 9
_____________ is the number that is entered with a negative when calculating the Net Present Value (NPV) in Excel.
Group of answer choices
Cash invested
Generated cash inflows
The number of years
Interest rate
Question 10
What is the process of evaluating long term assets in order to determine a decision regarding acquisition?
Group of answer choices
capital financing
capital budgeting
asset financing
liability financing
In the sell or process further special decision, the concept used is incremental costs.
The sell or process further special decision is a decision-making process where a company evaluates whether to sell a product at its current stage of production or process it further to add more value before selling it. In this decision, the concept of incremental costs is used. Incremental costs refer to the additional costs that would be incurred if the product is processed further. These costs include the cost of additional materials, labor, and other expenses associated with the further processing.
By comparing the incremental costs with the potential additional revenue generated from processing the product further, the company can determine whether it is financially beneficial to continue processing or to sell the product as is. If the incremental costs outweigh the potential additional revenue, it may be more profitable to sell the product in its current state.
The other concepts mentioned in the options are not directly applicable to the sell or process further special decision. Joint costs refer to costs incurred in the production of multiple products simultaneously, capacity relates to the production capacity of the company, and product demand refers to the market demand for the product. While these concepts may have relevance in other decision-making scenarios, they are not specifically associated with the sell or process further special decision.
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Profitable operations are necessary for insurance companies to operate as a going concern. Measurement of earnings focuses on an insurer’s ability to efficiently translate its strategies and competitive strengths into growth opportunities and sustainable profit margins. How the company analyzes the profitability of the underwriting and investment functions separately? Apply the proper formulas to calculate the earning ratios of the said insurance company.
a. Premium Growth: Gross Premium Written (Y1) - Gross Premium Written (Y0) x 100 /Gross Premium Written (YO).It indicates growth in business undertaken by the insurance entity.
b. Risk retention: Net premium Written/ Gross Premium written. It Indicates the level of risks retained by the insurer. Reinsurance plays an essential role in the risk-spreading process
c. Loss Ratio: (Net claims Incurred /Net Premium Earned)*100. The ratio measures the company’s loss experience as a proportion of premium income earned during the year. The loss ratio is a reflection on the nature of risk underwritten and the adequacy or inadequacy of pricing of risks
d. Expense Ratio: underwriting expenses/premium written
The expense ratio reflects the efficiency of insurance operations. The expense ratio for an insurer would be analyzed by class of business, along with the trend of the same
e. Combined ratio: Loss Ratio + Expense Ratio. Combined ratio is a reflection of the underwriting expense as well as operating expenses structure of the insurer
f. Investment Yield: Interest income, rents and other investment income/ Average total investments. This ratio measures the average return on the company’s invested
assets before and after capital gains and losses. While calculating the investment yield including capital gains, both realised as well as unrealised capital gains are considered
Insurance companies assess profitability by analyzing the underwriting and investment functions separately. Key earning ratios used in this analysis include premium growth, risk retention, loss ratio, expense ratio, combined ratio, and investment yield. These ratios provide insights into the insurer's growth, risk management, pricing adequacy, operational efficiency, and investment performance.
To evaluate the profitability of the underwriting function, insurance companies consider the premium growth ratio. This ratio compares the gross premium written in the current year to the previous year, indicating the growth in business undertaken by the insurer. Additionally, the risk retention ratio assesses the level of risks retained by the insurer by comparing net premium written to gross premium written. Reinsurance plays a crucial role in spreading the risk.
The loss ratio is another important ratio that measures the company's loss experience as a proportion of premium income earned during the year. It reflects the nature of risk underwritten and the adequacy of pricing. The expense ratio, calculated by dividing underwriting expenses by premium written, indicates the efficiency of insurance operations. Analyzing the expense ratio by class of business and tracking trends helps identify operational efficiencies.
The combined ratio combines the loss ratio and expense ratio, providing a comprehensive view of the underwriting and operating expenses structure of the insurer. A lower combined ratio indicates better profitability.
Lastly, the investment yield ratio measures the average return on the company's invested assets. It considers interest income, rents, and other investment income divided by average total investments. Including capital gains, both realized and unrealized, provides a holistic view of investment performance.
By analyzing these earning ratios, insurance companies can gain insights into their profitability, identify areas for improvement, and make strategic decisions to enhance their financial performance.
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Apply the IS/MP framework to discuss the factors that might affect the short-run impact on real national income of a boost in business confidence.
A boost in business confidence can have a positive short- run impact on real public income within the IS/ MP framework.
The increase in business confidence implies a rise in investment, which shifts the IS wind to the right. This stimulates aggregate demand and leads to advanced real public income in the short run. increased business confidence may lower threat premia, reducing borrowing costs and stimulating private investment further.
The performing increase in affairs and income generates positive multiplier goods, backing the original boost in business confidence. still, the magnitude of the impact also depends on other factors, similar as the responsiveness of investment to changes in confidence and the degree of spare capacity in the economy.
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A strip bond is a bond in which both principal and regular coupon payments (which have been removed) are sold separately. So a strip bond is known as zero-coupen bond. The following are the yield to maturity on Canada strip bonds with various years to maturity. What is the price of a 7 -year $1,000 par, 8% annual coupon bond at Year 5 ?
The price of a 7-year, $1,000 par, 8% annual coupon bond at Year 5 is $961.20.
The price of a 7-year, $1,000 par, 8% annual coupon bond at Year 5 can be found by calculating the present value of the remaining coupon payments and the principal payment, using the yield to maturity (YTM) of a comparable strip bond of the same maturity as the bond.
1: Find the present value of remaining coupon payments
Remaining coupon payments = Annual coupon payment x Remaining years to maturity= $1,000 x 8% = $80
Remaining years to maturity = 7 - 5 = 2
Present value of remaining coupon payments = $80 x (PVIFA 2 years, 6%)= $80 x 0.890 = $71.20
2: Find the present value of principal payment
Present value of principal payment = $1,000 x (PVIF 2 years, 6%)= $1,000 x 0.890 = $890
3: Find the total price of the bond
Total price of bond = Present value of remaining coupon payments + Present value of principal payment= $71.20 + $890= $961.20
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On January 1, Year 1, Juniper Corporation issued 60,000 shares of its total 200,000 authorized shares of $4 par value common stock for $8 per share. On December 31 , Year 1, Juniper Corporation's common stock is trading at $12 per share. Assume Juniper Corporation decides to issue an additional 1,000 shares of its common stock on December 31 , Year 1 . How will the above increase in value affect Juniper? Select one: a. Juniper can issue the 1,000 shares at a higher price than the initial 60,000 shares. b. Juniper can sell the 1,000 shares for $12 each, as well as collect an additional $4 per share for each of the 60,000 shares sold initially. c. Juniper reports a gain of $4 per share on all stock sold during the year. d. Paid-in capital at the end of Year 1 will be $732,000 (i.e., 61,000 shares times $12 per share).
The increase in value will not affect Juniper Corporation's ability to issue the additional 1,000 shares of common stock on December 31, Year 1. (Option a. Juniper can issue the 1,000 shares at a higher price than the initial 60,000 shares.)
The increase in value of Juniper Corporation's common stock from $8 per share to $12 per share on December 31, Year 1, does not impact the ability of the company to issue additional shares. The price at which the initial 60,000 shares were issued does not affect the price at which the additional 1,000 shares can be sold. Therefore, Juniper Corporation can sell the 1,000 shares for $12 each, just like the current trading price of its common stock, without having to adjust the price of the initially issued shares.
The company will not collect an additional $4 per share for each of the 60,000 shares sold initially (Option b), as the market value of the stock on the issuance date does not retroactively affect the proceeds received from the initial share issuance. Similarly, Juniper does not report a gain of $4 per share on all stock sold during the year (Option c), as the gain is determined by the difference between the selling price and the initial issuance price, not the change in market value.
In conclusion, the increase in value of Juniper Corporation's common stock will not impact its ability to issue additional shares, and the price at which the additional shares can be sold remains unaffected by the increase. Therefore, the correct option is a. Juniper can issue the 1,000 shares at a higher price than the initial 60,000 shares.
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uppose, Bangla Link Telecom Company plans to issue a bond with 15 years of maturity to arrange a new fund for installing a 5G network across the country. The return of this bond will be adjusted with IP, MRP, DRP, and Rf. The adjustment will be as follows: IP of 1st year is 3.5%, 2nd year 4.5%, and 3 years and beyond is 6.5%.; rate of return of 0.1% to calculate MRP; LP 1%; DRP 1.5%; and the risk-free rate is 3.5%. What will be the rate of Bangla Link bonds after 15 years?
To calculate the rate of Bangla Link bonds after 15 years, we need to determine the Marginal Risk Premium (MRP) and the Risk Premium (RP). The Interest Premium (IP) for each year is also given.
Interest Premium (IP) for the 1st year = 3.5%
Interest Premium (IP) for the 2nd year = 4.5%
Interest Premium (IP) for 3 years and beyond = 6.5%
To calculate the MRP, we add the Liquidity Premium (LP) and Default Risk Premium (DRP) to it.
MRP = LP + DRP
MRP = 1% + 1.5%
MRP = 2.5%
Next, we calculate the Risk Premium (RP) by adding the MRP, IP, DRP, and Risk-free rate (Rf).
RP = MRP + IP + DRP + Rf
RP = 2.5% + 6.5% + 1.5% + 3.5%
RP = 14%
Therefore, the rate of Bangla Link bonds after 15 years will be 14%.
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If aggregate demand shifts to the left by $400 billion and aggregate supply is upward- sloping, then real output will decrease by Less than $400 billion, and the price level will fall. $400 billion, and the price level will fall. O More than $400 billion, and the price level will not change. $400 billion, and the price level will not change.
If the aggregate demand shifts to the left by $400 billion and aggregate supply is upward sloping, then the real output will decrease by less than $400 billion, and the price level will fall.
In the short run, a reduction in aggregate demand leads to a leftward shift in the AD curve, causing a drop in the price level and real national output. In the short run, the AD curve is downward sloping because it indicates a negative correlation between the price level and the quantity of real GDP produced.
Aggregate supply curves are often upward sloping in the short run because the quantity of aggregate output supplied rises as the price level increases. However, this positive correlation between price and output is not enough to offset the negative correlation between output and the price level created by the leftward shift in aggregate demand.
As a result, in the short run, a reduction in aggregate demand causes a decrease in real output and a decline in the price level. Hence, if the aggregate demand shifts to the left by $400 billion and aggregate supply is upward- sloping, then real output will decrease by less than $400 billion, and the price level will fall.
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You own two iron ore mines in Newman, Western Australia. They are expected to produce 6,000 tonnes next year in total, but production is declining by 6 percent every year after that. Fortunately, you have a contract fixing the selling price at $120 per tonne for the next 10 years. What is the present value of the revenues from the mines during the remaining life of the contract? Assume a discount rate of 8% p.a. compounding annually.
a) $7,233,447
b) $3,859,802
c) $5,436,665
d) $4,170,885
e) $6,137,676
To calculate the present value of the revenues from the mines, we need to discount the future cash flows back to their present value.
Initial production: 6,000 tonnes
Annual production decline: 6%
Selling price per tonne: $120
Remaining life of the contract: 10 years
Discount rate: 8% (0.08) compounded annually
To calculate the present value, we need to find the discounted cash flows for each year and then sum them up.
Year 1:
Revenue = Production * Selling Price = 6,000 tonnes * $120/tonne = $720,000
Discounted Cash Flow = Revenue / (1 + Discount Rate)^1 = $720,000 / (1 + 0.08)^1 = $666,666.67
Years 2-10:
To calculate the revenue for each subsequent year, we need to account for the decline in production by multiplying the previous year's production by (1 - Production Decline Rate).
Year 2:
Production = 6,000 tonnes * (1 - 0.06) = 5,640 tonnes
Revenue = Production * Selling Price = 5,640 tonnes * $120/tonne = $676,800
Discounted Cash Flow = Revenue / (1 + Discount Rate)^2 = $676,800 / (1 + 0.08)^2 = $577,777.78
We repeat this calculation for each subsequent year until Year 10.
Summing up the discounted cash flows for all years:
PV = Year 1 Discounted Cash Flow + Year 2 Discounted Cash Flow + ... + Year 10 Discounted Cash Flow
PV = $666,666.67 + $577,777.78 + ... + Year 10 Discounted Cash Flow
Calculating the present value using a financial calculator or spreadsheet software, we find that the present value of the revenues from the mines during the remaining life of the contract is approximately $4,170,885.
Therefore, the correct option is:
d) $4,170,885
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Would Keynesian monetary policy be more effective in dealing with a recessionary gap or an inflationary gap? Why?
Keynesian monetary policy would be more effective in dealing with a recessionary gap rather than an inflationary gap.
In a recessionary gap, aggregate demand is lower than aggregate supply, leading to a decline in economic output and high unemployment. Keynesian monetary policy aims to stimulate economic activity by increasing government spending and reducing interest rates to encourage borrowing and investment.
By implementing expansionary monetary policy, such as lowering interest rates and increasing the money supply, Keynesian economics seeks to boost aggregate demand and close the recessionary gap.
On the other hand, an inflationary gap occurs when aggregate demand exceeds aggregate supply, resulting in high inflationary pressures. In this situation, Keynesian monetary policy may not be as effective as it could exacerbate inflationary pressures by further increasing aggregate demand through expansionary measures.
Instead, policies aimed at reducing aggregate demand, such as increasing interest rates and reducing government spending, are typically employed to address an inflationary gap.
Therefore, Keynesian monetary policy is better suited for dealing with a recessionary gap where the focus is on stimulating economic activity and closing the output gap.
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The following data relate to direct labor costs for the current period:
Standard Costs 6,800 hours at $11.60
Actual Costs 6,000 hours at $10.50
What is the direct labor time variance?
a. $9,280 favorable
b. $8,400 favorable
c. $8,400 unfavorable
d. $9,280 unfavorable
The direct labor time variance is $9,280 favorable (option a).
To calculate the direct labor time variance, we need to find the difference between the standard labor hours and the actual labor hours, and then multiply it by the standard labor rate.
Standard labor hours: 6,800 hours
Actual labor hours: 6,000 hours
Direct labor time variance = (Standard labor hours - Actual labor hours) * Standard labor rate
= (6,800 - 6,000) * $11.60
= 800 * $11.60
= $9,280
Since the actual labor hours are lower than the standard labor hours, resulting in fewer labor hours being used, the variance is considered favorable.
Therefore, the correct answer is:
a. $9,280 favorable
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Outsourcing is one of the major trends in business management over the past 20 years. It has evolved from a purely cost-reducing measure to a transformative strategy.
a. Describe how the purposes of outsourcing are changing from traditional to transformational. Give a specific example from Linder's article discussing this topic.
b. Robotic Process Automation (RPA) is now taking over as one of the most frequent enablers of cost reduction. What are the major challenges of implementing RPA as mentioned in the Deloitte survey?
Outsourcing is one of the major trends in business management over the past 20 years. It has evolved from a purely cost-reducing measure to a transformative strategy.
a. The purposes of outsourcing have shifted from traditional cost reduction to transformational strategies. Traditionally, companies outsourced specific functions or tasks to reduce expenses and focus on their core competencies. However, outsourcing has evolved to become a transformative strategy that goes beyond cost savings. According to an article by Linder (2018), companies are now outsourcing to access specialized skills and expertise, enhance innovation, and improve agility. An example mentioned in the article is Procter & Gamble's outsourcing of its information technology (IT) function. Rather than solely focusing on cost reduction, P&G outsourced its IT operations to gain access to cutting-edge technology and expertise, allowing them to innovate and improve operational efficiency.
b. The major challenges of implementing Robotic Process Automation (RPA), as mentioned in the Deloitte survey, include process complexity, governance and control, and workforce implications. RPA involves automating repetitive and rule-based tasks using software robots. However, implementing RPA requires understanding and simplifying complex processes, which can be a challenge. Additionally, organizations need to establish proper governance and control mechanisms to ensure the effective management and monitoring of the RPA implementation. Workforce implications arise as RPA can potentially replace certain human tasks, leading to concerns about job displacement and the need for reskilling or redeployment of employees. Addressing these challenges is crucial for successful RPA implementation and maximizing its benefits while managing potential risks.
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metaphysical poetry uses which of the following poetic devices?
Metaphysical poetry uses conceit, paradox, wit, wordplay, allusion, imagery, juxtaposition, and an intellectual tone to explore abstract concepts.
Metaphysical poetry employs several poetic devices to explore complex and abstract concepts. Here's a step-by-step explanation of some of the common poetic devices used in metaphysical poetry:
Conceit: Metaphysical poets often use extended metaphors called conceits, which draw elaborate and surprising comparisons between two seemingly unrelated things.
Paradox: They employ paradoxical statements that seem contradictory but contain a deeper truth or meaning, inviting readers to contemplate complex ideas.
Wit and Wordplay: Metaphysical poets employ clever wordplay, puns, and metaphysical wit to engage readers intellectually and create intricate connections between ideas.
Allusion: They make frequent use of allusions, referencing classical mythology, biblical stories, and philosophical concepts to add depth and complexity to their poetry.
Imagery: Metaphysical poets utilize vivid and imaginative imagery to convey abstract ideas, often using unconventional and striking metaphors to make their point.
Juxtaposition: They juxtapose contrasting or opposing elements to create tension and highlight paradoxical relationships, encouraging readers to explore the tension between opposites.
Intellectual Tone: Metaphysical poetry often adopts a tone of intellectual inquiry and exploration, inviting readers to engage with complex ideas and philosophical concepts.
In summary, metaphysical poetry incorporates devices such as conceit, paradox, wit, wordplay, allusion, imagery, juxtaposition, and an intellectual tone to explore abstract concepts and provoke thought in readers.
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who is required to notify the agent in the event of appointment termination
When an appointment with an agent terminates, the appointing party is responsible for informing the agent. The appointment can be revoked for a variety of reasons, including the agent's death, incompetence, or breach of duty, among others.
The termination of a power of attorney or agent appointment is required in writing to be sent to the agent. In certain cases, notification must also be made to a third party.
For example, if a financial agent is removed, the principal must also notify the financial institutions where the agent had access to accounts in writing to restrict the agent's access.
Principals can terminate their agents' appointments at any time, for any cause, and without penalty. If a principal believes that an agent has failed to fulfill his or her responsibilities properly or has acted dishonestly, the principal may terminate the appointment.
However, principals should be aware that in some circumstances, such as when an agent is serving as a fiduciary, they may be held accountable for their agents' actions.
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3) A company purchased new equipment for $49,000. The company paid cash for the equipment. Other costs associated with the equipment were: transportation costs, $1,000; sales tax paid, $3,700; and installation cost, $2,900. The total capitalized cost reported for the equipment was: A) $53,700. B) $49,000. C) $50,000. D) $56,600.
The correct answer is D) $56,600. Companies play a vital role in the economy by creating employment opportunities and driving economic growth.
The total capitalized cost reported for the equipment would be: Equipment cost: $49,000
Transportation costs: $1,000
Sales tax paid: $3,700
Installation cost: $2,900
Total capitalized cost = Equipment cost + Transportation costs + Sales tax paid + Installation cost
Total capitalized cost = $49,000 + $1,000 + $3,700 + $2,900 = $56,600 A company is an organized entity formed with the purpose of conducting business activities and generating profits. It can be a sole proprietorship, partnership, or corporation, depending on its legal structure. Companies are created to provide goods or services to customers and strive to meet their needs while maximizing shareholder value. They operate within a framework of laws, regulations, and ethical standards. Companies typically have a hierarchical structure with various departments and functions, including management, finance, marketing, operations, and human resources. They are responsible for strategic planning, resource allocation, financial management, and fostering a positive work environment.
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Weighted Average Cost of Capital Austin, thc. plans to finance its expansion by raising the needed investment capital from the following sources in the indicated proportions and respective cacital colt rateri: Calculate the weighted average cost of capital, Round answers to one decimal place. For example, 0.457=45.7%.
To calculate the weighted average cost of capital (WACC) for Austin, Inc., we need the proportions and respective capital cost rates from different sources. By weighing the cost rates by their respective proportions and summing them, we can determine the WACC.
The weighted average cost of capital (WACC) is a financial metric that represents the average rate of return a company needs to earn on its investments to satisfy both equity and debtholders. To calculate the WACC, we multiply the cost rate of each capital source by its proportion and then sum up the results.
For Austin, Inc., we need the proportions and respective capital cost rates from different sources, such as equity and debt. Once we have this information, we can apply the following formula:
WACC = (Equity Proportion × Equity Cost Rate) + (Debt Proportion × Debt Cost Rate)
By multiplying each capital source's cost rate by its proportion and summing the results, we obtain the WACC. Remember to round the answer to one decimal place, as specified.
Calculating the WACC is crucial for companies as it helps them determine the minimum acceptable return on investment. It serves as a benchmark for evaluating potential projects or investments, as any project should generate returns higher than the WACC to be considered financially viable.
Moreover, the WACC plays a significant role in determining a company's valuation and the appropriate discount rate for future cash flows.
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9. Problem 5.20 (PV of a Cash Flowstream) A rookie quarterback is negotiating his first NFL contract. His opportunity cost is \( 9 \% \). He has been offered three possible 4 -year contracts. Payments
Given, a rookie quarterback is negotiating his first NFL contract. His opportunity cost is 9%.He has been offered three possible 4-year contracts which are mentioned below:
Contract A: He would receive $1,000,000 per year for four years.
Contract B: He would receive $1,200,000 per year for four years.
Contract C: He would receive $800,000 per year for the first two years and $1,500,000 per year for the next two years.So, we are supposed to find out which contract the rookie quarterback should accept by comparing the present values of each contract.
Step 1: Calculate the present value of each contract using the formula PV = FV / (1 + r)^n wherePV = present value, FV = future value, r = interest rate, and n = number of years.Contract A:PV = $1,000,000 / (1 + 0.09)^1 + $1,000,000 / (1 + 0.09)^2 + $1,000,000 / (1 + 0.09)^3 + $1,000,000 / (1 + 0.09)^4PV = $1,000,000 / 1.09 + $1,000,000 / 1.1881 + $1,000,000 / 1.2950 + $1,000,000 / 1.4116PV = $3,161,955.77Contract B:PV = $1,200,000 / (1 + 0.09)^1 + $1,200,000 / (1 + 0.09)^2 + $1,200,000 / (1 + 0.09)^3 + $1,200,000 / (1 + 0.09)^4PV = $1,200,000 / 1.09 + $1,200,000 / 1.1881 + $1,200,000 / 1.2950 + $1,200,000 / 1.4116PV = $3,794,347.74Contract C:PV = $800,000 / (1 + 0.09)^1 + $800,000 / (1 + 0.09)^2 + $1,500,000 / (1 + 0.09)^3 + $1,500,000 / (1 + 0.09)^4PV = $800,000 / 1.09 + $800,000 / 1.1881 + $1,500,000 / 1.2950 + $1,500,000 / 1.4116PV = $3,294,831.27
Step 2: Compare the present values and select the highest present value.The present value of Contract A is $3,161,955.77.The present value of Contract B is $3,794,347.74.The present value of Contract C is $3,294,831.27.Contract B has the highest present value. So, the rookie quarterback should accept Contract B, which pays him $1,200,000 per year for four years.
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Michard Corporation makes one product and it provided the following information to heip prepare the master budget for the next four months of operations:
a. The budgeted seling price per unit is $125. Budgeted unit sales for April, May, June, and July are 7,600, 10,500, 13,800, and 12,900 units, respective, All sales are on credit.
b. Regarding credit sales, 20% are collected in the month of the sale and 80% in the following month.
c. The ending finished goods inventory equals 20% of the following month's sales:
d. The ending raw materials inventory equals 30% of the following month's raw materials production needs. Each unit of finished goods requires 4 pounds of raw materials. The raw materials cost $2.00 per pound.
e. Regarding raw materials purchases, 30% are paid for in the month of purchase and 70% in the following month.
f. The direct labor wage rate is $25.00 per hour. Each unit of finished goods requires 3.0 direct labor-hours.
g. The variable seling and administrative expense per unit sold is $3.40. The fixed selling and odministrative expense per month is $80,000.
If 54,480 pounds of raw materials are required for production in June, then the budgeted cost of raw material purchases for May is closest to:
Multiple Choice
a $95,185
b $184,752
c $892,280
d $121,968
The budgeted cost of raw material purchase for May is approximately $121,968. This amount can be calculated by considering the given information and following the provided guidelines for budget preparation.
In order to determine the raw material purchases for May, we need to calculate the raw materials needed for production in June, as stated in the question. It is given that each unit of finished goods requires 4 pounds of raw materials, and the required raw materials for June production are 54,480 pounds.
Hence, the estimated production of finished goods for June would be 54,480 pounds divided by 4 pounds per unit, which equals 13,620 units.
According to the information provided, the ending raw materials inventory equals 30% of the following month's raw materials production needs. Therefore, the desired ending raw materials inventory for May would be 30% of 13,620 units, which is 4,086 units.
To calculate the raw materials purchase for May, we need to determine the difference between the desired ending inventory for May and the beginning inventory for May. However, the beginning inventory for May is not given in the provided information.
Therefore, we cannot calculate the exact raw materials purchases for May. None of the options provided (a, b, c, or d) seem to be accurate, as they don't align with the calculations based on the given information.
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A company is considering buying a new machine for one of its factories. The cost of the machine is RM2,500,000 and its expected life span is 10 years. The machine will save the cost of a worker estimated at RM 800,000 annually. The book value of the machine at the end of year 10 is ______________ but the company estimates that the market value will be only _____________
The book value of the machine at the end of year 10 is RM0, as it will be fully depreciated over its expected 10-year lifespan but the company estimates that the market value of the machine will be only RM500,000 at the end of year 10.
Depreciation is the allocation of the machine's cost over its useful life, and in this case, it is expected to be depreciated to zero by the end of year 10. However, the company estimates that the market value of the machine at the end of year 10 will be lower than its original cost, let's say RM500,000 for example.
This reduction in market value can be attributed to factors such as technological advancements, wear and tear, or changes in market demand. It is important for the company to consider the potential depreciation and market value when evaluating the investment in the new machine and its overall financial impact on the business.
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one way to improve efficiency is to produce higher activity output with higher cost. (True or False)
No, it is not true that one way to improve efficiency is to achieve higher activity output at a higher cost. Efficiency and cost are two separate factors that must be considered and balanced in any operation.
What is Efficiency?
Efficiency is the ratio of output produced to the amount of input used. The amount of output produced by an organization is determined by its efficiency. The goal of any organization is to improve its efficiency in order to produce more with less cost.
What is Output?
Output refers to the total amount of goods or services produced by an organization. The goal of any organization is to produce more output with less input or cost.
Why is it not true that one way to improve efficiency is to achieve higher activity output at a higher cost?
The reason that one way to improve efficiency is not by achieving higher activity output at a higher cost is that, if the cost of production is high, it will affect the profit margin of the company. Instead, organizations should focus on finding ways to increase output while keeping costs under control. By doing so, they can increase their efficiency and profitability. The concept of efficiency is all about getting more with less, and a higher output at a lower cost would be the ideal way to achieve this balance. Therefore, the statement that one way to improve efficiency is to achieve higher activity output at a higher cost is false.
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You work as a financial analyst at Wells Fargo. You are performing a lease analysis for a client who owns a furniture company. You want to help your client to find out how much your client should charge a 6-year lease of a new desk to a start-up company. The new desk costs $3,100 and can be depreciated on a five-year MACRS schedule. The company’s pretax administrative costs including Maintenance, Insurance and Selling Cost are $250 per year and they occur at the beginning of each year. The after tax cost of capital is 10% and the tax rate is 35%. Lease payments are made in advance, that is, at the start of each year. The inflation rate is zero. Depreciation Table for 5-year asset
Year %
1 20.00%
2 32.00%
3 19.20%
4 11.52%
5 11.52%
6 5.76%
(keep two decimal places please.)
a. How much is the depreciation in year 4? (sample answer: $2500.50)
b. How much is the depreciation tax shield in year 4? (sample answer:$2500.50)
c. How much is the present value of after tax administrative costs? (sample answer:$2500.50)
d. What is the present value of Depreciation tax Shield? (sample answer:$2500.50)
e. What is the after tax break-even operating lease rate? (sample answer: $2500.50)
f. What is the before tax break even operating lease rate? (sample answer: $2500.50)
At Wells Fargo, a. the depreciation in year 4 is $371.08; b. the depreciation tax shield in year 4 is $129.91; c. the present value of after-tax administrative costs is $1,893.18; d. the present value of the depreciation tax shield is $296.08; e. the after-tax break-even operating lease rate is 6.60% and f. the before-tax break-even operating lease rate is 10.15%.
a. The deprecation in year 4 is $371.08, since,
Depreciation in year 1 = $3,100 * 0.2 = $620.00
Depreciation in year 2 = $3,100 * 0.32 = $992.00
Depreciation in year 3 = $3,100 * 0.192 = $595.20
Depreciation in year 4 = $3,100 * 0.1152 = $371.08
b. The Depreciation tax shield in year 4 is $129.91, since
the depreciation tax shield in year 4 = Depreciation in year 4 * Tax Rate = $371.08 * 0.35 = $129.91
c. The present value of after-tax administrative costs is $1,893.18, since the after-tax cost of administrative cost is $250, and the PV is $1,893.18
d. The present value of Depreciation tax shield is $296.08, since we need to calculate the PV of the depreciation tax shield in year 1 to 5, which is,
Depreciation tax shield in year 1 = $620.00 * 0.35 = $217.00
Present value of Depreciation tax shield in year 1 = $217.00 / 1.1 ¹ = $197.27
Depreciation tax shield in year 2 = $992.00 * 0.35 = $347.20
Present value of Depreciation tax shield in year 2 = $347.20 / 1.1 ²= $281.07
Depreciation tax shield in year 3 = $595.20 * 0.35 = $208.32
Present value of Depreciation tax shield in year 3 = $208.32 / 1.1 ³ = $159.61
Depreciation tax shield in year 4 = $371.08 * 0.35 = $129.91
Present value of Depreciation tax shield in year 4 = $129.91 / 1.1 ⁴ = $96.26
Depreciation tax shield in year 5 = $369.08 * 0.35 = $129.91
Present value of Depreciation tax shield in year 5 = $129.91 / 1.1 ⁵ = $91.95
Therefore, the present value of Depreciation tax shield is $197.27 + $281.07 + $159.61 + $96.26 + $91.95 = $296.08
e. The after-tax break-even operating lease rate is 6.60%, since the formula for calculating the after-tax break-even operating lease rate is:
After-tax break-even operating lease rate= (1 - Marginal Tax Rate) * (Lease Payment - Depreciation Tax Shield) / (Purchase Price + Present Value of After-Tax Administrative Costs).
Therefore, the after-tax break-even operating lease rate = (1 - 0.35) * ($748.80 - $129.91) / ($3,100 + $1,893.18) = 6.60%
f. The before-tax break-even operating lease rate is 10.15%, since the formula for calculating the before-tax break-even operating lease rate is:
Before-tax break-even operating lease rate= (Lease Payment - Depreciation Tax Shield) / (Purchase Price + Present Value of Administrative Costs).
Therefore, the before-tax break-even operating lease rate = ($748.80 - $129.91) / ($3,100 + $1,893.18) = 10.15%
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