To determine the initial investment amount in the fund, we can use the concept of present value. The present value formula helps us calculate the initial investment needed to provide a series of future withdrawals, given a specified interest rate and time period.
In this scenario, Mark is withdrawing $3,500 every 6 months, starting from 4 years after the initial investment. The withdrawals will continue for a total of 5 years. The interest rate is 3.50% compounded monthly.
To calculate the initial investment, we need to determine the present value of the future withdrawals. Let's break down the calculations step by step:
Step 1: Convert the interest rate to a monthly rate.
Monthly interest rate = (1 + Annual interest rate)^(1/12) - 1
Monthly interest rate = (1 + 0.035)^(1/12) - 1
Step 2: Calculate the number of compounding periods.
Total compounding periods = 12 (months per year) * 5 (years)
Step 3: Calculate the present value of the future withdrawals.
Present value = Withdrawal amount * [(1 - (1 + Monthly interest rate)^(-Total compounding periods)) / Monthly interest rate]
Present value = $3,500 * [(1 - (1 + Monthly interest rate)^(-Total compounding periods)) / Monthly interest rate]
Given the specific calculations involved, it is difficult to provide the exact amount of the initial investment without knowing the precise values. You can substitute the values provided in the problem into the formulas to calculate the initial investment amount accurately.
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What is the standard deviation for the following portfolio? The portfolio consists of 25% and 75% of stocks A and B respectively. The correlation between stock A and B is 0.4. (Round your answer to two decimal digits)
Stocks E[R] student submitted image, transcription available below
A 17% 0.0169
B 13% 0.0361
The standard deviation for the portfolio is approximately 0.0225.
The standard deviation of a portfolio is calculated by considering the weights of each asset and their respective standard deviations, as well as the correlation between them.
In this case, we have a portfolio consisting of 25% of stock A and 75% of stock B, with a correlation coefficient of 0.4 between the two stocks.
To calculate the portfolio's standard deviation, we can use the following formula:
σ_p = √[(w_A^2 * σ_A^2) + (w_B^2 * σ_B^2) + (2 * w_A * w_B * ρ * σ_A * σ_B)]
Where:
σ_p is the standard deviation of the portfolio
w_A and w_B are the weights of stocks A and B, respectively
σ_A and σ_B are the standard deviations of stocks A and B, respectively
ρ is the correlation coefficient between stocks A and B
Using the given values:
w_A = 0.25, w_B = 0.75, σ_A = 0.0169, σ_B = 0.0361, ρ = 0.4
Calculating the standard deviation:
σ_p = √[(0.25^2 * 0.0169^2) + (0.75^2 * 0.0361^2) + (2 * 0.25 * 0.75 * 0.4 * 0.0169 * 0.0361)]
After performing the calculations, the standard deviation of the portfolio is approximately 0.0225, rounded to two decimal places.
Therefore, the standard deviation for this portfolio is 0.0225. This measures the portfolio's overall risk and indicates the potential volatility of returns.
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For each case below, answer the following three questions:
What is the accounting issue in this case? What ethical decision needs to be made?
Who are the stakeholders?
Analyze the potential impact on the stakeholders from the following standpoints: (a) economic, (b) legal, and (c) ethical.
Case 2
Strasburg Loan Company is in the consumer loan business. Strasburg borrows from banks and loans out the money at higher interest rates. Strasburg’s bank requires Strasburg to submit quarterly financial statements to keep its line of credit. Strasburg’s main asset is Notes Receivable. Therefore, Uncollectible-Account Expense and Allowance for Uncollectible Accounts are important accounts for the company.
Raquel Lanser, the company’s owner, prefers that net income reflect a steady increase in a smooth pattern, rather than an increase in some periods and a decrease in other periods. To report smoothly increasing net income, Lanser underestimates uncollectible-account expense in some periods. In other periods, Lanser overestimates the expense. She reasons that the income overstatements roughly offset the income understatements over time.
The accounting issue in this case involves Raquel Lanser, the owner of Strasburg Loan Company, manipulating the estimation of uncollectible-account expense to achieve a smooth increase in net income over time. This practice involves underestimating the expense in some periods and overestimating it in others, with the intention of offsetting the income understatements and overstatements.
The ethical decision that needs to be made in this case is whether Raquel Lanser should continue manipulating the estimation of uncollectible-account expense for the purpose of presenting a smooth pattern of increasing net income. This decision involves considering the integrity and accuracy of financial reporting, as well as the potential consequences for stakeholders.
The stakeholders in this case include the banks from which Strasburg Loan Company borrows, the investors or shareholders of the company, the employees, and the customers who take out loans from Strasburg. Each stakeholder is impacted differently from economic, legal, and ethical standpoints.
From an economic perspective, the stakeholders may be impacted in various ways. The banks may face increased risk if the true financial condition of Strasburg Loan Company is not accurately represented. Investors or shareholders may make decisions based on manipulated financial statements, which could lead to misallocation of resources. Employees may be affected if the company's financial stability is compromised, potentially leading to job losses. Customers may face higher interest rates or other unfavorable terms if the company's financial condition is misrepresented.
From a legal standpoint, manipulating financial statements can lead to legal consequences. Raquel Lanser and Strasburg Loan Company could be subject to penalties, fines, or legal action for fraudulent financial reporting. This could result in reputational damage, legal expenses, and potential lawsuits from various stakeholders.
From an ethical standpoint, manipulating financial statements is unethical as it compromises the accuracy and integrity of financial reporting. Stakeholders rely on accurate financial information to make informed decisions. By intentionally misrepresenting the company's financial performance, Raquel Lanser is violating the trust and confidence of the stakeholders. This unethical behavior undermines transparency, fairness, and accountability in the business operations of Strasburg Loan Company.
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Q1- What is an important feature of a cost accounting system?
An important feature of a cost accounting system is accurate cost allocation.
Cost allocation is a crucial aspect of cost accounting systems as it ensures that costs are appropriately assigned to the goods or services produced. Accurate cost allocation provides valuable insights into the true cost of production, enabling businesses to make informed decisions regarding pricing, profitability analysis, and cost control measures.
Cost accounting systems employ various methods for cost allocation, such as activity-based costing (ABC), job costing, or process costing. These methods involve identifying cost drivers and allocating costs based on the resources consumed by each product, department, or activity.
Accurate cost allocation enhances cost transparency and accountability within an organization. It allows managers to assess the profitability of individual products, identify cost-saving opportunities, and optimize resource allocation. By understanding the specific costs associated with each product or service, businesses can make informed decisions on pricing strategies and target profit margins.
Additionally, accurate cost allocation facilitates effective budgeting and variance analysis. It enables comparisons between actual costs and budgeted costs, highlighting areas where expenses deviate from expectations. This information enables managers to investigate discrepancies, identify cost overruns or cost-saving opportunities, and take appropriate corrective actions.
In summary, accurate cost allocation is a fundamental feature of a cost accounting system. It provides valuable insights into the true cost of production, helps in decision-making, supports cost control measures, and facilitates budgeting and variance analysis.
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Collateralized debt obligations (CDOs) were sold by ....... to ........
O investors; investment banks
O home buyers; lenders
O lenders; home buyers
O investment banks; investors
Investment banks; investors Collateralized debt obligations (CDOs) were sold by investment banks to investors.
Collateralized debt obligations (CDOs) are complex financial instruments that pool together various types of debt, such as mortgages, loans, and bonds. These CDOs are created and structured by investment banks. The investment banks package these debt instruments into tranches based on their risk profiles and sell them to investors, such as institutional investors, hedge funds, or other financial institutions.
Investors purchase CDOs as a way to diversify their investment portfolios and potentially earn higher returns. The cash flows generated from the underlying debt assets in the CDOs are distributed among the different tranches, with varying levels of risk and return. Investors bear the risk associated with the performance of the underlying debt assets and receive payments based on the cash flows generated by those assets.
By selling CDOs to investors, investment banks can generate liquidity, transfer risk, and earn fees for structuring and managing these complex financial products.
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The following is select information for Real Co. during 20x6:
20x6 20x5
Land 25,80 6,600
Common shares 44,531 13,504
In addition, land with a fair market v. of ($23,692−6,557) was acquired for $8,501 cash and 900 common shares. What amount would appear in the "cash flow from in sting activities" section of the statement of cash flows? Positive numbers represent a cash inflow: negative numbers represent a wis houtflow.
Answer:
The amount that would appear in the "cash flow from investing activities" section of the statement of cash flows would be a cash outflow of $8,501.
The "cash flow from investing activities" section of the statement of cash flows reports the cash flows resulting from the purchase or sale of long-term assets, investments, and other non-current assets. In this case, Real Co. acquired land for $8,501 in cash and 900 common shares.
Since the land acquisition involved a cash payment, it would be considered a cash outflow. Therefore, the amount of $8,501 would appear as a negative number in the "cash flow from investing activities" section of the statement of cash flows. This indicates that the company used cash to acquire the land.
It's important to note that the value of the land mentioned in the question, which is the fair market value of ($23,692 - $6,557), is not relevant for determining the cash flow from investing activities. The cash flow is based on the actual cash paid for the land acquisition, which is $8,501.
By reporting this transaction as a cash outflow in the investing activities section, the statement of cash flows provides information about the company's investment decisions and the utilization of its cash resources for acquiring long-term assets.
The statement of cash flows is a financial statement that summarizes the cash inflows and outflows of a company during a specific period. It helps stakeholders assess the company's ability to generate and manage cash and provides insights into its operating, investing, and financing activities.
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TRUE / FALSE.
Derrick offered to purchase Perry's vehicle for $3,050 cash, with Perry to deliver the vehicle the next Wednesday, at which time Derrick would pay the $3,050. On the Wednesday, when Perry did not deliver, Derrick went to Perry's home, and found him in his garden. Derrick offered Perry the money, but Perry refused, saying that he had changed his mind, and did not wish to sell his automobile. If Derrick had offered Perry exactly $3,050 in cash, he had made a valid tender of performance.
True. If Derrick offered Perry exactly $3,050 in cash, he had made a valid tender of performance.
In a contract, a valid tender of performance refers to the act of offering the agreed-upon payment or performance as specified in the contract. In this case, Derrick offered Perry $3,050 in cash, which was the exact amount agreed upon for the purchase of Perry's vehicle. This offer fulfilled Derrick's obligation to pay the agreed-upon price.
However, Perry refused the offer and stated that he had changed his mind and did not wish to sell his automobile. Despite Perry's change of mind, if Derrick had made a valid tender of performance by offering the exact amount in cash as specified in the contract, his obligation to pay would have been fulfilled. In other words, Derrick had done his part by offering the payment, and it was Perry's refusal to accept the offer that prevented the completion of the transaction.
Therefore, Derrick's tender of performance would be considered valid in this scenario.
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Suppose you are writing a business plan for an event planning
business. What resources will you require?
• How will you sustain your differentiation?
To start an event planning business and sustain its differentiation, the following resources are essential:
Skilled Team: Hiring experienced event planners, coordinators, and support staff who possess strong organizational and communication skills is crucial for executing successful events.
Vendor Network: Building relationships with reliable vendors such as caterers, decorators, audio-visual technicians, and entertainment providers is essential for delivering high-quality services to clients.
Technology and Software: Investing in event management software, customer relationship management (CRM) tools, and project management systems can streamline operations, improve efficiency, and enhance customer experience.
Venue Partnerships: Establishing partnerships with various venues, including hotels, convention centers, and unique event spaces, can provide flexibility and options for clients, enabling the business to offer diverse event solutions.
Marketing and Branding: Allocating resources for marketing and branding efforts, including online and offline advertising, social media campaigns, and a professional website, is crucial to create awareness and attract clients.
To sustain differentiation, the business should focus on the following:
Unique Value Proposition: Clearly defining the unique qualities and benefits that set the event planning business apart from competitors. This could include specialized event themes, personalized experiences, or innovative event concepts.
Tailored Solutions: Understanding client needs and delivering customized event solutions that exceed expectations. Providing personalized attention, attention to detail, and creative problem-solving will differentiate the business from others.
Continuous Innovation: Staying up-to-date with industry trends and incorporating new ideas, technologies, and event concepts. Offering innovative and cutting-edge event experiences will attract clients seeking unique and memorable events.
Exceptional Customer Service: Providing exceptional customer service throughout the event planning process, from initial consultation to post-event follow-up. Building strong relationships with clients and delivering outstanding service will foster loyalty and word-of-mouth recommendations.
Professionalism and Reliability: Maintaining a high level of professionalism and reliability in all interactions and operations. Meeting deadlines, fulfilling promises, and delivering events flawlessly will build trust and set the business apart from competitors.
By investing in these resources and sustaining differentiation through a unique value proposition, tailored solutions, continuous innovation, exceptional customer service, and professionalism, the event planning business can establish a strong market presence and thrive in a competitive industry.
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Crane Company owns machinery with a book value of $759000. It is estimated that the machinery will generate future cash flows of $695000. The machinery has a fair value of $563000. Crane should recognize a loss on impairment of _____
The loss on impairment is calculated as the difference between the book value and the fair value, resulting in a loss of $196,000.
What is the loss on impairment that Crane Company should recognize for the machinery with a book value of $759,000, a fair value of $563,000, and estimated future cash flows of $695,000?Crane Company should recognize a loss on impairment of $196,000.
This is determined by comparing the book value of the machinery, which is $759,000, with the fair value of the machinery, which is $563,000.
Since the fair value is lower than the book value, an impairment loss needs to be recognized.
This reflects the decline in the estimated future cash flows generated by the machinery and the need to adjust the carrying value of the asset to its fair value.
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There are THREE (3) questions in this section. Answer ALL questions in the answer booklet. The Reserve Bank of India (India's central bank) has recently announced the introduction of Islamic banking windows in selected Indian conventional banks. The effort is part of the gradual process of introducing Islamic banking system in India. Suppose Bank Islam Malaysia Berhad (BIMB) realizes that although Malaysia is internationally renowned in Islamic banking. Malaysian market is becoming too saturated with its small population and all local conventional banks like Maybank, ClMB and Hong Leong Bank establishing their own Islamic entities. To counter the problem in Malaysia, BIMB is the first mover into India's Islamic banking industry. Question 1 Analyse the most appropriate intemational business strategy for BIMB should it proceed with the plan to enter India and rationalize your choice of strategy with TWO (2) advantages and TWO (2) disadvantages. (10 Marks) Question 2 Briefly explain any FOUR (4) problems regarding political, strategic, operational, and financial that BIMB may face if it enters India. (10 Marks) Question 3 Discuss any FOUR (4) elements organizational architecture that BIMB should have if it enters Indian market. (10 Marks)
The most appropriate international business strategy for BIMB to enter the Indian market is a joint venture strategy. This strategy allows BIMB to partner with an established Indian bank, leveraging their local knowledge and expertise.
1) The most suitable international business strategy for BIMB to enter the Indian market is a joint venture. By forming a partnership with an established Indian bank, BIMB can benefit from their knowledge of the local market, regulatory environment, and customer preferences. This strategy allows BIMB to share the risks and costs associated with entering a new market, making it a more prudent approach.
2) One advantage of a joint venture is shared risk. By partnering with an Indian bank, BIMB can distribute the financial risks and uncertainties that come with entering a new market. The costs of establishing operations, complying with regulatory requirements, and building a customer base can be shared, reducing the burden on BIMB alone.
Another advantage is access to the partner's existing customer base. By partnering with an established Indian bank, BIMB can tap into their network of customers who may already have trust and familiarity with the local bank.
However, there are also disadvantages to consider. One disadvantage is the potential for conflicts in decision-making. In a joint venture, both parties have a say in the strategic direction and operational decisions, which can lead to differences in opinions and decision-making processes.
3) Another disadvantage is the need for effective collaboration and integration. BIMB and its Indian partner must work together seamlessly to leverage each other's strengths and resources. Cultural differences, management styles, and organizational structures can pose challenges to effective collaboration, requiring careful planning and coordination.
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Aliance Company budgets production of 26,000 units in January and 30,000 units in February. Each finished unit requires 3 pounds of raw material K : that costs $2.00 per pound. Each month's ending row materials inventory should equal 30% of the following month's budgeted materials. The January 1 inventory for this material is 23.400 pounds. What is the budgeted materlals needed in pounds for January?
The budgeted materials needed in pounds for January are 78,000 pounds.
What is the budgeted materials needed in pounds for January for Aliance Company?To calculate the budgeted materials needed in pounds for January, we need to consider the desired ending inventory and the units required for production.
The desired ending inventory for February is 30% of February's budgeted materials, which is 30,000 units ˣ 3 pounds ˣ 30% = 2,700 pounds.
To calculate the required materials for production in January, we subtract the desired ending inventory of February from the budgeted production for February.
Thus, the required materials for production in January are 30,000 units ˣ 3 pounds - 2,700 pounds = 87,300 pounds.
Since each finished unit requires 3 pounds of raw material K, the budgeted materials needed in pounds for January are 26,000 units ˣ 3 pounds = 78,000 pounds.
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Which of the following processes in project time management involves identifying the specific tasks that the project team members and stakeholders must perform to produce the project deliverables?
The process in project time management that involves identifying the specific tasks that the project team members and stakeholders must perform to produce the project deliverables is called "Define Activities."
During this process, the project manager and the project team work together to break down the project work into smaller, manageable activities. These activities are the building blocks of the project and represent the individual tasks that need to be completed.
1. Input:
Project Scope Statement: This provides a clear understanding of the project's objectives, deliverables, and constraints.Work Breakdown Structure (WBS): The WBS serves as the foundation for defining activities. It breaks down the project scope into hierarchical components, such as phases, deliverables, and work packages.Project Management Plan: This document provides an overview of the project, including the schedule management plan.2. Tools and Techniques:
Decomposition: The project team decomposes the work packages from the WBS into smaller, manageable activities. Decomposition involves breaking down the work into discrete tasks that can be easily understood and estimated.Rolling Wave Planning: This technique involves planning activities in detail for the near-term, while leaving activities in the future at a higher level. This allows for more accurate planning of immediate tasks while allowing flexibility for future activities.Expert Judgment: Input and guidance from subject matter experts and experienced individuals can assist in identifying the necessary activities.3. Output:
Activity List: The activity list is a comprehensive list of all the activities required to complete the project. Each activity should be defined with a unique identifier and a clear description.Activity Attributes: Activity attributes provide additional information for each activity, such as the responsible person, duration estimates, predecessors, and resource requirements.Milestone List: Milestones are significant points or events within the project that help track progress. The milestone list identifies the key milestones along the project timeline.The "Define Activities" process is crucial for project planning as it breaks down the project work into manageable components. It helps in estimating the effort, resources, and durations required for each activity. The resulting activity list and attributes serve as the basis for scheduling, resource allocation, and progress monitoring throughout the project lifecycle.
By identifying specific tasks through the "Define Activities" process, project teams can have a clear understanding of the work required, establish accountability, and ensure that all necessary activities are accounted for in the project plan.
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The following events occurred/ information for Fresh Limited became available between 1 January 2021 and 28 February 2021 (the date the financial statements were authorized for issue).
a) A debtor that owed Fresh Limited R100 000 at 31 December 2020 (year end) had their factory destroyed in fire. As a result, this debtor filed for insolvency and will probably pay 30% of the balance owing. A letter from the debtor's lawyers to this effect was received by Fresh Limited in February 2021. The financial statements arenot yet authorized for issue. The fire occurred during January 2021.
b) A debtor that owed Fresh Limited R100 000 at year-end was in financial difficulties at year-end. As a result, Fresh Limited processed an impairment loss adjustment of R30 000 against this account. In January 2021 , the debtor's lawyers announced thatit would be paying only 40% of all debts. The financial period ends on 31 December 2021.
c) Current tax expense of R30000had been incorrectly debited as revenue in 2020.
d) Fresh Limited had decided in a directors meeting held on 28 December 2020 to close down abranch in the Canary Islands. This decision was announced to the affected suppliers and employees via a newspaper article published on 15 January 2021.
e) Inventory that had a fair value of R100 000 at year end (December 2020) was sold for R80 000 in January 2021.It had been damaged in flood in November 2020.
Required
None of the above events has yet been considered. Explain whether the above events should be adjusted for or not when finalizing the financial statements for Fresh Limited for the year ended 31 December 2020 (20 marks).
When finalizing the financial statements for Fresh Limited for the year ended 31 December 2020, the above events need to be assessed to determine if they should be adjusted for or not.
a) The debtor's factory being destroyed and filing for insolvency indicates a significant change in their ability to pay. Since the letter from the debtor's lawyers was received in February 2021, it occurred after the year-end of 31 December 2020. Therefore, this event should not be adjusted for in the financial statements for the year ended 31 December 2020.
b) The debtor's financial difficulties and the subsequent announcement from their lawyers occurred after the year-end of 31 December 2020. Therefore, the impairment loss adjustment of R30,000 should be considered in the financial statements for the year ended 31 December 2020, but the additional information regarding the debtor's payment percentage should not be adjusted for.
c) The incorrect debiting of current tax expense in 2020 is an error that needs to be corrected. This event should be adjusted for in the financial statements for the year ended 31 December 2020 by debiting revenue and crediting current tax expense to rectify the error.
d) The decision to close down a branch in the Canary Islands was made in December 2020 but announced in January 2021. Since it occurred after the year-end, it should not be adjusted for in the financial statements for the year ended 31 December 2020.
e) The inventory being sold at a lower value in January 2021 due to flood damage in November 2020 indicates a decline in value. This event should be adjusted for in the financial statements for the year ended 31 December 2020 by recognizing a loss on inventory impairment.
In summary, events b, c, and e should be adjusted for in the financial statements for the year ended 31 December 2020, while events a and d should not be adjusted for as they occurred after the year-end.
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Frost Company is evaluating the purchase of a rebuilt spot-welding machine to be used in the manufacture of a new product. The machine will cost $175,000, has an estimated useful life of 7 years and a salvage value of zero, and will increase net annual cash flow by $38,346. Click here to view PV table. What is its approximate internal rate of return? (Round answer to 0 decimal ploces, e.g. 16\%.) Internal rate of return %
The approximate internal rate of return (IRR) for the spot - welding machine is 12%.
Net Present Value (NPV) = -Initial Investment + (Net Annual Cash Flow / (1 + IRR) + (Net Annual Cash Flow / (1 + IRR)² + ... + (Net Annual Cash Flow / (1 + IRR)ⁿ
Given, the initial investment is -$175,000 (negative because it's an outflow), the net annual cash flow is $38,346, and the useful life is 7 years.
To find the approximate IRR, we can use a trial-and-error approach.
0 = -$175,000 + ($38,346 / (1 + IRR) + ($38,346 / (1 + IRR)² + ... + ($38,346 / (1 + IRR)⁷
Solving this, we get Internal rate of return (IRR) = 12%
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1. As noted in the first question the issue of recession is front and center in the minds of Americans. Assume that you have been chosen to be an economic advisor to the U.S. President and you have been asked to have ready for his policy team a White Paper on the general characteristics that would constitute an ideal and effective fiscal policy to deal with the economic slowdown caused by the pandemic. Note that this is a summary of policy in general, not a specific policy for this fiscal situation. In the White Paper set out (and use hypothetical examples if appropriate or needed to make your point):
• What is the central concept behind the use of fiscal policy in a market economy?
• What are the likely root causes of recessions and why might fiscal policy be necessary to soften the downturn?
• What are the general characteristics of an ideal fiscal policy?
• What are our general policy options and what are the strengths and weaknesses of these options?
• What is fiscal policy devised to accomplish with regard to the major indictors of the economy, i.e., how would we measure success?
• How will fiscal policy ideally be financed and why does financing matter?
• What lasting effects, if any, should this policy have on behavior and the economy?
1. The central concept behind the use of fiscal policy in a market economy is to use government spending and taxation to influence the overall level of economic activity.
2. The likely root causes of recessions can vary, but they often include a decrease in consumer spending, declining business investment, financial crises, or external shocks.
3. The general characteristics of an ideal fiscal policy include timeliness, targeted effectiveness, sustainability, and flexibility.
4. General policy options include government spending, tax cuts, and targeted subsidies.
5. Fiscal policy is devised to accomplish several goals regarding major economic indicators.
6. Fiscal policy ideally should be financed through a combination of government revenues, borrowing, and debt management.
7. The lasting effects of fiscal policy on behavior and the economy depend on various factors, including the magnitude and duration of the policy measures.
1. The central concept behind the use of fiscal policy in a market economy is to use government spending and taxation to influence the overall level of economic activity. Fiscal policy aims to stabilize the economy by managing aggregate demand, promoting economic growth, and reducing unemployment.
2. The likely root causes of recessions can vary, but they often include a decrease in consumer spending, declining business investment, financial crises, or external shocks. Fiscal policy may be necessary to soften the downturn because it can help boost aggregate demand through increased government spending or tax cuts, which can stimulate economic activity and restore confidence.
3. The general characteristics of an ideal fiscal policy include timeliness, targeted effectiveness, sustainability, and flexibility. Timeliness ensures that the policy response is implemented quickly to address the economic slowdown. Targeted effectiveness focuses on directing fiscal measures towards sectors or areas most impacted by the recession. Sustainability refers to implementing measures that do not create long-term fiscal imbalances. Flexibility allows for adjustments as the situation evolves.
4. General policy options include government spending, tax cuts, and targeted subsidies. Government spending can directly stimulate economic activity by creating jobs and increasing demand. Tax cuts can provide households and businesses with additional disposable income, encouraging spending and investment. Targeted subsidies can support specific industries or sectors affected by the recession. Strengths of these options include their potential to boost demand and stimulate growth. However, weaknesses include potential fiscal deficits, distributional effects, and challenges in effectively targeting and implementing the measures.
5. Fiscal policy is devised to accomplish several goals regarding major economic indicators. These include promoting economic growth, reducing unemployment, stabilizing inflation, and ensuring financial stability. Success is measured by indicators such as GDP growth, employment rates, inflation levels, and financial market stability.
6. Fiscal policy ideally should be financed through a combination of government revenues, borrowing, and debt management. Financing matters because it affects the sustainability of the policy and the long-term fiscal health of the economy. Responsible financing ensures that the costs of fiscal measures are managed effectively and do not lead to excessive public debt or future financial burdens.
7. The lasting effects of fiscal policy on behavior and the economy depend on various factors, including the magnitude and duration of the policy measures. In the short term, fiscal policy can provide a boost to economic activity and confidence. Over the long term, the effects may vary. For example, if fiscal measures lead to increased public debt, it may have implications for future generations through higher taxes or reduced government spending.
An effective fiscal policy to deal with an economic slowdown caused by the pandemic should focus on timely and targeted measures to stimulate aggregate demand and support sectors affected by the recession. The policy should be sustainable, flexible, and designed to promote economic growth, reduce unemployment, stabilize inflation, and ensure financial stability. Financing the policy responsibly is crucial to maintain long-term fiscal health. The lasting effects of the policy depend on its magnitude, duration, and potential implications for future generations. By employing these principles, fiscal policy can play a vital role in mitigating the impact of a recession and fostering a robust and sustainable economic recovery.
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Exercise 4. College Retirement Equities Fund (CREF) is a pension fund that has billions of dollars invested in the stock market. Fund participants voted a few years ago on a proposal that would have placed strict limits on the amount of compensation paid to CREF executives. Why do you think 75 percent of the participants voted against the proposal?
Participants may have voted against the proposal to limit executive compensation in order to attract and retain top talent, ensuring effective management and potential investment returns for the fund.
Participants of the College Retirement Equities Fund (CREF) may have voted against the proposal to limit executive compensation for several reasons.
One possible reason is the concern that strict limits on compensation could make it difficult to attract and retain top talent in the industry.
Executives with specialized knowledge and experience in managing large investments are in high demand, and competitive compensation packages are often necessary to secure their expertise.
By voting against the proposal, participants may have wanted to ensure that CREF could continue to attract skilled executives who can effectively manage the fund's billions of dollars invested in the stock market.
Additionally, participants may have considered the potential impact on investment returns. Effective management is crucial for generating positive returns in the stock market, and attracting talented executives often comes with a higher price tag.
Participants may have believed that offering competitive compensation would incentivize executives to perform at their best and potentially yield higher investment returns for the fund in the long run.
Overall, participants' concerns about attracting and retaining top talent and their belief in the potential benefits of competitive compensation for fund performance could have influenced the majority vote against the proposal to limit executive compensation.
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Exercise 5-6 Recording sales, purchases, and cash discounts-buyer and seller LO P1, P2
Santa Fe Retailing purchased merchandise "as is" (with no returns) from Mesa Wholesalers with credit terms of 2/10, n/60 and an invoice price of $24,700. The merchandise had cost Mesa $16,845. Assume that both buyer and seller use a perpetual inventory system and the gross method.
1. Prepare entries that the buyer records for the (a) purchase, (b) cash payment within the discount period, and (c) cash payment after the discount period.
(a) Purchase Entry:
Inventory (merchandise) $24,700
Accounts Payable $24,700
(b) Cash Payment within the Discount Period:
Accounts Payable $24,700
Cash $24,108
Inventory (merchandise) $592
(c) Cash Payment after the Discount Period:
Accounts Payable $24,700
Cash $24,700
(a) Purchase Entry:
Inventory (merchandise) $24,700
Accounts Payable $24,700
The buyer records the purchase by debiting the inventory (merchandise) account for the invoice price of $24,700 and crediting the accounts payable account for the same amount. This reflects the increase in inventory and the liability owed to the seller.
(b) Cash Payment within the Discount Period:
Accounts Payable $24,700
Cash $24,108
Inventory (merchandise) $592
When the buyer makes a cash payment within the discount period, they take advantage of the cash discount offered. The buyer reduces the accounts payable by the discounted amount and records the cash payment. The discount is calculated as 2% of the invoice price ($24,700 * 2% = $494), so the buyer pays $24,700 - $494 = $24,206. Additionally, the buyer needs to adjust the inventory value by the discount amount to reflect the reduced cost of the merchandise.
(c) Cash Payment after the Discount Period:
Accounts Payable $24,700
Cash $24,700
If the buyer makes a cash payment after the discount period, they don't take advantage of the cash discount. In this case, the buyer pays the full invoice price of $24,700. The buyer reduces the accounts payable and records the cash payment, but there is no adjustment needed for the inventory value since the merchandise is still valued at the original cost.
Therefore, these entries reflect the purchase, cash payment within the discount period, and cash payment after the discount period for Santa Fe Retailing when purchasing merchandise "as is" from Mesa Wholesalers with credit terms of 2/10, n/60.
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Daedalus, a married taxpayer, has lived apart from his spouse, Ariadne, for five years and is no longer in contact with her. He has no dependents. What filing status should Daedalus use on his 2022 retum, and what is his standard deduction?
a.Married filing jointly; $25,900.
b. Head of household; $19,400.
c. Married filing separately; $12,950.
d. Single; $12,950.
Based on the given information, Daedalus should use the filing status of "Married filing separately" on his 2022 tax return. The correct option is (c) Married filing separately; $12,950.
Since Daedalus and Ariadne are married, they have the option to file either jointly or separately. However, since they have been living apart for five years and are no longer in contact, it is more appropriate for Daedalus to choose the "Married filing separately" status.
As for the standard deduction for the tax year 2022, the amount for a taxpayer filing as "Married filing separately" is $12,950. Therefore, the correct answer is (c) Married filing separately; $12,950.
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Vendata Resources seeks to invest R10 million in a new mining project in order to expand its gold production capacity. The management of the company prefers to maintain the present 35% debt, 55% equity and 10% preference shares capital structure. Debt financing can be obtained by issuing a 5-year R1 000 bond. The current price of the bond is R1 123 and it pays 10% coupons.
Vendata Resources has a beta of 1.3. The expected return on the market portfolio is 16% and the current risk-free rate is 8%.
The company is contemplating issuing 10% preference shares that are expected to sell for a par value of R60 per share. The cost of issuing and selling the shares is expected to be 5%. The tax rate is 29%.
REQUIRED
Calculate Vendata Resources’ component costs. (11 marks)
Calculate the company’s weighted average costs of capital. (9 marks) [TOTAL 50]
Vendata Resources' component costs are calculated as follows:
Cost of Equity = Risk-Free Rate + β × (Expected Market Return - Risk-Free Rate)
Where, β = 1.3, Risk-Free Rate = 8%, Expected Market Return = 16%Therefore, the
Cost of Equity =
= 8% + 1.3 × (16% - 8%)
= 18.4%
Cost of Debt = Coupon Payment / Net Proceeds
Where, Coupon Payment = R1000 × 10% = R100
Net Proceeds = R1123 - (R1000 × 10%)
= R1123 - R100
= R1023
Therefore,
Cost of Debt = R100 / R1023
= 9.78%
Cost of Preference Shares = (Dividend / Net Proceeds) + Flotation Costs
Where, Dividend = Par Value × Rate of Return = R60 × 10% = R6
Flotation Costs = 5%Net Proceeds = Par Value - Flotation Costs = R60 - (5% × R60)
= R57
Therefore,
Cost of Preference Shares = (R6 / R57) + 5% = 15.58%
Weighted Average Cost of Capital (WACC) = (Weight of Equity × Cost of Equity) + (Weight of Debt × Cost of Debt) + (Weight of Preference Shares × Cost of Preference Shares)
Where, Weight of Equity = 55%Weight of Debt = 35%Weight of Preference Shares = 10%
Therefore, WACC = (0.55 × 18.4%) + (0.35 × 9.78%) + (0.10 × 15.58%)= 12.24% (approx)
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General Computers Inc. purchased a computer server for $72,500. It paid 25.00% of the value as a down payment and received a loan for the balance at 6.00% compounded semi-annually. It made payments of $2,800.27 at the end of every quarter to settle the loan.
a. How many payments are required to settle the loan?
It would take approximately 36 payments to settle the loan.
To determine the number of payments required to settle the loan, we can use the formula for the future value of an ordinary annuity.
The future value of an ordinary annuity formula is given by:
FV = P * [(1 + r)^n - 1] / r
Where:
FV is the future value of the annuity
P is the payment amount
r is the interest rate per period
n is the number of periods
In this case, the loan amount is $72,500, and the quarterly payment amount is $2,800.27. The interest rate is 6% compounded semi-annually, which means the quarterly interest rate is 6% / 2 = 3% or 0.03.
Substituting these values into the formula, we can solve for n:
72,500 = 2,800.27 * [(1 + 0.03)^n - 1] / 0.03
To solve for n, we can rearrange the equation and isolate n:
[(1 + 0.03)^n - 1] = (72,500 * 0.03) / 2,800.27
Using a financial calculator or software, we can solve for n:
n ≈ 35.34.Since we can't have a fraction of a payment, we round up to the nearest whole number.
Therefore, it would take approximately 36 payments to settle the loan.
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Calculate the present value of a 10-year annuity of $5.250 per year with payments made at the beginning of each year if the interest rate is 11%. (Enter your answer as a positive number rounded to 2 decimal places.)
The present value of the annuity is $296,259.69 (rounded to 2 decimal places).
To find the present value of an annuity, we use the formula:PV = PMT × ((1 - (1 + r/n)^(-nt)) / (r/n)), where PV is the present value, PMT is the annuity payment, r is the interest rate, n is the number of compounding periods per year, and t is the number of years. Given:PMT = $5,250r = 11%n = 1 (since payments are made at the beginning of each year)T = 10 yearsSubstitute the given values in the formula:PV = $5,250 × ((1 - (1 + 0.11/1)^(-1 × 10)) / (0.11/1))PV = $5,250 × ((1 - (1.11)^(-10)) / (0.11))PV = $5,250 × (6.21153 / 0.11)PV = $5,250 × 56.46846PV = $296,259.69.Therefore, the present value of the annuity is $296,259.69 (rounded to 2 decimal places).
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Match the correct group for each of the FX currencies. Review Later Majors A. Swiss Franc (CHF), Japanese Yen (JPY) B. Chinese Yuan (CNY), Brazilian Real (BRL) Minors C. Australian Dollar (AUD), Swedish Krona (SEK) Exotics
Majors: Swiss Franc (CHF), Japanese Yen (JPY), Minors: Australian Dollar (AUD), Swedish Krona (SEK), Exotics: Chinese Yuan (CNY), Brazilian Real (BRL).
The correct groupings for each of the FX currencies are as follows:
Majors:
A. Swiss Franc (CHF), Japanese Yen (JPY)
Minors:
C. Australian Dollar (AUD), Swedish Krona (SEK)
Exotics:
B. Chinese Yuan (CNY), Brazilian Real (BRL)
Majors typically refer to the most actively traded and widely recognized currencies in the global foreign exchange market. The Swiss Franc (CHF) and Japanese Yen (JPY) fall under this category due to their significant economic and financial importance.
Minors, also known as cross-currencies or cross-rates, represent currencies that are traded against major currencies but not against each other. The Australian Dollar (AUD) and Swedish Krona (SEK) belong to this group.
Exotics refer to currencies of emerging or less frequently traded economies. The Chinese Yuan (CNY) and Brazilian Real (BRL) are considered exotic currencies due to their specific characteristics and relatively lower trading volumes compared to major and minor currencies.
It's important to note that currency categorizations can vary depending on different sources and contexts. The given groupings are commonly used, but there may be variations based on specific market perspectives or classifications.
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1. A four-year bond has a coupon rate of 5% and pays its coupons annually. It has a face value of £200. The yield to maturity is 4% per year.
a. Calculate the annual discount factors (do not use continuous compounding or semi-annual compounding)
b. Calculate the coupon payments and final payment.
c. Calculate the price of the bond.
d. Calculate the duration of the bond.
e. Calculate the convexity of the bond.
In this question, we are provided with the details of a four-year bond with a coupon rate of 5% and a face value of £200. The yield to maturity is5given as 4% per year. We are asked to calculate the annual discount factors, coupon payments, final payment, bond price, duration, and convexim
a. To calculate the annual discount factors, we need to use the formula (1 + yield to maturity)^(-n), where n represents the number of years. In this case, the yield to maturity is 4% per year, so the discount factors for each year would be as follows: Year 1 - 1 / (1 + 0.04)^1, Year 2 - 1 / (1 + 0.04)^2, Year 3 - 1 / (1 + 0.04)^3, Year 4 - 1 / (1 + 0.04)^4.
b. The coupon payments for each year would be 5% of the face value, which is £200. Therefore, the coupon payments for each year would be: Year 1 - 0.05 * £200, Year 2 - 0.05 * £200, Year 3 - 0.05 * £200, Year 4 - 0.05 * £200. The final payment would be the face value of the bond, which is £200.
c. To calculate the price of the bond, we need to discount the coupon payments and the final payment using the annual discount factors calculated in part (a). The price of the bond would be the present value of these cash flows, which can be calculated by summing the present values of the coupon payments and the final payment.
d. The duration of the bond measures its sensitivity to changes in interest rates. It can be calculated by multiplying the present value of each cash flow by the respective time period and dividing the sum by the bond price.
e. Convexity measures the curvature of the relationship between bond price and yield. It can be calculated by summing the convexity of each cash flow, where the convexity of each cash flow is the present value of the cash flow multiplied by the square of the respective time period.
By performing these calculations, we can determine the annual discount factors, coupon payments, final payment, bond price, duration, and convexity of the given bond.
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Suppose both exports and imports rose this year, but imports
grew faster than exports. Would aggregate demand rise or fall as a
result of this trend?(Minimum words requirement: 100 words)
As a result of imports growing faster than exports, aggregate demand would likely fall.
Imports represent spending on goods and services produced in other countries, while exports represent foreign spending on domestic goods and services. When imports grow faster than exports, it indicates that a larger portion of spending is directed towards foreign-produced goods rather than domestic goods. This leads to a decrease in domestic consumption and investment, resulting in a decline in aggregate demand.
A higher rate of import growth implies that more money is leaving the domestic economy to pay for foreign goods, leading to a decrease in domestic demand for domestically produced goods and services. This can have a negative impact on domestic businesses and employment. Overall, the trend of imports growing faster than exports tends to reduce aggregate demand and can contribute to a trade deficit.
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Which of the following represents a limitation of the dividend growth model for stock valuation? A. The model is only applicable to companies that pay dividends. B. The dividends have to be growing at a reasonably predictable pattern. C. The model is only applicable to small US companies. A and B A, B, and C
A limitation of the dividend growth model for stock valuation is that it is only applicable to companies that pay dividends and require reasonably predictable dividend growth patterns.
The dividend growth model is a widely used approach for valuing stocks based on the expected future dividends. However, it has certain limitations that restrict its applicability and accuracy in certain scenarios.
One limitation is that the model is only applicable to companies that pay dividends. If a company does not pay dividends or has an inconsistent dividend payment policy, the dividend growth model cannot be effectively used to value its stock.
This limitation excludes non-dividend-paying companies, which are prevalent in certain sectors such as technology and growth-oriented industries. Another limitation is that the dividend growth model assumes reasonably predictable patterns of dividend growth.
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A toy store named Twirlybirds is looking to expand their business. To do so, they are
seeking a loan from your company. You obtained the following financial statements from
Twirlybirds:
Twirlybirds
Balance Sheet
As at December 31
202020192018
ASSETS
Cash $ 23,170 $ 27,326 $ 21,936
Temporary investments 29,645 11,097
Accounts receivable 30,050 31,721 31,471
Inventory 74,727 55,253 63,094
Prepaid insurance 4,499 4,105 4,474
Long-term investments 38,478 55,671 49,434
Land 22,117 22,117 22,117
Equipment (net) 142,779 131,280 142,020
Goodwill 41,188 41,188 41,188
Total Assets $ 406,653 $ 379,758 $ 375,734
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 50,989 $ 51,094 $ 49,125
Unearned revenue 24,201 16,796 20,387
Long-term liabilities 43,739 36,978 41,986
Common shares 157,643 157,643 157,643
Retained earnings 130,081 117,247 106,593
Total Liabilities and Shareholders' Equity $ 406,653 $ 379,758 $ 375,734
Twirlybirds
Income Statement
For the years ending December 31
20202019
Net sales (80% on credit) $ 1,427,028 $ 1,318,540
Cost of goods sold 849,964 922,123
Gross profit 577,064 396,417
Operating expenses 255,650 259,994
Operating income (loss) 321,414 136,423
Interest expense 5,280 5,794
Income (loss) before taxes 316,134 130,629
Income tax expense (recovery) 79,034 32,657
Profit $ 237,100 $ 97,972
Perform a liquidity analysis on Twirlybirds by doing the following:
1. Calculate the 9 liquidity ratios listed below for Twirlybirds for 2019 and 2020. (18 marks)
Round your calculations to 2 decimal places.
2. Indicate whether each ratio for Twirlybirds has gotten better or worse from 2019 to 2020
(4.5 marks)
3. Below are the industry averages for each ratio. Indicate whether each ratio you calculated for
Twirlybirds is favourable or unfavourable when comparing to the industry average.
(4.5 marks)
4. Give your overall opinion on whether your company will loan money to Twirlybirds to
fund their expansion. Provide at least 2 reasons to back up your opinion (2 assumptions you
made based on your liquidity analysis - be specific and refer to your calculations). (5 marks)
Ratios Industry average
A. Current ratio 1.44to 1
B. Quick ratio 0.65to 1
C. AR turnover 4.39times
D. Days sales uncollected 91.98days
E. Inventory turnover 8.83times
F. Days sales in inventory 46.96days
G. Total asset turnover 1.05times
H. AP turnover 8.36times
I. Days to pay AP 43.71days
Current Ratio = Current Assets / Current Liabilities
2019: Current Assets = $116,648 (Cash + Temporary investments + Accounts receivable + Inventory + Prepaid insurance)
Current Liabilities = $76,890 (Accounts payable + Unearned revenue)
Current Ratio (2019) = $116,648 / $76,890 = 1.51
2020: Current Assets = $157,091 (Cash + Temporary investments + Accounts receivable + Inventory + Prepaid insurance)
Current Liabilities = $75,190 (Accounts payable + Unearned revenue)
Current Ratio (2020) = $157,091 / $75,190 = 2.09
Quick Ratio = (Current Assets - Inventory) / Current Liabilities
2019: Quick Ratio (2019) = ($116,648 - $55,253) / $76,890 = 0.85
2020: Quick Ratio (2020) = ($157,091 - $74,727) / $75,190 = 1.05
Accounts Receivable (AR) Turnover = Net Sales / Average Accounts Receivable
2019: AR Turnover (2019) = $1,318,540 / (($31,721 + $31,471) / 2) = 41.77
2020: AR Turnover (2020) = $1,427,028 / (($30,050 + $31,721) / 2) = 45.35
Days Sales Uncollected = 365 / AR Turnover
2019: Days Sales Uncollected (2019) = 365 / 41.77 = 8.74 days
2020: Days Sales Uncollected (2020) = 365 / 45.35 = 8.05 days
Inventory Turnover = Cost of Goods Sold / Average Inventory
2019: Inventory Turnover (2019) = $922,123 / (($55,253 + $63,094) / 2) = 18.41
2020: Inventory Turnover (2020) = $849,964 / (($63,094 + $74,727) / 2) = 12.01
Days Sales in Inventory = 365 / Inventory Turnover
2019: Days Sales in Inventory (2019) = 365 / 18.41 = 19.84 days
2020: Days Sales in Inventory (2020) = 365 / 12.01 = 30.40 days
Total Asset Turnover = Net Sales / Average Total Assets
2019: Total Asset Turnover (2019) = $1,318,540 / (($379,758 + $375,734) / 2) = 3.51
2020: Total Asset Turnover (2020) = $1,427,028 / (($406,653 + $379,758) / 2) = 3.80
Accounts Payable (AP) Turnover = Net Credit Purchases / Average Accounts Payable
2019: AP Turnover (2019) = $849,964 / (($51,094 + $49,125) / 2) = 34.26
2020: AP Turnover (2020) = $922,123 / (($50,989 + $51,094) / 2) = 35.88
Days to Pay AP = 365 / AP Turnover
2019: Days to Pay AP (2019) = 365 / 34.26 = 10.66 days
2020: Days to Pay AP (2020) = 365 / 35.88 = 10.18 days
Comparison to Industry Averages:
a. Current Ratio:
2019: Twirlybirds (1.51) > Industry Average (1.44) [Favorable]
2020: Twirlybirds (2.09) > Industry Average (1.44) [Favorable]
b. Quick Ratio:
2019: Twirlybirds (0.85) < Industry Average (0.65) [Unfavorable]
2020: Twirlybirds (1.05) > Industry Average (0.65) [Favorable]
c. AR Turnover:
2019: Twirlybirds (41.77) > Industry Average (4.39) [Favorable]
2020: Twirlybirds (45.35) > Industry Average (4.39) [Favorable]
d. Days Sales Uncollected:
2019: Twirlybirds (8.74) < Industry Average (91.98) [Favorable]
2020: Twirlybirds (8.05) < Industry Average (91.98) [Favorable]
e. Inventory Turnover:
2019: Twirlybirds (18.41) > Industry Average (8.83) [Favorable]
2020: Twirlybirds (12.01) > Industry Average (8.83) [Favorable]
f. Days Sales in Inventory:
2019: Twirlybirds (19.84) < Industry Average (46.96) [Favorable]
2020: Twirlybirds (30.40) > Industry Average (46.96) [Unfavorable]
g. Total Asset Turnover:
2019: Twirlybirds (3.51) > Industry Average (1.05) [Favorable]
2020: Twirlybirds (3.80) > Industry Average (1.05) [Favorable]
h. AP Turnover:
2019: Twirlybirds (34.26) > Industry Average (8.36) [Favorable]
2020: Twirlybirds (35.88) > Industry Average (8.36) [Favorable]
i. Days to Pay AP:
2019: Twirlybirds (10.66) < Industry Average (43.71) [Favorable]
2020: Twirlybirds (10.18) < Industry Average (43.71) [Favorable]\
Overall Opinion on Loan Approval:
According to the liquidity research, Twirlybirds has better liquidity ratios than the industry averages in the majority of categories. The company's statistics for inventory turnover, accounts payable turnover, accounts receivable management, and current liquidity have all improved. These indicators point to effective asset and liability management of Twirlybirds. The favourable outlook is a result of the solid cash position, increased sales, and successful management of receivables and payables. A minor issue about inventory management is however raised by the rise in days sold in inventory from 2019 to 2020.
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a) what is the purpose of dynamic hedging for delta
b) when it is maturity, does the total cost of writing and
hedging options equate to the cumulative cost
Answer:
a) The purpose of dynamic hedging for delta is to manage the risk associated with changes in the underlying asset's price
b) The total cost of writing and hedging options may not necessarily equate to the cumulative cost at maturity.
Explanation:
a) The purpose of dynamic hedging for delta is to manage the risk associated with changes in the underlying asset's price. Delta represents the sensitivity of an option's price to changes in the price of the underlying asset. By dynamically adjusting the hedging position, typically by trading the underlying asset, options traders aim to maintain a delta-neutral position. This helps offset potential losses from price movements in the underlying asset and allows traders to focus on other risks such as volatility.
b) The total cost of writing and hedging options may not necessarily equate to the cumulative cost at maturity. The cost of writing options refers to the premium received when selling options contracts, which is the initial cost. However, during the life of the options, the cost of hedging can vary due to fluctuations in the underlying asset's price and other market factors. The hedging cost includes transaction costs, such as commissions and bid-ask spreads, as well as potential losses incurred while adjusting the hedge position. Therefore, the total cost of writing and hedging options can be influenced by these factors and may not directly align with the cumulative cost at maturity.
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lees's income increased from $900 last month to $1,100 this month.
as a result, he purchased more cups of coffee this month, as he
bought 10 cups of coffee last month and 20 cups of coffee this
month.
This suggests that coffee is a normal good, and Lees's consumption of coffee is positively correlated with his income.
The observed increase in Lees's income from $900 to $1,100 and his subsequent increase in the number of cups of coffee purchased from 10 to 20 indicate that coffee is a normal good for Lees.
A normal good is a product for which demand increases as income increases, reflecting a positive income elasticity of demand.
In this case, the increase in Lees's income has led to an increase in his purchasing power, allowing him to afford more cups of coffee. This implies that coffee is considered a desirable good for Lees, and he chooses to consume more of it as his income rises.
The positive correlation between Lees's income and his consumption of coffee indicates that coffee is a normal good in his consumption pattern.
This example illustrates the concept of income elasticity of demand, which measures the responsiveness of the quantity demanded of a good to changes in income.
In this case, the positive income elasticity of demand for coffee indicates that it is a normal good for Lees, and his increased income has resulted in increased coffee consumption.
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Which of the following statements is correct in relation to the assumptions to be made when preparing financial reports?
a. The conceptual framework requires that several assumptions be made when preparing financial reports
b. There are no assumptions to be made when preparing financial reports
c. Thece is one underlying assumption which is that financial reports are prepared on a going concern basis
d. There is an assumption that more information is better than less
The correct statement in relation to the assumptions to be made when preparing financial reports is: There is one underlying assumption, which is that financial reports are prepared on a going concern basis.The correct answer is option (c).
The going concern assumption implies that an entity will continue its operations in the foreseeable future. This assumption allows financial reports to be prepared under the assumption that the entity will continue its operations and fulfill its commitments.Regarding option d, it is important to note that the assumption that more information is better than less is not one of the fundamental assumptions in financial reporting.
While providing relevant and sufficient information is essential for decision-making, it is not considered an explicit assumption in the conceptual framework or accounting standards. Therefore, the correct statement is that financial reports are prepared on a going concern basis, indicating that the entity is assumed to continue operating in the foreseeable future.Hence, option (c) is the correct answer.
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At the beginning of the year, Chock Company had $650,000 in assets and $200,000 in liabilities. At the end of the year, the company had $310,000 in liabilities. During the year, assets increased by $140,000. What was the total dollar amount of owner's equity at the end of the year? A. $340,000 B. $450,000 C. $480,000 D. $590,000 Assume that Red Door Boutique purchased supplies on account for $58,000. How would this transaction affect Red Door's accounting equation? A. Increase assets and liabilities by $58,000 B. Increase assets and equity by $58,000 C. Increase liabilities and equity by $58,000 D. Increase one asset and decrease another asset by $58,000
At the end of the year, Chock Company had $480,000 in owner's equity, which was calculated by subtracting the liabilities of $310,000 from the total assets of $790,000. When Red Door Boutique purchased supplies on account for $58,000, it increased both assets and liabilities, affecting the accounting equation by increasing both sides of the equation by $58,000. The correct option is A.
To determine the total dollar amount of owner's equity at the end of the year, we can use the basic accounting equation:
Assets = Liabilities + Owner's Equity
We know that at the beginning of the year, Chock Company had $650,000 in assets and $200,000 in liabilities.
During the year, the assets increased by $140,000, so the new total assets at the end of the year can be calculated as:
$650,000 + $140,000 = $790,000
We also know that at the end of the year, the liabilities were $310,000. Now, we can substitute these values into the accounting equation to solve for owner's equity:
$790,000 = $310,000 + Owner's Equity
Rearranging the equation, we find:
Owner's Equity = $790,000 - $310,000 = $480,000
Therefore, the total dollar amount of owner's equity at the end of the year is $480,000 (option C).
Regarding the second question, when Red Door Boutique purchases supplies on account for $58,000, it would increase both assets and liabilities.
The supplies represent an increase in the asset side of the equation since they are tangible resources owned by the business. At the same time, purchasing supplies on account means that Red Door owes a debt to its suppliers, resulting in an increase in liabilities.
Therefore, the correct answer is option A: Increase assets and liabilities by $58,000.
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IS direct investment would increase with which of the following? A. An American cellular phone company establishes an office in the Czech Republic B. A Fidelity (US financial institution) mutual fund buys Volkswagen stock, a German comr C. General Motors pension fund buys stock from Harrod's of London, England. D. Any of the above E. none of the above Reset Selection
The correct answer is D. Any of the above. Direct investment refers to the establishment or acquisition of a controlling interest in a business enterprise by an entity from another country. It involves a significant level of ownership and control over the foreign enterprise.
In all the scenarios mentioned: A. An American cellular phone company establishes an office in the Czech Republic: This represents direct investment as the American company is establishing a physical presence and taking control of operations in the Czech Republic.
B. A Fidelity (US financial institution) mutual fund buys Volkswagen stock, a German company: Although this is an investment in stocks rather than establishing a physical presence, it is still considered direct investment because it involves acquiring a significant ownership stake and exercising control over the German company.
C. General Motors pension fund buys stock from Harrod's of London, England: Similarly, purchasing stock from Harrod's represents direct investment, as it involves acquiring an ownership stake in the company. Therefore, in all of the given scenarios, direct investment is involved. Hence, the correct answer is D. Any of the above.
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