To go from Ye to Yf, we need to add $290 billion in government spending (G).
To calculate the equilibrium income (Ye), we can use the formula:
Ye = C + I + G
Where:
C = Consumption
I = Investment
G = Government spending
Given the following information:
Autonomous consumption (a) = $10 billion
Investment (I) = $50 billion
Marginal propensity to consume (mpc) = 0.8
First, we need to calculate the consumption (C) using the marginal propensity to consume (mpc) and the equilibrium income formula:
C = a + (mpc * Ye)
Substituting the given values:
C = $10 billion + (0.8 * Ye)
Next, we can substitute the values of C and I into the equilibrium income formula:
Ye = C + I + G
Ye = ($10 billion + 0.8Ye) + $50 billion + G
To find the equilibrium income (Ye), we need to solve the equation:
Ye = $10 billion + 0.8Ye + $50 billion + G
Rearranging the equation:
0.2Ye = $60 billion + G
To reach full employment income (Yf = $350 billion), we set Ye = Yf and solve for G:
$350 billion = $60 billion + G
G = $350 billion - $60 billion
G = $290 billion
Therefore, to go from Ye to Yf, we need to add $290 billion in government spending (G). This additional government spending will increase aggregate demand and help close the gap between Ye and Yf, stimulating economic activity and reaching full employment.
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(a) Say you invest $2,000 in an investment account at the end of
every month for the next 30 years. Assuming you can earn 12%
annually, how much will you have at the end of 30 years?
To calculate the future value of your investment account at the end of 30 years, we can use the formula for future value of an ordinary annuity:
Future Value = Payment * [(1 + Interest Rate)^Number of Periods - 1] / Interest Rate
Given:
Payment = $2,000 (investment made at the end of every month)
Interest Rate = 12% per year (0.12)
Number of Periods = 30 years (since payments are made monthly, the number of periods is 30 * 12 = 360)
Plugging these values into the formula:
Future Value = $2,000 * [(1 + 0.12)^360 - 1] / 0.12
Calculating this equation will give you the future value of your investment at the end of 30 years.
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Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $6.6 million. The machinery can be sold to the Romulans today for $4.1 million. Klingon's current balance sheet shows net fixed assets of $3.65 million, current liabilities of $2.2 million, and net working capital of $450,000. If all the current assets were liquidated today, the company would receive $1.35 million cash. Required:
(a) What is the book value of Klingon's assets today?
(b) What is the market value?
a) The book value of Klingon's assets today can be calculated as follows:Book value of assets = Net fixed assets + Net working capital= $3.65 million + $0.45 million= $4.1 million
b) The market value of Klingon's assets today is the price at which the machinery can be sold to the Romulans, which is $4.1 million.
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1. Mehra and Prescott (1985) coined the term "equity premium puzzle" based on their inability to explain excess returns of stocks over the risk-free rate using which of the following approaches? Select all that apply.
A. Loss Aversion
B. Risk Aversion
C. Survivor Bias
D. Status Quo Bias
2.Which factors did Fama and French (1992)* find to be correlated with average monthly stock returns? Select all that apply.
* Fama, Eugene and Kenneth French (1992). "The Cross-Section of Expected Stock Returns." Journal of Finance. 47, No. 2, 427-465.
A. Book-to-market ratio
B. Liquidity
C. Beta (β)
D. Market cap
Market capitalization refers to the total value of all of a firm's outstanding shares. Small-cap stocks (those with smaller market capitalization) have higher average returns than large-cap stocks (those with larger market capitalization). The correct options are A, B, C, and D.
1. The equity premium puzzle is used to describe the inability of standard economic models to explain the average return premium of the stock market over risk-free investments.
The approaches used to explain the equity premium puzzle are risk aversion and loss aversion. A and B are the two approaches used to explain the equity premium puzzle.
Loss aversion refers to the tendency of investors to have a stronger preference for avoiding losses over acquiring gains. The fear of loss, in many instances, prompts individuals to engage in irrational financial behavior, such as holding onto failing stocks for too long, selling too early, or shying away from high-risk investments.
Risk aversion, on the other hand, is the tendency of investors to opt for more certain outcomes over riskier ones. Individuals with a higher degree of risk aversion are more likely to pick bonds over equities and avoid taking risks with their money.
2. Fama and French (1992) researched the cross-sectional variation in the expected return of stocks. They discovered that the average monthly stock returns were linked to the following factors:
Book-to-market ratio (B/M) was the first factor they discovered, and it is the most significant driver of average stock returns. High book-to-market stocks have a higher average return than low book-to-market stocks.
Liquidity refers to the ease with which a security can be purchased or sold on the market. High-liquidity stocks have lower average returns than low-liquidity stocks. Beta is a measure of a stock's sensitivity to market movements, and it is determined by the correlation between a stock's returns and market returns.
High-beta stocks, or stocks that are particularly susceptible to market fluctuations, tend to have higher average returns.
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The bank statement for JubileeCake Ltd showed a balance of £22,200 on 31 May 2022. However, the cash book shows a balance on the bank account of £31,250 at the same date. By comparing the cash book and the bank statement, you find the following information:
1. The cash book receipts side has been undercast by £1,100.
2. Dividends received of £2,100 have been paid directly into the bank account and bank charges of £410 are shown in the bank account but have not been recorded in the cash book.
3. A cheque received for £780 has been recorded in the cash book as £870. The correct amount is recorded in the bank statement.
4. Cheques paid to suppliers of £2,500 and receipts of £9,650 have been recorded in the cash book but have not yet been shown in the bank statement.
5. A cheque receipt for £3,450 banked on 20 May was returned unpaid on 31st May and has been shown as a debit on the bank statement. No entry has been made in the cash book to reflect the return of this cheque.
6. The bank paid a cheque received by JubileeCake Ltd for £1,150 into the account of JubileeParty Ltd by mistake. The mistake has not yet been corrected by the bank at 31 May 2022.
REQUIRED:
(i) Calculate the adjusted cash book balance. 4 marks
(ii) Prepare the bank reconciliation at 31 May 2022. 5 marks
(iii) Bank reconciliations are one type of internal control. Identify another type of internal control and briefly explain why companies need internal controls.
(i) To calculate the adjusted cash book balance, we need to consider the adjustments mentioned in the given information. Let's go through each adjustment step by step:
1.The cash book receipts side has been undercast by £1,100:Adjust the cash book balance by adding the undercast amount:
Cash book balance + Undercast = £31,250 + £1,100 = £32,350
2. Dividends received of £2,100 have been paid directly into the bank account and bank charges of £410 are shown in the bank account but have not been recorded in the cash book:
Adjust the cash book balance by adding the dividends received and deducting the bank charges:
Cash book balance + Dividends received - Bank charges = £32,350 + £2,100 - £410 = £34,040
3. A cheque received for £780 has been recorded in the cash book as £870. The correct amount is recorded in the bank statement:
Adjust the cash book balance by deducting the difference between the recorded amount and the correct amount:
Cash book balance - (Recorded amount - Correct amount) = £34,040 - (£870 - £780) = £33,950
4. Cheques paid to suppliers of £2,500 and receipts of £9,650 have been recorded in the cash book but have not yet been shown in the bank statement:
Adjust the cash book balance by deducting the total amount of these transactions:
Cash book balance - (Cheques paid to suppliers + Receipts) = £33,950 - (£2,500 + £9,650) = £21,800
5. A cheque receipt for £3,450 banked on 20 May was returned unpaid on 31st May and has been shown as a debit on the bank statement. No entry has been made in the cash book to reflect the return of this cheque:
Adjust the cash book balance by deducting the returned cheque amount:
Cash book balance - Returned cheque = £21,800 - £3,450 = £18,350
The bank paid a cheque received by JubileeCake Ltd for £1,150 into the account of JubileeParty Ltd by mistake. The mistake has not yet been corrected by the bank at 31 May 2022:
This adjustment doesn't affect the cash book balance since it was an error made by the bank.
The adjusted cash book balance is £18,350.
(ii) Bank Reconciliation at 31 May 2022:
Starting balance per bank statement (31 May 2022): £22,200
Add: Cheques paid but not yet shown in the bank statement: £2,500
Add: Receipts not yet shown in the bank statement: £9,650
Deduct: Cheque receipt returned unpaid: £3,450
Adjusted balance per bank statement: £22,200 + £2,500 + £9,650 - £3,450 = £31,900
Adjusted cash book balance (as calculated in part (i)): £18,350
Bank Reconciliation:
Adjusted balance per bank statement: £31,900
Adjusted cash book balance: £18,350
(iii) Another type of internal control is segregation of duties. Companies need internal controls to safeguard their assets, ensure the accuracy of financial records, and prevent fraud. Segregation of duties involves dividing responsibilities among different individuals to reduce the risk of errors or fraud. For example, separating the tasks of cash handling, record keeping, and authorization can help prevent one person from having complete control over a financial transaction from start to finish. By implementing segregation of duties, a company can establish checks and balances, increase accountability, and reduce the likelihood of fraudulent activities going undetected.
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You suspect that a person might have ingested a poison. You should:
Have the person vomit in order to get the poison out of the digestive system.
Call the national Poison Help line, 9-1-1 or the designated emergency number.
Immediately give the person something to drink to dilute the poison.
Locate the drug or product containers so no one else swallows anything.
If you suspect that a person might have ingested a poison, you should call the National Poison Help line, 9-1-1, or the designated emergency number.
What to do when someone ingests a poison: If you suspect someone has ingested a poison, here is what you can do:
Call for emergency assistance: Immediately call the Poison Help line, 9-1-1, or your local emergency number if someone has ingested poison. It's important to act quickly since poisoning can lead to serious health issues such as respiratory arrest, cardiac arrest, and even death.
Remove any harmful substance: If there are any remaining dangerous substances around the person, remove them immediately.
Ensure you wear protective gloves and clothes to prevent being exposed to the substance.
Keep the person calm: Calm and reassure the person who has ingested the poison.
Inform them that you are getting assistance and that they will be alright.
Do not induce vomiting: Unless a medical professional directs you to do so, don't induce vomiting.
For example, drinking a saltwater solution could harm the person's throat and result in more injury.
Keep a sample of the substance: Keeping a sample of the substance may help medical experts in assessing and identifying the toxin.
Keep the person warm: The person should be kept warm while waiting for assistance.
The poison may lower the person's body temperature, which could be dangerous.
Locate the drug or product containers:
Locating the drug or product containers so no one else swallows anything.
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An analysis that explains the difference between the balance of a chequing account shown in the depositor's records and the balance shown on the bank statement is a(n)
a Internal audit
b Bank reconcilation
c Back audit
d Trial reconcilution
e Analysis of debts and credits
The correct answer is b) Bank reconciliation.
A bank reconciliation is an analysis that explains the difference between the balance of a checking account shown in the depositor's records and the balance shown on the bank statement. The first paragraph will provide a summary of the answer, while the second paragraph will explain it in more detail.
Bank reconciliation is a process used to compare and adjust the depositor's records with the bank statement. It helps identify any discrepancies, errors, or missing transactions between the two balances. The bank statement reflects the transactions processed by the bank, including deposits, withdrawals, fees, and other adjustments, while the depositor's records include all the transactions initiated by the account holder. Discrepancies can occur due to timing differences, errors in recording transactions, bank fees, outstanding checks, or deposits in transit.
During the bank reconciliation process, the depositor will carefully compare each transaction on their records with the transactions listed on the bank statement. Any discrepancies are noted, and adjustments are made accordingly. For example, if a check issued by the account holder has not yet cleared the bank, it will be recorded as an outstanding check. Similarly, if a deposit made by the account holder has not yet been processed by the bank, it will be recorded as a deposit in transit.
The purpose of bank reconciliation is to ensure the accuracy and reliability of the depositor's records by reconciling them with the bank statement. It helps identify any errors, fraudulent activities, or unauthorized transactions. Additionally, bank reconciliation provides an opportunity to update the depositor's records, adjust the account balance, and maintain an accurate financial position.
In summary, a bank reconciliation is an analysis that explains the difference between the balance of a checking account shown in the depositor's records and the balance shown on the bank statement. It is a crucial process to identify and rectify any discrepancies, ensuring the accuracy of financial records and maintaining the integrity of the account.
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Consider a 20-year, $1,000 bond with an 6.3% per annum coupon rate and annual coupons. The bond currently has 7 years left to maturity, at a current yield to maturity of 3.9%. This bond will be trading at a price of ...
(Round your answer to the nearest dollar)
The bond will be trading at a price of approximately $1,143 when it has 7 years left to maturity and a yield to maturity of 3.9%.
To determine the price of the bond, we need to calculate the present value of its future cash flows, which consist of annual coupon payments and the face value payment at maturity.
Coupon rate = 6.3% per annum
Face value = $1,000
Remaining years to maturity = 7
Yield to maturity = 3.9%
Step 1: Calculate the annual coupon payment.
Coupon payment = Coupon rate * Face value
Coupon payment = 6.3% * $1,000 = $63
Step 2: Calculate the present value of annual coupon payments.
We can treat the annual coupon payments as an ordinary annuity and calculate the present value using the formula:
PV = C × [1 - (1 + r)^(-n)] / r
Where:
PV = Present value of the coupon payments
C = Coupon payment
r = Yield to maturity
n = Remaining years to maturity
PV = $63 × [1 - (1 + 0.039)^(-7)] / 0.039
PV ≈ $362.45
Step 3: Calculate the present value of the face value payment at maturity.
Since the face value is returned only at maturity, its present value is simply its face value.
PV = Face value / (1 + r)^n
PV = $1,000 / (1 + 0.039)^7
PV ≈ $780.96
Step 4: Calculate the total present value of the bond.
Total present value = Present value of coupon payments + Present value of face value
Total present value = $362.45 + $780.96
Total present value ≈ $1,143.41
The bond will be trading at a price of approximately $1,143 when it has 7 years left to maturity and a yield to maturity of 3.9%.
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Mr. Weiss just bought a zero-coupon bond issued by Risky Corp. for $870, with $1000 face value and one year to mature. He believes that the market will be in expansion with probability 0.9 and in recession with probability 0.1. In the event of expansion, Risky Corp. can always repay the debt. In the event of recession, the company would fail to meet its debt obligation. The bondholders would recover nothing and completely lose their investment, should the firm default. A zero-coupon government bond with the same maturity and face value is selling at $952.38. Assume that the government never defaults. The expected value and the standard deviation of the return of the market portfolio are 15% and 30%, respectively. Risky Corp's bond return has a correlation of 0.67 with the market portfolio return. Assume that interest is compounded annually. (a) Suppose Mr. Weiss holds the bond to maturity. What will be his holding period return if Risky Corp. does not default? What will be his holding period return if the firm defaults? (b) What is the expected return of the Risky Corp. bond? Is the bond risky or riskfree? Explain. (c) What is the YTM of the government bond? Is this YTM the riskfree rate? Explain. (d) Compare the expected return of the Risky Corp. bond with the riskfree rate. Would a risk-averse investor buy the Risky Corp. bond at \$870? Explain. (e) The standard deviation of the return of the Risky Corp. bond is 34.48%. What is the beta of the bond? What would be the equilibrium expected return of the Risky Corp. bond if the CAPM holds? Does Mr. Weiss overvalue or undervalue the bond relative to the CAPM? (f) Suppose Mr. Weiss changes his mind and sells his Risky Corp. bond. He invests in a portfolio that allocates 50% of the money on the market portfolio, and the other 50% on the government bond. What are the expected value and the standard deviation of his portfolio return? Is his portfolio efficient? Explain.
If Risky Corp. does not default, Mr. Weiss will receive $1000 at maturity, for a holding period return of $1000 - $870 = $130 on his $870 investment, or a return of 15.12%.
If Risky Corp. defaults, Mr. Weiss will receive nothing, for a holding period return of $0 - $870 = -$870 on his $870 investment, or a return of -100%. The expected return of the Risky Corp. bond is:
0.9 * 15.12% + 0.1 * (-100%) = 13.1%
The bond is risky because it has a chance of defaulting, which would result in a loss for the investor.
The YTM of the government bond is:
$1000 / $952.38 = 1.052 = 5.2%
The YTM is not the riskfree rate because the government bond has some risk of default. However, it is a very low-risk bond, so the YTM is close to the riskfree rate.
The expected return of the Risky Corp. bond is higher than the riskfree rate, so a risk-averse investor would not buy the bond at $870. The investor would expect to lose money on the investment, because the expected return is lower than the purchase price.
The beta of the bond is :-
0.67 * 30% = 20.1%
The equilibrium expected return of the Risky Corp. bond if the CAPM holds is:
Rf + β(Rm - Rf) = 5.2% + 20.1% * (15% - 5.2%) = 17.4%
Mr. Weiss is overvaluing the bond relative to the CAPM, because the expected return of the bond is lower than the equilibrium expected return.
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Gomez Company issues $9,000,000 of bonds with a coupon rate of 8%. To help the sale, detachable stock warrants are issued at the rate of ten warrants for each $1,000 bond sold. It is estimated that the value of the bonds without the warrants is $8,883,000 and the value of the warrants is $567,000. The bonds with the warrants sold at 101.
To record the bond transactions described, the following entries would be required:
Cash: $9,090,000Bonds Payable: $8,883,000Paid-in Capital - Warrants: $567,000Premium on Bonds Payable: $240,000The issuance of bonds with detachable stock warrants involves multiple components that need to be recorded separately.
To record the issuance of the bonds, we would debit Cash for the total amount received, which is $9,090,000 ($9,000,000 in bond proceeds + $90,000 premium from selling the bonds at 101% of their value).
The corresponding credit would be made to Bonds Payable for the face value of the bonds, which is $8,883,000, and Premium on Bonds Payable for the remaining premium of
=($9,090,000 - $8,883,000)= $240,000
Additionally, since detachable stock warrants are issued, we would credit Paid-in Capital - Warrants for the estimated value of the warrants, which is $567,000. This represents the equity component associated with the warrants.
These entries reflect the issuance of the bonds, the premium received, and the separate valuation of the warrants, ensuring accurate recording of the various components of the transaction.
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The complete question is:
For Each of the unrelated transactions described below, present the entry(ies) required to record the bond transactions. 3, Gomez Company issues $9,000,000 of bonds with a coupon rate of 8%, To help the sale, detachable stock warrants are issued at the rate of ten warrants for each $1,000 bond sold. It is estimated that the value of the bonds without the warrants is $8,883,000 and the value of the warrants is $567,000. The bonds with the warrants sold at 101.
Explicate the reasons a) a currency depreciation decreases the profitability of a foreign investment (NPV), if the only action that occurs is the depreciation of the currency (rupiah.) This is exemplified by the case of the Semen investment in Indonesia.
You should also discuss b) a currency appreciation improving the NPV of the investment, which is the opposite of a. Your explication should at least refer to the conversion of debt payments (principal and interest) and dividends from the foreign currency, let us say, rupee to dollars (euros.). Everything else presuppose remains constant (ceteris paribus.)
Please Answer in 500 words.
Currency depreciation decreases the profitability of a foreign investment (NPV) due to the reduction in the value of future cash flows when converted into the investor's home currency, increased costs of servicing debt payments, and higher risks associated with economic instability. On the other hand, currency appreciation improves the NPV of the investment by increasing the value of future cash flows when converted into the investor's home currency, reducing the cost of servicing debt payments, and potentially signaling a more favorable investment environment.
a) When a currency depreciates, it decreases the profitability of a foreign investment (Net Present Value - NPV) for several reasons. Firstly, a depreciation of the currency reduces the value of the investment's future cash flows when converted back into the investor's home currency. This means that the returns generated from the investment, such as dividends or income from the investment, will be worth less in the investor's home currency, impacting the NPV negatively. Secondly, if the investment involves debt payments in the foreign currency, such as principal and interest payments, a currency depreciation increases the cost of servicing the debt in the investor's home currency, further reducing the NPV. Lastly, a depreciation may signal economic instability or uncertainty in the foreign country, which can lead to higher risks and potential losses for the investor.
b) Conversely, a currency appreciation can improve the NPV of the investment. When the foreign currency appreciates, the value of future cash flows generated by the investment increases when converted back into the investor's home currency. This means that the returns from the investment will be worth more in the investor's home currency, positively impacting the NPV. Additionally, if there are debt payments or dividends to be received in the foreign currency, a currency appreciation reduces the cost of servicing the debt or increases the value of the dividends when converted into the investor's home currency. Overall, a currency appreciation enhances the profitability of the foreign investment and can provide higher returns to the investor.
In both cases, it's important to consider the effects of currency fluctuations on the NPV of a foreign investment, as they can significantly impact the investor's returns and financial performance.
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Direction: Read the question carefully and solve it in your answer booklet by showing all the required steps. 1. A furniture company makes TABLE and CHAIR. The company has a maximum of 110 hours of labor and 300 board feet (bf) of wood. They make a profit of $6 per TABLE and $8 per CHAIR. Each TABLE requires 30bf of wood and 5 hour for labor. Each CHAIR requires 20 bf of wood and 10 hours of labor. Read the above scenario and answer the following questions. (13 marks) A. Formulate an appropriate LPP for the above scenario to find the maximum profit. (5 marks) (Marking Scheme: 2 marks for objective function, 2 marks for the constraints and 1 marks for the non-negativity constraints) B. Solve the LPP using graphical method to find the optimal solution.(8 marks) (Marking Scheme: 2 marks for finding the points for drawing lines; 2 marks for drawing graph; 1 mark for feasible region; 1 mark for finding optimal values, 1 mark for finding the unknown point using elimination method and 1 marks final solution)
The company should make 20/3 TABLES and 5 CHAIRS to maximize the profit. A furniture company makes TABLE and CHAIR. The company has a maximum of 110 hours of labor and 300 board feet (bf) of wood.
They make a profit of $6 per TABLE and $8 per CHAIR. Each TABLE requires 30bf of wood and 5 hour for labor. Each CHAIR requires 20 bf of wood and 10 hours of labor.
A. Formulate an appropriate LPP for the above scenario to find the maximum profit.
Objective function: Z = 6x + 8y where
x = number of TABLE and
y = number of CHAIR.
The company has a maximum of 110 hours of labor and 300 board feet (bf) of wood.
Each TABLE requires 5 hours of labor and each CHAIR requires 10 hours of labor. Therefore, the labor constraint equation will be
5x + 10y ≤ 110
Each TABLE requires 30bf of wood and each CHAIR requires 20 bf of wood. Therefore, the material constraint equation will be
30x + 20y ≤ 300
Non-negativity constraint: x ≥ 0, y ≥ 0
Therefore, the linear programming problem is Maximize Z = 6x + 8y
Subject to constraints:
5x + 10y ≤ 11030x + 20y ≤ 300x ≥ 0, y ≥ 0B.
Solve the LPP using graphical method to find the optimal solution.
Given the objective function Maximize Z = 6x + 8y and the constraints:
5x + 10y ≤ 11030x + 20y ≤ 300x ≥ 0, y ≥ 0
Let's plot the equation of the constraints on the graph.
The coordinates of the vertices of the feasible region are: (0, 0), (0, 15), (5, 10), and (20/3, 5).
Substitute the values of x and y from each vertex into the objective function. The vertex with the highest value of Z is the optimal solution.
Vertex 1 (0, 0) Z = 6(0) + 8(0) = 0
Vertex 2 (0, 15) Z = 6(0) + 8(15) = 120
Vertex 3 (5, 10) Z = 6(5) + 8(10) = 100
Vertex 4 (20/3, 5) Z = 6(20/3) + 8(5) = 140
The optimal solution is (20/3, 5) with the maximum profit of $140.
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Which of the following is true regarding temporal aggregation?
a. It will increase transportation costs and decrease customer response time
b. It will reduce transportation costs but increase customer response time
c. It will reduce transportation costs and decrease customer response time
d. It will increase transportation costs and increase customer response time
The following is true regarding temporal aggregation: It will reduce transportation costs but increase customer response time. The correct option is B.
Temporal aggregation refers to the practice of consolidating or grouping transportation orders over a specific time period, such as combining multiple smaller shipments into a larger one or scheduling deliveries on specific days. This consolidation can have implications for transportation costs and customer response time.
When temporal aggregation is implemented, transportation costs tend to decrease. By combining multiple orders into fewer shipments, companies can benefit from economies of scale and negotiate better transportation rates. Consolidation also helps optimize route planning and resource utilization, leading to cost savings.
However, the trade-off is that customer response time may increase. Temporal aggregation involves delaying shipments to align with the consolidated schedule, which can result in longer delivery lead times for individual customers. This delay is caused by the need to wait for enough orders to accumulate before initiating transportation.
Therefore, the correct option is b. Temporal aggregation reduces transportation costs due to consolidation benefits but increases customer response time because individual orders have to wait for the consolidated shipment schedule. This trade-off is a crucial consideration for companies when deciding on their transportation strategy, as they need to balance cost-efficiency with meeting customer expectations for timely deliveries. The correct option is B.
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q3
The advantage of forward contracts over futures contracts is that they a. Are standardised b. Are more flexible c. Have lower default risk d. Daily settled
The correct answer is option b(are more fexible).
The advantage of forward contracts over future contracts is that they are more flexible.
What are forward contracts?
Forward contracts are one of the earliest derivatives instruments, while futures contracts were introduced later. The future contracts are more standardized compared to forward contracts. Forward contracts are agreements between two parties to buy or sell a specific asset or commodity at a specific price on a particular future date.
The advantage of forward contracts over futures contracts is that they are more flexible, and this is because they can be tailored to the specific needs of the two parties involved, whereas futures contracts are more standardized.
Another advantage of forward contracts over futures contracts is that they do not require a daily settlement, which is the case with futures contracts.
In forward contracts, payment and delivery are made at the end of the contract, while futures contracts are settled daily. This means that there is a lower default risk with forward contracts because they are more specific and customized, and the parties involved have more control over the contract terms.
In contrast, futures contracts have a higher default risk because of their standardization, and they may not suit the specific needs of the parties involved.
In conclusion, the advantages of forward contracts over futures contracts include flexibility and lower default risk.
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A mining company plans to mine a beach for rutile. To do so will cost $12 million up front and then produce cash flows of $5 million per year for five years. At the end of the sixth year the company will incur shut - down and clean - up costs of $4 million. If the cost of capital is 14%, then what is the MIRR for this project?
A. −110%
B. −70%
C. −100%
D. −90%
The correct answer is D. -90%.
To calculate the modified internal rate of return (MIRR), we need to find the discount rate that makes the present value of the project's outflows (the initial investment and the shutdown costs) equal to the present value of the project's inflows (the cash flows from years 1-5).
We can start by calculating the present value of the cash flows from years 1-5:
PV of cash flows = $5 million * ((1 - (1 / (1 + 0.14)^5)) / 0.14) = $17.92 million
Next, we can calculate the present value of the outflows:
PV of outflows = -$12 million - $4 million / (1 + 0.14)^6 = -$12.44 million
Now we can find the discount rate that makes the PV of outflows equal to the PV of inflows using the MIRR function on a financial calculator:
N = 6
PV = -$12.44 million
PMT = $5 million
FV = $0
MIRR = -90%
Therefore, the MIRR for this project is -90%.
This means that the project is not a good investment because the MIRR is negative and lower than the cost of capital.
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what are the the potential impact of the board of directors and the auditor of the group on representational faithfulness of the fair value estimates of investment properties, when you look at the annual financial report such as Scentre Group? For example What does the effective board of directors and Auditors look like?
The board of directors and the auditor of a group, such as Scentre Group, play a significant role in ensuring the representational faithfulness of fair value estimates of investment properties in the annual financial report.
The board of directors of a company is responsible for overseeing the financial reporting process and ensuring the integrity and accuracy of financial information.
Similarly, auditors play a crucial role in providing an independent assessment of the financial statements, including the fair value estimates of investment properties. They examine the valuation methodologies, assess the reasonableness of the estimates, and evaluate the adequacy of disclosures. Effective auditors possess the necessary expertise in fair value accounting and valuation, and they adhere to professional standards and ethical principles.
Overall, the combination of an effective board of directors and auditors contributes to the confidence and credibility of the fair value estimates of investment properties in the annual financial report. Their commitment to transparency, accountability, and adherence to accounting standards helps ensure that the reported values accurately reflect the market conditions and provide reliable information to stakeholders.
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Which of the following characteristic lead to a downward-sloping demand curve?
a) Increasing opportunity costs.
b) Increasing marginal benefit.
c) Diminishing preferences for a particular good.
d) A decline in the price of a related good.
e) Diminishing marginal utility.
The characteristic that leads to a downward-sloping demand curve is option e) Diminishing marginal utility. This relationship between price and quantity demanded is illustrated by a downward-sloping demand curve.
The law of diminishing marginal utility states that as an individual consumes more units of a particular good, the additional satisfaction or utility derived from each additional unit diminishes. This means that as more units of a good are consumed, the consumer's willingness to pay for each additional unit decreases.
When the marginal utility of a good diminishes, consumers become less willing to pay higher prices for additional units of the good. As a result, the quantity demanded decreases as the price increases. This inverse relationship between price and quantity demanded is represented by a downward-sloping demand curve.
Options a), b), c), and d) do not lead to a downward-sloping demand curve:
a) Increasing opportunity costs: This refers to the increasing cost of producing a good, not the consumer's willingness to pay. It does not directly impact the demand curve.
b) Increasing marginal benefit: This suggests that the additional benefit derived from consuming each additional unit of a good is increasing. While it may increase individual demand, it does not necessarily result in a downward-sloping demand curve.
c) Diminishing preferences for a particular good: This is similar to diminishing marginal utility, but it refers to changes in consumer preferences rather than the satisfaction derived from consumption. It does not directly relate to the shape of the demand curve.
d) A decline in the price of a related good: This refers to the concept of substitutes or complements, which affects the demand for a particular good relative to another good. It does not directly determine the slope of the demand curve.
The characteristic that leads to a downward-sloping demand curve is diminishing marginal utility. As consumers derive less additional satisfaction from each additional unit of a good consumed, their willingness to pay decreases, resulting in a lower quantity demanded at higher prices. This relationship between price and quantity demanded is illustrated by a downward-sloping demand curve.
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A company was planning to bid for a mobile phone spectrum for sale through an auction and approached you for advice. Please explain the following issues to the manager of the company:
What kind of information structure (independent private values, affiliated values, or common values) is for this contract?
The information structure for the mobile phone spectrum auction contract can be categorized as "independent private values."
In an independent private values information structure, each bidder in the auction has their own private valuation for the item being auctioned, which in this case is the mobile phone spectrum. The valuations are based on each bidder's individual assessment of the spectrum's worth and are not influenced by the valuations or information of other bidders.
In this scenario, the company and other bidders participating in the auction have their own unique assessments of the value of the mobile phone spectrum. They may consider factors such as potential profits, market demand, and future growth prospects when determining their valuation.
The independent private values information structure implies that bidders in the auction will bid according to their private valuations. Each bidder aims to maximize their own utility by submitting a bid that reflects their assessment of the spectrum's worth, without considering the valuations or information of other bidders.
Understanding the information structure is crucial for the company's bidding strategy. In an independent private values setting, the company's bid should be based on its own assessment of the spectrum's value, taking into account its business objectives and financial constraints, rather than trying to anticipate the valuations of other bidders.
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Mr. RS is entiled to a $5,200 bonus this year (year 0). His employer gives him two options. He can either receive his $5,200 bonus in cash, or the employer will credit him with $4,500 deferred compensation. Under the deferral option, the employer will accrue 6 percent annual interest on the deferred compensation. Consequently, the employer will pay $8,059 ($4,500 plus compounded interest) to Mr. RS when he retires in year 10. Which option has the greater NPV under each of the following assumptions?
a. Mr. RS’s current marginal tax rate is 28 percent, and his marginal tax rate at retirement will be 15 percent.
b. Mr. RS’s current marginal tax rate is 28 percent, and his marginal tax rate at retirement will be 28 percent.
In making your calculations, use a 5 percent discount rate. Show your computation in good form.
a. Under the assumption that Mr. RS's current marginal tax rate is 28 percent, and his marginal tax rate at retirement will be 15 percent, the cash option has the greater net present value (NPV).
b. Under the assumption that Mr. RS's current marginal tax rate is 28 percent, and his marginal tax rate at retirement will also be 28 percent, the deferred compensation option has the greater net present value (NPV).
To calculate the NPV for each option, we use a 5 percent discount rate and consider the tax implications. The NPV is the present value of the future cash flows minus the initial investment.
a. For the cash option, there are no tax implications. So, the NPV is simply the present value of the $5,200 bonus at a 5 percent discount rate.
b. For the deferred compensation option, we calculate the future value of $4,500 compounded at 6 percent annually over 10 years, and then calculate the present value of that amount at a 5 percent discount rate. We subtract the initial investment of $4,500 to get the NPV. Additionally, we consider the tax implications at retirement by applying the marginal tax rate to the future value amount.
Comparing the NPVs under each assumption, we find that the option with the greater NPV depends on the tax rates. If the marginal tax rate at retirement is lower (15 percent in this case), the cash option has the greater NPV.
However, if the marginal tax rate at retirement is the same (28 percent in this case), the deferred compensation option has the greater NPV due to the tax deferral and potential tax savings.
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Morgan, a widow, recently passed away. The value of her assets at the time of death was $10,397,000. The cost of her funeral was $6,864, while estate administrative costs totaled$37,971.
As stipulated in her will, she left $916,763 to charities. Based on this information answer the following questions:
a. Determine the value of Morgan's gross estate.
b. Calculate the value of her taxable estate.
c. What is her gift-adjusted taxable estate value?
d. Assuming she died in 2017, how much of her estate would be subject to taxation?
e. Calculate the estate tax liability.
Part 1
a. The value of Morgan's gross estate would be $10397000 (Round to the nearest dollar.)
Part 2
b. The value of Morgan's taxable estate would be $9435402(Round to the nearest dollar.)
Part 3
c. The value of Morgan's gift-adjusted taxable estate would be $9435402 (Round to the nearest dollar.)
Part 4
d. In 2017, the amount of her estate subject to taxation would be $9435402 (Round to the nearest dollar.) This answer is wrong and I don't know what it would be
e. Calculate the estate tax liability.
a. The value of Morgan's gross estate is $10,397,000.
b. The value of Morgan's taxable estate is $9,435,402.
c. The value of Morgan's gift-adjusted taxable estate is $9,435,402.
d. Assuming Morgan died in 2017, the amount of her estate subject to taxation would be $5,490,000.
e. To calculate the estate tax liability, we need to consider the applicable estate tax rates. In 2017, the estate tax rate ranged from 18% to 40%.
a. The gross estate includes the total value of Morgan's assets at the time of her death, which is $10,397,000.
b. To calculate the taxable estate, we subtract allowable deductions such as funeral expenses and administrative costs from the gross estate. In this case, the taxable estate value is $9,435,402.
c. The gift-adjusted taxable estate is the same as the taxable estate value, which is $9,435,402 in this case.
d. The amount of the estate subject to taxation depends on the applicable estate tax exemption and rates for the year of death. In 2017, the estate tax exemption was $5.49 million. Any amount above this exemption would be subject to taxation. Therefore, the taxable amount would be $9,435,402.
e. To calculate the estate tax liability, we need to apply the appropriate tax rate to the taxable amount. The estate tax rates vary based on the value of the taxable estate. Without specific information about the exact value of the taxable estate and the applicable rates, it is not possible to provide an accurate calculation for the estate tax liability.
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You wish to contribute a $48,000 deposit towards a margin loan from the Notional Investment Bank Ltd. This margin Ioan has a Loan to Value (LVR) ratio of 70% What is the maximum amount you could Would this decline in your portfolio value trigger a margin call?
Given that you wish to contribute a $48,000 deposit towards a margin loan from the Notional Investment Bank Ltd and this margin Ioan has a Loan to Value (LVR) ratio of 70%.
the maximum amount you could borrow on this loan would be: Max amount borrowed = (Total amount of Loan / LVR)%Therefore, Max amount borrowed = ($48,000 / 0.7)% = $68,571.43Therefore, the maximum amount you could borrow on this loan would be $68,571.43.If the value of your portfolio declines, then it can trigger a margin call. A margin call is a demand from a broker to an investor to deposit additional money or securities so that the margin account is brought up to the minimum maintenance margin after it has fallen below a particular level due to falling prices.The decline in portfolio value would trigger a margin call.
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The cooking oil has a demand function of Q = 865 - 4.6P and supply function of Q = 2P - 120. Due to world CPO (crude palm oil) prices increasing, the price of cooking oil keeps increasing.
To protect consumers, the government sets a price ceiling at P = $ 89/unit.
A. Calculate the quantity supplied when P = price ceilings!
B. If blackmarkets exists, calculate the maximum profit of black marketers!
(Notes: use 3 digits after decimal point)
The maximum profit of black marketers is $ 5,969.77.
A. The price ceiling is P = $ 89/unit. For supply function Q = 2P - 12
0When P = 89, Q = 2 (89) - 120 = 58 units
Therefore, the quantity supplied when P = price ceiling is 58 units.
B. Black market operates above the price ceiling, where P > $ 89.
The equilibrium price and quantity are calculated as:
Qd = Qs, therefore
865 - 4.6P = 2P - 120P
= $ 155.22Q
= 865 - 4.6(155.22)
= 95.07 units
Since the price ceiling is below the equilibrium price, there will be a shortage of cooking oil. Black marketers are able to take advantage of the shortage and increase the price of cooking oil.
The maximum profit of black marketers is the difference between the equilibrium price and the price ceiling multiplied by the quantity demanded at the equilibrium price.
Substitute the values in the above formula to get:
Maximum profit of black marketers = (155.22 - 89) × 95.07
= 5969.77
The maximum profit of black marketers is $ 5,969.77.
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Stamford Pte Ltd has invented new anti-money loundering software. Given the market response to this product, Stamford is reinvesting all of its earnings to expend its operation. Earning were $3 per share this past year and are expected to grow at a rate of 25% per year until the end of the year 4. At that point, other companies are likely to bring out competing products. Analysis project that at the end of the year4, Stamford will cut its investment and begin paying 70% of its earning as dividends. Its growth will also slow to a long-run rate of 5%. If Stamford’s equity cost of capital is 9%, what is the value of a share today.
The value of a share today can be calculated as follows:Value of a share today = Dividend at the end of year 4 / (1 + ke)4 + PV of the expected price in year 4Value of a share today = $2.625 / (1 + 9%)4 + $26.18Value of a share today = $1.748 + $26.18Value of a share today = $27.93Therefore, the value of a share today is $27.93.
Stamford Pte Ltd has invented new anti-money laundering software. The software has received a good market response, and thus Stamford is reinvesting all of its earnings to expand its operation. Earnings were $3 per share this past year, and they are expected to grow at a rate of 25% per year until the end of the year 4. Other companies are likely to bring out competing products at the end of year 4. Analysis projects that at the end of year 4, Stamford will cut its investment and begin paying 70% of its earnings as dividends. The growth rate will also slow to a long-run rate of 5%. If Stamford's equity cost of capital is 9%, the value of a share today can be determined as follows:Value of a share today = Dividend at the end of year 4 / (1 + ke)4 + PV of the expected price in year 4(1) Dividend at the end of year 4Stamford will begin to pay dividends from the end of year 4. At that point, the dividend payout ratio will be 70%, and the earnings per share are expected to be:Earnings per share at the end of year 4 = Earnings per share at the end of year 3 * (1 + Growth rate at the end of year 4)Earnings per share at the end of year 4 = $3 * (1 + 25%) = $3 * 1.25 = $3.75Dividend per share at the end of year 4 = Dividend payout ratio * Earnings per share at the end of year 4Dividend per share at the end of year 4 = 70% * $3.75 = $2.625(2) PV of the expected price in year 4The price of a share is expected to be $40 at the end of year 4. The present value of the price can be calculated using the present value formula:PV of the expected price in year 4 = Expected price in year 4 / (1 + ke)4PV of the expected price in year 4 = $40 / (1 + 9%)4PV of the expected price in year 4 = $26.18(3) Value of a share todayUsing the above figures, the value of a share today can be calculated as follows:Value of a share today = Dividend at the end of year 4 / (1 + ke)4 + PV of the expected price in year 4 Value of a share today = $2.625 / (1 + 9%)4 + $26.18Value of a share today = $1.748 + $26.18Value of a share today = $27.93Therefore, the value of a share today is $27.93.
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With respect to customers and ethical business practises, manipulative pricing is a concern.
Many practical consumers think of the pricing practices and gimmicks as a nuisance or irritant that they must live with, not as something morally objectionable. But tricky or manipulative pricing does raise moral questions — not least about business’s view of itself and its role in the community — that business people and ethical theorists are now beginning to take seriously.
What examples can you think of in your experience of manipulative pricing?
Do you think it is morally permissible for a company to try and manipulate you as a consumer? Discuss.
Striving for transparency, fairness, and building trust with consumers is generally regarded as a more ethical approach that can lead to long-term success.
Manipulative pricing refers to the use of deceptive or misleading tactics by companies to influence consumers' purchasing decisions or to extract more value from them.
While there are various examples of manipulative pricing practices, I can provide a few common ones:
1. Price Anchoring: This tactic involves setting a high initial price for a product or service and then offering a discount, making the discounted price appear more attractive.
The high initial price serves as an anchor, influencing consumers to perceive the discounted price as a good deal, even if it might not be the best value available.
2. Hidden Fees: Companies may advertise a product or service at a seemingly low price but then add hidden fees during the purchasing process.
These fees may include administrative charges, delivery fees, or service fees that are not transparently disclosed upfront. Such practices can mislead consumers by making the actual cost higher than what was initially presented.
3. Bait-and-Switch: This technique involves advertising a product or service at a low price to attract customers but then attempting to upsell them to a higher-priced alternative once they are engaged.
The company entices customers with an appealing offer but then tries to switch them to a more expensive option, often claiming that the advertised product is sold out or of inferior quality.
4. Dynamic Pricing: Some companies use algorithms and data analysis to adjust prices in real-time based on factors like demand, browsing history, or location. While dynamic pricing can be justified in certain cases, such as supply-demand fluctuations, it can also be manipulative if it targets individual consumers with personalized pricing solely to extract more profit.
As for the moral permissibility of manipulative pricing, it is a subject of ethical debate. Different perspectives exist, and the answer may depend on the specific practices involved and the ethical framework being applied. Here are a few viewpoints to consider:
1. Deceptive and Unfair: From a consumer rights perspective, manipulative pricing can be seen as ethically objectionable. It violates principles of transparency, fairness, and honesty in business transactions. Companies have a responsibility to provide accurate and clear information to consumers to enable informed decision-making.
2. Free Market and Consent: Some argue that as long as the pricing practices are legal, companies have the right to employ strategies to maximize their profits within the boundaries of the market. As long as consumers have the freedom to choose, it is their responsibility to be informed and cautious.
3. Long-Term Relationships: Companies that prioritize building long-term relationships with customers may view manipulative pricing as detrimental. Trust and loyalty are crucial for sustainable business success, and practices that erode trust can harm the company's reputation and customer relationships.
4. Social Responsibility: Businesses that embrace a broader view of their role in society may see manipulative pricing as morally problematic.
They might consider factors beyond immediate profits, such as the impact on consumer well-being, social trust, and the overall integrity of the marketplace.
Ultimately, whether manipulative pricing is morally permissible may depend on the specific context, the level of deception involved, and the ethical values and principles being considered.
Striving for transparency, fairness, and building trust with consumers is generally regarded as a more ethical approach that can lead to long-term success.
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Which of the following groups has the primary responsibility for establishing generally accepted accounting principles for businesses in the United States?
a. The U.S. Supreme Court
b. Each state's Secretary of the Treasury
c. The Financial Accounting Standards Board
d. The Internal Revenue Service
The Financial Accounting Standards Board (FASB) has the primary responsibility for establishing generally accepted accounting principles (GAAP) for businesses in the United States. So, the correct option is c.
The FASB is an independent, private-sector organization that was established in 1973. Its mission is to establish and improve financial accounting and reporting standards, ensuring that financial information is reliable and useful for investors, creditors, and other users of financial statements.
The U.S. Supreme Court (a) does not have the primary responsibility for establishing accounting principles. Its role is to interpret and apply the law in legal disputes.
Each state's Secretary of the Treasury (b) is not responsible for establishing accounting principles at the national level. Their roles primarily involve overseeing state finances and taxation.
The Internal Revenue Service (d) is responsible for enforcing tax laws and regulations in the United States. While they may provide guidance on tax accounting, they are not the primary authority for establishing GAAP.
In summary, the Financial Accounting Standards Board (FASB) is the group that has the primary responsibility for establishing generally accepted accounting principles for businesses in the United States.
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Rick O'Shea, the only employee of Hunter Furniture Company, makes $48,000 per year and is paid once a month. For the month of July, his federal income taxes withheld are $330, state income taxes withheld are $52, social security tax is 6.2%, Medicare tax is 1.45%, State Unemployment Tax is 5.4%, and Federal Unemployment tax is 0.8%. What is Rick's net pay for July?
Rick's net pay for July is $3,064.
To calculate Rick's net pay for July, we need to deduct the various taxes and withholdings from his gross pay.
1. Calculate the gross pay:
Rick's gross pay for the month is $48,000 / 12 = $4,000.
2. Calculate the deductions:
- Federal income tax withheld: $330
- State income tax withheld: $52
- Social Security tax: $4,000 * 6.2% = $248
- Medicare tax: $4,000 * 1.45% = $58
- State Unemployment Tax: $4,000 * 5.4% = $216
- Federal Unemployment tax: $4,000 * 0.8% = $32
3. Calculate the total deductions:
Total deductions = Federal income tax + State income tax + Social Security tax + Medicare tax + State Unemployment Tax + Federal Unemployment tax
Total deductions = $330 + $52 + $248 + $58 + $216 + $32 = $936
4. Calculate the net pay:
Net pay = Gross pay - Total deductions
Net pay = $4,000 - $936 = $3,064
Therefore, Rick's net pay for July is $3,064.
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discuss how technology has improved efficiency and decision making
for governments. Refer to the changes technology has had on Police
and Fire Services
Technology has greatly enhanced efficiency and decision-making capabilities for governments, including the Police and Fire Services. It has revolutionized these sectors by streamlining processes, enabling faster communication, and providing access to real-time data for informed decision making.
Technology has had a profound impact on the efficiency and effectiveness of Police and Fire Services. One major improvement is the use of digital tools for record-keeping and data management. Instead of relying on cumbersome paper-based systems, digital databases and software platforms allow for streamlined information storage, retrieval, and analysis.
This enhances operational efficiency by eliminating manual paperwork and reducing the time needed to access critical information. Additionally, technology has improved communication within these services. Advanced communication systems, such as two-way radios, mobile devices, and digital networks, enable seamless and instant communication among team members, regardless of their locations.
This facilitates quicker response times, coordinated actions, and improved situational awareness, all of which are crucial in emergency situations. Furthermore, technology has enabled the integration of data from various sources, such as surveillance cameras, sensors, and public records, into a centralized system.
This data can be analyzed using advanced analytics and artificial intelligence algorithms to derive valuable insights. For example, predictive analytics can help identify high-risk areas for crime or fire incidents, allowing proactive measures to be taken to prevent or mitigate such events.
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Assume that the stream of benefits of a depletable resource is characterized by linear demand curves: p1 = 70 − 2 q1, p2 = 90 − 2 q2.
where q1,q2 denote the amounts of extraction and p1,p2 is the market (gross) prices. Suppose that the marginal extraction cost is given as c1 = c2 = 10, while the discount rate is set at 5%. Assume that there are only 50 units available for extraction.
(a) Calculate the efficient allocations and prices for the two periods in this setup. What is the shadow price of the resource? Explain your findings. (Please calculate the shadow price as well)
(b) Suppose that the more we extract in the first period, the higher the extraction cost in the second period. We can illustrate this as follows: c1 = 10 c2 =10+q1/3 Calculate the efficient allocations and prices for the two periods in this setup. What is the shadow price of the resource? Explain the intuition behind your findings.
(c) Suppose that the discount rate is indeed higher than 5% we assumed above. How would our results change in accordance with a higher discount rate? Explain the intuition behind your findings.
The efficient allocations and prices are Period 1: q1 = 20, p1 = 30; Period 2: q2 = 30, p2 = 30. The shadow price remains $30. The shadow price remains $30 due to the unaffected optimal extraction path.
(a) In the given setup, the optimal extraction quantities and prices are determined by maximizing the sum of discounted benefits while respecting the extraction constraint. The results show that in the first period, 20 units are extracted at a price of $30. In the second period, 30 units are extracted at the same price. The shadow price, representing the marginal social benefit, remains $30 as it is equivalent to the price in the first period.
(b) When the extraction cost in the second-period increases based on the first period's extraction, the efficient allocations and prices remain unchanged from (a). Despite the cost increase, the optimal extraction path is not affected, resulting in the same extraction quantities and prices. Consequently, the shadow price remains $30, indicating that the marginal social benefit of extracting an additional unit is still equal to the first period's price.
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Fred Pty Ltd, a resident Australian company had the following receipts for the year ended 30 June 2018. Note: the company is eligible as a small business
Receipts $
Gross Interest from Italy (foreign tax $10,000) 30,000
Fully franked dividend 14,000
20% Partly franked dividends 7,000
Unfranked dividends 15,000
Interest (net of TFN tax of $4,700) 5,300
Required
a) Calculate John Pty Ltd.’s taxable income for year ended 30 June 2018.
b) Calculate John Pty Ltd.’s net tax payable or refundable for the year ended 30 June 2018
a) John Pty Ltd's taxable income for the year ended 30 June 2018 is $45,900 , b) John Pty Ltd's net tax payable for the year ended 30 June 2018 is $13,770.
To calculate John Pty Ltd's taxable income for the year ended 30 June 2018, we need to consider the various receipts and apply the relevant tax treatment to each:
a) Taxable Income Calculation:
• Gross Interest from Italy (foreign tax $10,000): The gross interest of $30,000 is taxable income, but since foreign tax of $10,000 has already been paid, it can be claimed as a foreign tax credit or deduction, depending on the tax rules. The net taxable interest is $20,000.
• Fully franked dividend: Fully franked dividends carry imputation credits for the corporate tax already paid. Therefore, the $14,000 dividend is not included in taxable income.
• 20% Partly franked dividends: Partly franked dividends are taxed based on their franking percentage. Assuming the franking percentage is 20%, the taxable portion of the dividends is $7,000 * (1 - 0.2) = $5,600.
• Unfranked dividends: Unfranked dividends are fully included in taxable income. Thus, the $15,000 unfranked dividends are taxable income.
• Interest (net of TFN tax of $4,700): Since $4,700 has already been withheld as TFN tax, the net interest of $5,300 is taxable income.
Summing up the taxable components: $20,000 (gross interest) + $5,600 (partly franked dividends) + $15,000 (unfranked dividends) + $5,300 (net interest) = $45,900. Therefore, John Pty Ltd's taxable income for the year ended 30 June 2018 is $45,900.
b) Net Tax Payable or Refundable Calculation: To determine the net tax payable or refundable, we need to apply the applicable tax rates and consider any tax offsets or credits.
Given that John Pty Ltd is a resident Australian small business, we'll assume the current corporate tax rate of 30% applies to its taxable income. Therefore, the income tax payable would be $45,900 * 0.30 = $13,770.
If John Pty Ltd has already made tax payments throughout the year, we need to consider them. However, the question does not provide any information regarding prior tax payments or installments. Hence, we'll assume there were no previous tax payments.
Considering the information provided, John Pty Ltd's net tax payable for the year ended 30 June 2018 is $13,770.
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Safety Development Corporation had relatively large idle cash balances and invested them as follows in securities to be held as non-
strategic investments
2020
Feb.
7 Purchased 3,000 common shares of Royal Bank at $27.30, plus $500 in transaction fees.
19 Purchased 2,000 common shares of Imperial oil at $53.75, and paid $250 in transaction fees.
Apr. 1 Paid $96,190 plus $500 in transaction fees for a 8.40%, four-year, $98,009 Minco Inc. bond that pays interest quarterly beginning June 30. The market rate of interest on this date was 8.80%. Sellers Corporation plans to hold this investment
for the duration of the bond's contract life.
May
26 Purchased 2,800 common shares of BCE at $14.18, plus $200 in transaction fees.
June 1 Received a $0.25 per share cash dividend on the Royal Bank common shares.
17 Sold 2,000 Royal Bank common shares at $27.80.
30 Received interest on the Minco Inc. bond.
Aug.
5 Received a $0.50 per share cash dividend on the Imperial Oil common shares.
Sept. 1 Received a $0.275 per share cash dividend on the remaining Royal Bank common shares.
30 Received interest on the Minco Inc. bond.
Dec. 31 Received interest on the Minco Inc. bond. On December 31, 2020, the fair values of the investments held by Safety Development Corporation were: Royal Bank, $28.30; imperial
Oil, $52.13; and BCE, $14.30. Assume the fair value and carrying value of the Minco Inc. bond were equal.
Required: 1. Prepare an amortization schedule for the Minco Inc. bond showing only 2020. (Round your intermediate and final answers to the
nearest whole dollar amount. Enter all the amounts as positive values.)
The amortization schedule for the Minco Inc. bond showing only 2020 with Interest Expense & Interest Payable amounting to $81 respectively.
Given transactions of Safety Development Corporation in 2020:
Feb. 7: Purchased 3,000 common shares of Royal Bank at $27.30, plus $500 in transaction fees.
19: Purchased 2,000 common shares of Imperial oil at $53.75, and paid $250 in transaction fees.
Apr. 1: Paid $96,190 plus $500 in transaction fees for an 8.40%, four-year, $98,009
Minco Inc. bond that pays interest quarterly beginning June 30.
The market rate of interest on this date was 8.80%.
May 26: Purchased 2,800 common shares of BCE at $14.18, plus $200 in transaction fees.
June 1: Received a $0.25 per share cash dividend on the Royal Bank common shares.
17: Sold 2,000 Royal Bank common shares at $27.80.
30: Received interest on the Minco Inc. bond.
Aug. 5: Received a $0.50 per share cash dividend on the Imperial Oil common shares.
Sept. 1: Received a $0.275 per share cash dividend on the remaining Royal Bank common shares.
30: Received interest on the Minco Inc. bond.
Dec. 31: Received interest on the Minco Inc. bond.
On December 31, 2020, the fair values of the investments held by Safety Development Corporation were: Royal Bank, $28.30; imperial Oil, $52.13; and BCE, $14.30.
Assume the fair value and carrying value of the Minco Inc. bond were equal.
Amortization Schedule for the Minco Inc. bond, showing only 2020:
Calculation of interest expense:
Par value = $98,009,
Interest rate = 8.40%,
Market rate = 8.80%,
Transaction fees = $500×4 = $2,000
Coupon payment = $98,009×8.40%×3/12 = $2,078.46
Interest expense = $98,009×(8.80%−8.40%)×3/12 = $81.33
June 30: Carrying value = $96,190, Interest expense = $81.33
Interest expense (debit) 81
Interest payable (credit) 81
December 31:Carrying value = $96,271, Interest expense = $81.33
Interest expense (debit) 81
Interest payable (credit) 81
The Amortization Schedule for the Minco Inc. bond, showing only 2020:
Date Interest Expense Interest Payable
June 30 $81 $81
December 31 $81 $81
The amortization schedule for the Minco Inc. bond showing only 2020 is provided above.
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When
an employee is facing a personal financial distress, this
will:
a.
Decreases
chances of committing fraud.
b.
Justify
committing fraud.
c.
Increases
the chances of committing fra
When an employee is facing personal financial distress, it increases the chances of committing fraud.
Personal financial distress can create significant stress and desperation for an individual. In such situations, an employee may feel compelled to engage in fraudulent activities as a means to alleviate their financial difficulties or mitigate their personal hardships.
The financial strain may push them towards unethical behavior, such as misappropriation of funds, embezzlement, or fraudulent financial reporting. While it is important to note that not all individuals facing personal financial distress will resort to fraud, the increased likelihood arises from the perceived opportunity to resolve their financial troubles through fraudulent means.
The combination of financial strain, psychological pressure, and a perceived opportunity to exploit their position within the organization can lead some employees to engage in fraudulent activities.
Organizations should be aware of these risks and implement proper internal controls, monitoring systems, and support mechanisms to mitigate the potential impact of personal financial distress on employee behavior and reduce the likelihood of fraudulent actions.
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