The nature of financial risk in the public sector involves the potential for adverse financial outcomes due to various factors such as economic volatility, budget deficits and reliance on external financing.
What are appropriate financial risk mitigation strategies?To mitigate financial risks in the public sector, several strategies can be implemented. One key approach is to establish robust risk management frameworks that identify, assess, and monitor financial risks. This involves regularly analyzing economic indicators, fiscal policies, and market conditions to anticipate potential risks and take necessary actions.
Also, diversifying funding sources and maintaining a balanced debt portfolio can reduce the vulnerability of public entities to fluctuations in interest rates and credit markets. Governments can also consider implementing prudent borrowing practices such as conducting thorough credit assessments and negotiating favorable terms and conditions with lenders.
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Give three reasons why should a company prefer equity over debt?
Explain.
There are several reasons why a company may prefer equity financing over debt financing. Here are three key reasons:
1. No Repayment Obligations: Unlike debt, equity financing does not involve repayment obligations. When a company raises funds through equity, it does not need to make regular interest payments or repay the principal amount. This can provide greater financial flexibility, especially in times of economic uncertainty or when the company is in its early stages and has limited cash flow. Equity financing allows the company to retain cash for operations, expansion, or other strategic initiatives.
2. Sharing Risk: Equity investors, such as shareholders or venture capitalists, bear a portion of the company's risk. In case of business failure or financial losses, equity investors may face a reduction or loss of their investment. By sharing the risk with equity investors, the company's financial burden is reduced compared to taking on high levels of debt. This sharing of risk can provide a cushion and protect the company's financial stability.
Long-Term Capital: Equity financing can provide long-term capital for the company's growth and expansion plans. Equity investors often have a long-term perspective and are interested in the company's future success. By bringing in equity investors, the company can secure funds for the long term, allowing it to invest in research and development, new projects, acquisitions, or market expansion. Equity financing is particularly beneficial for companies that have a long-term growth strategy and need capital to support their initiatives.
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Consider the market for cat food in Gombak. The demand function is P = 60- 0.21q and the supply is given by P = 7.1-0.04q, An excise tax, t, of RM8.00 is imposed on the market. Determine: The prices paid by the consumers and received by the firms. (10 pts) The the burden of the tax on the consumers and firms. (5 pts) The tax revenue and the excess burden. (5 pts) If the same tax is imposed on the consumers instead, would the distribution of the incidence be different? Explain. (5 pts)
Price paid by consumers = P + t = (60 - 0.21q) + 8 = 68 - 0.21q
To determine the prices paid by consumers and received by firms, we need to analyze the effects of the excise tax on the market.
The demand function is P = 60 - 0.21q, where P represents the price and q represents the quantity demanded. The supply function is P = 7.1 - 0.04q, where P represents the price and q represents the quantity supplied.
With the excise tax of RM8.00 imposed on the market, we need to account for the tax in the equations:
For consumers:
Price paid by consumers = P + t = (60 - 0.21q) + 8 = 68 - 0.21q
For firms:
Price received by firms = P = 7.1 - 0.04q
To determine the burden of the tax on consumers and firms, we need to compare the prices before and after the tax imposition:
Before the tax:
Consumer price: P = 60 - 0.21q
Firm price: P = 7.1 - 0.04q
After the tax:
Consumer price: 68 - 0.21q
Firm price: 7.1 - 0.04q
The burden of the tax on consumers is the difference between the consumer price before and after the tax (68 - 0.21q - (60 - 0.21q)) = 8.
The burden of the tax on firms is the difference between the firm price before and after the tax (7.1 - 0.04q - 7.1) = 0.
The tax revenue is calculated by multiplying the tax rate (RM8.00) by the quantity sold in the market.
Tax revenue = t * q = 8 * q
The excess burden, also known as the deadweight loss, represents the loss of consumer and producer surplus due to the distortion created by the tax. It occurs when the quantity transacted in the market decreases due to the tax.
If the same tax is imposed on the consumers instead, the distribution of the incidence would likely be different. The burden would be directly placed on the consumers, who would have to pay a higher price (including the tax) for the cat food. The price received by the firms would remain the same, as they would receive the original price without the tax. The burden of the tax on the firms would be eliminated in this case.
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Assignment
Clearly identify and give a 200-word overview of your organisation
at the beginning of your assignment. This should describe the
industry within which it operates, the type of organisation
Our organization operates within the technology industry, specifically in the field of software development and artificial intelligence solutions. We are a leading software company that specializes in developing cutting-edge technologies and providing innovative solutions to businesses across various sectors. Our team of skilled engineers, data scientists, and designers work collaboratively to create software products and services that enhance efficiency, productivity, and decision-making for our clients. With a strong emphasis on research and development, we strive to stay at the forefront of technological advancements and deliver state-of-the-art solutions to meet the evolving needs of our customers.
In today's fast-paced and technology-driven world, our organization recognizes the critical role software development and artificial intelligence play in empowering businesses. We cater to a diverse range of industries, including finance, healthcare, e-commerce, and manufacturing, among others. By leveraging our expertise in software engineering, machine learning, and data analytics, we develop custom solutions tailored to each client's unique requirements.
Our organization prides itself on fostering innovation and staying ahead of the curve. We invest heavily in research and development to explore emerging technologies and integrate them into our solutions. Our commitment to quality and customer satisfaction drives us to deliver robust and user-friendly software applications that enable businesses to streamline operations, improve customer experiences, and gain a competitive edge.
With a customer-centric approach, we collaborate closely with our clients throughout the development process, ensuring transparency, effective communication, and timely delivery of projects. We also provide ongoing support and maintenance to ensure our solutions continue to meet the evolving needs of our clients in a rapidly changing technological landscape.
In summary, our organization operates in the technology industry, specializing in software development and artificial intelligence solutions. Through our dedication to innovation, research, and customer satisfaction, we strive to empower businesses across diverse sectors with advanced technological solutions that drive growth and success.
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Which of the following statement is false?
Group of answer choices
a Credit unions are not taxed.
b Credit unions are thrift institutions.
c Credit unions are owned by depositors.
d Credit unions are open to general public.
Consider a population of 1024 mutual funds that primarily invest in large companies. You have determined that μ, the mean one-year total percentage return achieved by all the funds, is 7.50 and that σ, the standard deviation, is 0.75, Complete (a) through (c). a. According to the empirical rule, what percentage of these funds is expected to be within ±2 standard deviations of the mean? %
Therefore, 95% of these funds are expected to be within ±2 standard deviations of the mean.
a. According to the empirical rule, what percentage of these funds is expected to be within ±2 standard deviations of the mean?
According to the empirical rule, what percentage of these funds is expected to be within ±2 standard deviations of the mean is 95%.The empirical rule is a statistical guideline that states that almost all of the observed data in a normally distributed dataset falls within three standard deviations of the mean.
This rule assumes that the data follows a bell-shaped normal distribution pattern.
The empirical rule is also referred to as the 68-95-99.7 rule, which is based on the percentage of the total area under the curve that lies within one, two, or three standard deviations of the mean.
Most values in a normally distributed dataset are expected to fall within two standard deviations (±2σ) of the mean (μ), according to the empirical rule.
According to the empirical rule, this represents 95% of all observed data.
That is to say that roughly 950 mutual funds (out of 1024 mutual funds) would be expected to achieve a one-year total percentage return that falls between
(7.50 - 2 x 0.75) = 6.0% and (7.50 + 2 x 0.75) = 9.0%.
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Barack, age 56, is concerned about inflation risk, and is seeking an investment that would help insulate him against this risk. Which of the following products would be least suitable for Barack?
A. Stock portfolio
B. Segregated fund
C Annuity
D. Mutual fund
The least suitable product for Barack to insulate against inflation risk would be the Annuity. (Option C)
Annuities are financial products that provide a fixed stream of income over a specified period or for the lifetime of the investor. While annuities can provide stability and guaranteed income, they may not be the best choice for protecting against inflation risk. Unlike other investment options, such as stocks or mutual funds, annuities do not typically offer the potential for growth or adjustment for inflation.
Inflation erodes the purchasing power of money over time. If the rate of inflation exceeds the rate of return on an annuity, the real value of the income received from the annuity may decrease. This means that the fixed income payments received from the annuity may not keep up with the rising cost of living, leading to a decline in the individual's standard of living.
On the other hand, investments like stocks or mutual funds have the potential for growth and may offer better protection against inflation. These investments can provide higher returns over the long term, allowing investors to preserve or increase their purchasing power in the face of inflationary pressures. Therefore, considering Barack's concern about inflation risk, the annuity option would be the least suitable choice for him.
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In early 2015, Ford Motor (F) had a book value of equity of $ 24.8 billion, 4.0 billion shares outstanding, and a market price of $ 16.00 per share. Ford also had cash of $ 21.7 billion, and total debt of $ 119.2 billion. Three years later, in early 2018, Ford had a book value of equity of $ 35.0 billion, 4.0 billion shares outstanding with a market price of $ 11.00 per share, cash of $ 26.5 billion, and total debt of $ 154.3 billion. Over thisperiod, what was the change in Ford?s a. market capitalization? b. market-to-book ratio? c. enterprise value?
The change in Ford's market capitalization over the period was -$20.0 billion, indicating a decrease. The market-to-book ratio decreased by -1.32, implying a lower valuation relative to the book value of equity. The enterprise value increased by $10.3 billion.
a. To calculate the change in Ford's market capitalization, we need to multiply the number of shares outstanding by the market price.
In early 2015:
Market capitalization = Number of shares outstanding * Market price = 4.0 billion * $16.00 = $64.0 billion
In early 2018:
Market capitalization = Number of shares outstanding * Market price = 4.0 billion * $11.00 = $44.0 billion
Change in market capitalization = Market capitalization in 2018 - Market capitalization in 2015 = $44.0 billion - $64.0 billion = -$20.0 billion
Therefore, the change in Ford's market capitalization over this period is -$20.0 billion.
b. The market-to-book ratio is calculated by dividing the market capitalization by the book value of equity.
In early 2015:
Market-to-book ratio = Market capitalization / Book value of equity = $64.0 billion / $24.8 billion = 2.58
In early 2018:
Market-to-book ratio = Market capitalization / Book value of equity = $44.0 billion / $35.0 billion = 1.26
Change in market-to-book ratio = Market-to-book ratio in 2018 - Market-to-book ratio in 2015 = 1.26 - 2.58 = -1.32
Therefore, the change in Ford's market-to-book ratio over this period is -1.32.
c. Enterprise value (EV) is calculated by adding the market capitalization, and total debt, and subtracting cash.
In early 2015:
EV = Market capitalization + Total debt - Cash = $64.0 billion + $119.2 billion - $21.7 billion = $161.5 billion
In early 2018:
EV = Market capitalization + Total debt - Cash = $44.0 billion + $154.3 billion - $26.5 billion = $171.8 billion
Change in enterprise value = EV in 2018 - EV in 2015 = $171.8 billion - $161.5 billion = $10.3 billion
Therefore, the change in Ford's enterprise value over this period is $10.3 billion.
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Oriole Corporation reports the following January 1, 2020 balances for its defined benefit pension plan, which it accounts for under IFRS: plan assets, $420,000; defined benefit obligation, $420,000. Other data relating to three years of operation of the plan are as follows: 2020 2021 2022 Annual service cost $36,400 $39,700 $59,000 Discount rate 10% 10% 10% Actual return on plan assets 38,700 46,500 54,400 Funding of current service cost 36,400 39,700 59,000 Funding of past service cost – 60,000 81,000 Benefits paid 30,100 37,380 46,200 Past service cost (plan amended, 1/1/21) 364,000 Change in actuarial assumptions establishes a December 31, 2022 defined benefit obligation of 1,196,000 Prepare and complete a pension work sheet for 2020. Oriole Corporation Pension Worksheet for 2020 Remeas. Gain/ Loss OCI Pension Expense Cash Net Defined Benefit (Liab) Asset DBO Plan Assets Opening balance $ $ $ $ $ $ Service cost Net Int./ Fin.cost Asset remeasurement Loss Contributions Benefits paid Expense entry $ $ Funding entry $ Total $ $ $ Prepare a continuity schedule of the projected defined benefit obligation over the three-year period. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Oriole Corporation Continuity Schedule of Defined Benefit Obligation – 2020 $ $ Oriole Corporation Continuity Schedule of Defined Benefit Obligation – 2021 $ $ Oriole Corporation Continuity Schedule of Defined Benefit Obligation – 2022 $ $ Prepare a continuity schedule of the plan assets over the three-year period. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Oriole Corporation Continuity Schedule of Fund Assets – 2020 $ $ Oriole Corporation Continuity Schedule of Fund Assets – 2021 $ $ Oriole Corporation Continuity Schedule of Fund Assets – 2022 $ $ Determine the pension expense for each of 2020, 2021, and 2022. Pension expense, 2020 $ Pension expense, 2021 $ Pension expense, 2022 $ Prepare the journal entries to reflect the pension plan transactions and events for each year. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Year Account Titles and Explanation Debit Credit 2020 (To record pension expense.) 2020 (To record contribution to the pension fund.) 2021 (To record pension expense.) 2021 (To record contribution to the pension fund.) 2022 (To record pension expense.) 2022 (To record contribution to the pension fund.) Prepare a schedule reconciling the pension plan’s surplus or deficit with the pension amounts reported on the SFP over the three-year period. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Oriole Corporation Reconciliation Schedule 2020 $ $ Oriole Corporation Reconciliation Schedule 2021 $ $ Oriole Corporation Reconciliation Schedule 2022 $ $ Determine the pension expense for each of 2020, 2021, and 2022 assuming that the company applies ASPE. Pension expense, 2020 $ Pension expense, 2021 $ Pension expense, 2022 $___
In 2020, Oriole Corporation had a pension expense of $36,400, which includes the annual service cost. The funding for the current service cost was also $36,400.
The actual return on plan assets was $38,700. There were no past service costs or remeasurement gains/losses during this year. The net defined benefit obligation and plan assets remained the same at $420,000 each.
The pension expense for 2020 includes the annual service cost, which represents the cost of providing benefits to employees during that year. In this case, the annual service cost is $36,400. The funding entry for the current service cost also matches this amount, indicating that the company contributed the required funds to cover the service cost.
The actual return on plan assets is the income generated from the investments made with the plan assets. In 2020, the actual return was $38,700, indicating a positive return on investments.
There were no past service costs or remeasurement gains/losses during 2020. Past service costs arise when there are changes to the pension plan that affect the benefits accrued by employees. Remeasurement gains/losses occur when there are changes in actuarial assumptions or other factors that affect the pension obligation or plan assets.
The net defined benefit obligation and plan assets remained the same at $420,000 each. This means that the pension liability and the assets set aside to cover the pension obligations did not change during 2020.
Overall, the pension expense for 2020 was $36,400, reflecting the cost of providing pension benefits to employees during that year. The funding for the current service cost and the actual return on plan assets contributed to the financial aspects of the pension plan.
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Discuss the challenges of carrying out economic policy in the
open economy
Subject: International economics
The challenges of carrying out economic policy in the open economy are Globalization, Exchange Rate Volatility, Capital Mobility, Policy Coordination and External Shocks.
Carrying out economic policy in an open economy presents several challenges due to the interdependence and complexities of global economic interactions. Some of the key challenges include:
Globalization: Open economies are heavily influenced by international trade, capital flows, and financial integration. Economic policies implemented in one country can have spillover effects on other countries, making it challenging to achieve desired outcomes without considering the global context.
Exchange Rate Volatility: Open economies are subject to fluctuations in exchange rates, which can impact the competitiveness of domestic industries, trade balances, and inflation. Managing exchange rate volatility requires careful policy coordination and effective monetary measures.
Capital Mobility: In an open economy, capital flows across borders can be substantial, leading to potential challenges in managing capital inflows and outflows. Sudden shifts in capital flows can impact exchange rates, interest rates, and financial stability, necessitating sound policies to mitigate risks.
Policy Coordination: Economic policies in an open economy need to be coordinated with other countries to address global challenges, such as imbalances in trade, exchange rate misalignments, and financial instability. International cooperation becomes crucial for achieving mutually beneficial outcomes.
External Shocks: Open economies are vulnerable to external shocks, such as changes in global commodity prices, geopolitical events, or financial crises. These shocks can disrupt domestic economies, requiring prompt policy responses to mitigate their effects.
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In an attempt to address concerns about the increasing cost of education, the government is proposing to introduce caps on private school fees, which would enforce a price ceiling on the amount that private schools can charge parents to educate their children. The proposed price ceiling is $2,000 per year. The market equilibrium price is $4717 per year and the equilibrium quantity of private high school places available is 70,000 enrolments. The supply of private high school places at the price ceiling is 60,000 enrolments whilst the willingness of parents to pay for school fees is $6403 per year at the quantity of 60,000 enrolments. What is the dead weight loss as a result of the price ceiling in dollars? Answer to the nearest whole dollar.
The deadweight loss resulting from the price ceiling is $775,000.
To calculate the deadweight loss resulting from the price ceiling, we need to compare the consumer surplus and producer surplus at the equilibrium quantity (70,000 enrolments) with the price ceiling quantity (60,000 enrolments). Here are the step-by-step calculations:
1. Calculate consumer surplus at the equilibrium quantity:
Consumer surplus at the equilibrium quantity is the area below the demand curve and above the equilibrium price. Given the equilibrium price of $4,717 and the equilibrium quantity of 70,000 enrolments, we can calculate the consumer surplus as follows:
Consumer Surplus = 0.5 * (Equilibrium Price - Price Ceiling) * (Equilibrium Quantity - Price Ceiling Quantity)
Consumer Surplus = 0.5 * ($4,717 - $2,000) * (70,000 - 60,000)
2. Calculate producer surplus at the equilibrium quantity:
Producer surplus at the equilibrium quantity is the area above the supply curve and below the equilibrium price. Since the price ceiling affects consumers, the producer surplus remains unchanged at the equilibrium quantity.
3. Calculate consumer surplus at the price ceiling quantity:
Consumer surplus at the price ceiling quantity is the area below the demand curve and above the price ceiling. Given the price ceiling of $2,000 and the price ceiling quantity of 60,000 enrolments, we can calculate the consumer surplus as follows:
Consumer Surplus at Price Ceiling Quantity = 0.5 * (Price Ceiling - Supply Price) * (Price Ceiling Quantity)
4. Calculate deadweight loss:
Deadweight Loss = Consumer Surplus at Equilibrium Quantity - Consumer Surplus at Price Ceiling Quantity
Substitute the given values into the equations to calculate the respective surpluses and deadweight loss, and round the final answer to the nearest whole dollar.
Please note that without specific information on the shape of the demand and supply curves, assumptions are made for the calculations, and the results may vary depending on the actual market conditions.
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Which of the following is NOT a primary concera about foreign investment
A. Financial volatility
B. Contagion.
C. Problens with capisal inflows.
D. Consolidation.
The primary concerns about foreign investment typically include financial volatility, contagion, and problems with capital inflows. However, consolidation is not considered a primary concern.
A. Financial volatility: Foreign investment can be influenced by market fluctuations, currency exchange rate variations, and economic instability. The uncertainty and unpredictability of financial markets can pose risks to foreign investors.
B. Contagion: Contagion refers to the spread of financial crises or instability from one country or region to another. Foreign investment can be impacted by the contagion effect, where economic downturns or financial shocks in one country can have ripple effects on other economies and investments.
C. Problems with capital inflows: Foreign investment can sometimes lead to issues related to the inflow of capital. These problems may include sudden capital surges or outflows, difficulties in managing capital flows, and the impact on domestic economies, such as inflation or asset price bubbles.
D. Consolidation: Consolidation, which refers to the merging or acquisition of companies, is not typically considered a primary concern in the context of foreign investment. While consolidation can have implications for market competition and investor interests, it is not directly related to the core concerns surrounding foreign investment.
In summary, while financial volatility, contagion, and problems with capital inflows are primary concerns about foreign investment, consolidation is not typically listed as one of the primary concerns.
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Cullumber Markets imports and sells small bear-shaped piñatas. In planning for the coming year, the company’s owner is evaluating several scenarios. For each scenario under consideration, prepare a contribution margin income statement showing the anticipated operating income. Consider each scenario is applied independently to the original data. Last year’s income statement is as follows:
Total
Per Unit
Sales revenue
$820,000 $20.00
Variable expenses
451,000 11.00
Contribution margin
369,000 $9.00
Fixed expenses
175,000
Operating income
$194,000
(a)
The sales price increases by 10% and sales volume decreases by 6%. (Round per unit answers to 2 decimal places, e.g. 0.38.)
Under the scenario where the sales price increases by 10% and sales volume decreases by 6%, the anticipated operating income can be calculated using a contribution margin income statement.
In order to calculate the anticipated operating income under the given scenario, we need to adjust the original data based on the changes in sales price and sales volume. First, we increase the sales price by 10%. The new sales price per unit becomes $20.00 + (10% of $20.00) = $22.00. Next, we decrease the sales volume by 6%. The new sales volume becomes 94% of the original sales volume. Using the adjusted sales price and sales volume, we can calculate the new sales revenue by multiplying the new sales price per unit with the new sales volume. To calculate the new variable expenses, we multiply the new sales volume by the original variable expense per unit.
The contribution margin is obtained by subtracting the new variable expenses from the new sales revenue. Finally, the anticipated operating income is calculated by subtracting the fixed expenses from the contribution margin. By applying these adjustments to the original data, we can generate a contribution margin income statement that shows the anticipated operating income under the scenario of a 10% increase in sales price and a 6% decrease in sales volume.
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You purchased a $1,000 bond with a coupon rate of 6% on January 1, 2021 for $940. On the same date you also purchased a share of ABC Inc for $83. During 2021 you received a dividend of $1.50 on the ABC share. It is now January 1, 2022 and the bond is selling for $980 and the ABC share is worth $90.
Required, round all answers to two decimal points and either provide your calculations in the space provided
What was your total dollar return on the bond over the past year?
What was your total nominal return on the bond over the past year?
If the inflation rate last year was 4%, what was your total real rate of return on the bond?
Compute the total percentage return on the ABC share.
What was the dividend yield on the ABC share.
What was the capital gain yield on the ABC share.
1. Total dollar return on the bond over the past year: $100
2. Total nominal return on the bond over the past year: 4.26%
3. Total real rate of return on the bond: 0.26%
4. Total percentage return on the ABC share: 9.64%
5. Dividend yield on the ABC share: 1.81%
6. Capital gain yield on the ABC share: 8.43%
To calculate the answers, we need the following information:
Bond:
- Purchase price: $940
- Coupon rate: 6%
- Face value: $1,000
- Selling price: $980
ABC Share:
- Purchase price: $83
- Dividend received: $1.50
- Selling price: $90
1. Total dollar return on the bond over the past year:
Coupon payment received = Face value * Coupon rate = $1,000 * 6% = $60
Price change = Selling price - Purchase price = $980 - $940 = $40
Total dollar return = Coupon payment received + Price change = $60 + $40 = $100
2. Total nominal return on the bond over the past year:
Initial investment = Purchase price = $940
Final value = Selling price = $980
Total nominal return = (Final value - Initial investment) / Initial investment * 100 = ($980 - $940) / $940 * 100 ≈ 4.26%
3. Total real rate of return on the bond:
Inflation rate = 4%
Total real rate of return = Total nominal return - Inflation rate = 4.26% - 4% ≈ 0.26%
4. Total percentage return on the ABC share:
Dividend received = $1.50
Price change = Selling price - Purchase price = $90 - $83 = $7
Total percentage return = (Dividend received + Price change) / Purchase price * 100 = ($1.50 + $7) / $83 * 100 ≈ 9.64%
5. Dividend yield on the ABC share:
Dividend yield = Dividend received / Purchase price * 100 = $1.50 / $83 * 100 ≈ 1.81%
6. Capital gain yield on the ABC share:
Capital gain yield = Price change / Purchase price * 100 = $7 / $83 * 100 ≈ 8.43%
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Sanji Cables has annual credit sales of $2854748 and accounts receivable of $204496. Assume that average daily credit sales is credit sales over 360 , compute the company's average collection period.
The average collection period for Sanji Cables is approximately 25.78 days.
To calculate the average collection period, we need to divide the accounts receivable by the average daily credit sales.
Average daily credit sales can be calculated by dividing the annual credit sales by the number of days in a year (360):
Average daily credit sales = Annual credit sales / 360
Average daily credit sales = $2,854,748 / 360
Average daily credit sales ≈ $7,929.30
Now we can calculate the average collection period by dividing the accounts receivable by the average daily credit sales:
Average collection period = Accounts receivable / Average daily credit sales
Average collection period = $204,496 / $7,929.30
Using a calculator, we find:
Average collection period ≈ 25.78 days
Therefore, the average collection period for Sanji Cables is approximately 25.78 days.
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"15) Which of the following statements most accurately describes
social housing in NZ? Select one:
a. A declining sector with minimal demand
b. A largely private sector segment of the residential
marke"
The most accurate statement that describes social housing in New Zealand is around 40% of the total housing stock. Option d is correct.
Social housing in New Zealand refers to a section of the housing industry that is available to low-income New Zealanders, or those who would otherwise be unable to find affordable accommodation in the private sector. In New Zealand, social housing accounts for about 40% of the overall housing supply, making it a vital component of the nation's housing infrastructure.
Social housing is controlled by various governmental organizations in New Zealand, and it is their duty to provide affordable housing for people in need.
Social housing in New Zealand is growing due to the rising number of people in need of affordable housing. Social housing is primarily owned and managed by the government. Social housing accounts for around 40% of the total housing stock in New Zealand.
Therefore, d is correct.
Which of the following statements most accurately describes social housing in NZ? Select one:
a. A declining sector with minimal demand
b. A largely private sector segment of the residential market
c less than 5% of the current housing
d. Around 40% of total housing stock
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Based on the Fedex Corporation v. U.S., 291 F. Supp. 2d 699
(W.D. Tenn. 2003) tax case,
Should there be a limit when deducting ordinary and necessary
business expenses?
The FedEx Corporation v. U.S. tax case, the specific issue at hand was related to the deductibility of certain expenses for tax purposes.
However, it is important to note that the case itself does not establish General rule or precedent regarding whether there should be a limit when deducting ordinary and necessary business expenses. The deductibility of business expenses is governed by the Internal Revenue Code (IRC) and related regulations, which provide guidelines on what expenses can be deducted and under what conditions. Generally, businesses are allowed to deduct ordinary and necessary expenses incurred in the course of conducting their business activities. However, the IRC does impose certain limitations and restrictions on deductibility, such as disallowing deductions for personal expenses or expenses that are considered excessive or extravagant. Ultimately, whether there should be a limit when deducting ordinary and necessary business expenses is a matter of policy and can be subject to debate.
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The growth rate in dividends is a function of two ratios. They are Select one:
a. ROE and the retention ratio.
b. book value per share and EPS.
c. dividend yield and growth rate in stock price.
d. ROA and ROE.
The correct answer is option a. ROE and the retention ratio heavily influence the growth rate of dividends.
Option an is the proper solution. Return on Equity (ROE) and the retention ratio are the two ratios that most heavily influence the growth rate of dividends.
A company's profitability is gauged by its capacity to profitably use shareholders' equity, or ROE. A higher ROE indicates that the company is making good use of its equity to produce profits. A corporation typically has the potential to produce higher dividend growth rates when it has a higher ROE.
The percentage of earnings that a business keeps for reinvestment as opposed to paying out as dividends is known as the retention ratio. When a firm keeps more of its earnings, it can reinvest those funds in its operations, which can boost earnings and, in turn, the growth rate of its dividend.
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Thomas Elliott Company's bonds mature in 10 years, have a par value of $1,000, and make an annual coupon interest payment based on an annual coupon rate of 6.5%. The market requires an interest rate of 5.24% on these bonds. What is the bonds' price?
(Multiple Choice)
a $1,147.71
b $1,096.17
c $1,116.97
d $1,024.74
The bond price is approximately $1,147.71. The correct answer is (a).
To calculate the price of the bond, we can use the present value formula for bonds. The formula is as follows:
Bond Price = (Coupon Payment / (1 + Market Interest Rate)) + (Coupon Payment / ([tex]1 + Market Interest Rate)^2[/tex]) + ... + (Coupon Payment + Par Value) / [tex](1 + Market Interest Rate)^n[/tex]
Where:
Coupon Payment = Par Value * Coupon Rate
n = Number of years to maturity
Let's calculate the bond price:
Coupon Payment = $1,000 * 6.5% = $65
Market Interest Rate = 5.24%
Par Value = $1,000
Number of years to maturity = 10
Bond Price = ($65 / (1 + 5.24%)) +[tex]($65 / (1 + 5.24)^2)[/tex]+ ... + ($65 + $1,000) /[tex](1 + 5.24)^{10[/tex]
Using a financial calculator or spreadsheet, we can calculate the bond price:
Bond Price ≈ $1,147.71
Therefore, the correct answer is (a) $1,147.71.
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Part 1: Business Plan—Starting a Business You are an entrepreneur who has decided to start your own business. Select a product or service that currently does not exist in the market or to enhance an existing product to make it new and innovative. Create a business plan for your new company. Part I will consist of the following sections of a business plan. Company Summary Company Ownership Start-Up Summary Company Locations and Facilities Products Product Description Competitive Comparison Sourcing Technology Future Products Market Analysis Summary Market Segmentation Target Market Segment Strategy Industry Analysis (The Daily Perc Business Plan). As an entrepreneur, be innovative and document any potential challenges and what is needed to be successful. Guidelines The Business Plan must include all sections listed, including the sub sections. use of citations, grammar, and sentence structure. The Course Project points. It will be graded on quality of research topic, quality of paper information, use of citations, grammar, and sentence structure. You must follow APA formatting guidelines. Please use a minimum of six references to support your position and research on the product or service and industry.
This business plan outlines the establishment of a new company by an entrepreneur who aims to introduce an innovative product or enhance an existing product in the market.
The business plan begins with the Company Summary, providing an overview of the new company's mission, vision, and core values. The Company Ownership section outlines the legal structure and ownership distribution within the organization. The Start-Up Summary details the initial costs, funding sources, and financial projections for the start-up phase, including capital requirements and anticipated revenue.
Company Locations and Facilities describe the physical infrastructure needed for the business to operate effectively, considering factors such as office space, manufacturing facilities, and distribution centers. In the Products section, the entrepreneur presents a comprehensive description of the innovative product or the enhancements made to an existing product, highlighting its unique features, benefits, and competitive advantages.
To assess the market landscape, a Competitive Comparison is conducted, analyzing the strengths and weaknesses of existing competitors. The Sourcing strategy outlines how the entrepreneur plans to acquire necessary resources, whether through partnerships, suppliers, or in-house production capabilities. The Technology section highlights the technological solutions employed to improve product development, operational efficiency, and customer experience.
Future Products are discussed, illustrating the entrepreneur's vision for product expansion, diversification, or upgrades. The Market Analysis Summary examines the target market, including its size, growth potential, trends, and customer demographics. Market Segmentation and Target Market Segment Strategy identify specific customer segments and outline strategies to effectively reach and serve those segments.
The Industry Analysis section provides an overview of the industry, including key trends, challenges, and opportunities. The entrepreneur documents potential challenges and mitigating strategies, demonstrating a proactive approach to ensure success. The business plan is supported by a minimum of six references, which provide research and analysis on the product or service, industry trends, and market dynamics, ensuring credibility and a well-informed approach.
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Many central banks around the world have a dual mission: Keep inflation in check, and promote full employment. QUESTION: What can monetary authorities do to contribute to full employment? Shrink the Central Bank's balance sheet Increase banks' reserve requirements Reduce the amount of money lent directly to the Government Decrease interest rates
Monetary authorities can take several actions to contribute to full employment:
Decrease interest rates: By lowering interest rates, monetary authorities can stimulate borrowing and investment by businesses and individuals. This increased economic activity can lead to job creation and a reduction in unemployment.
Increase banks' reserve requirements: Requiring banks to hold a higher percentage of their deposits as reserves reduces the amount of money available for lending. This measure aims to control excessive credit expansion, which can contribute to inflationary pressures. By managing the money supply more effectively, monetary authorities can help maintain stable economic growth and employment levels.
Shrink the Central Bank's balance sheet: Central banks often expand their balance sheets through asset purchases, such as government bonds or mortgage-backed securities, during periods of economic instability. As the economy improves, monetary authorities can gradually reduce the size of their balance sheet by selling assets. This withdrawal of liquidity from the financial system can help prevent overheating and inflation, promoting a more balanced and sustainable employment environment.
Reduce the amount of money lent directly to the Government: When central banks lend money directly to the government, it can increase the money supply and potentially lead to inflation. By limiting such lending and encouraging governments to finance their activities through other means, such as taxation or bond issuance, monetary authorities can maintain price stability and create an environment conducive to full employment.
It is important to note that the specific actions taken by monetary authorities to contribute to full employment may vary depending on the country's economic conditions, inflationary pressures, and the mandates and tools available to the central bank. Central banks often work in conjunction with fiscal policies and other economic measures implemented by the government to achieve their dual objectives of price stability and promoting full employment.
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Charles' father passed away some 12 months ago, leaving behind to him some properties, money and some shares of a company called Brightman Company Ltd., which was established by Charles' father and two friends of his, viz. Stanley and Larry. Charles now holds 30% of the total shares while Stanley and Larry each holds 35%. Being a shareholder, Charles has chance understanding the business of the Company, which was doing very well until about two years ago when the Company lost two major customers. The profit of the Company, though positive, has dropped by nearly 40%. Since Stanley and Larry are over 70 and eager to retire, they suggested to Charles to take over the whole Company by acquiring their shares at a bargain price. Charles was given the Company auditor's reports produced by Wong \& Luk Accounting Firm for his reference. Eventually Charles acquired 100% ownership of the Company. However, upon assuming the actual management of the Company, Charles found that the situation is worse than what he expected or understood from the auditor's report. Upoa detailed examination of the accounts, Charles found that the report acrually had misccpresented the profits of the Company. Charles now intends to stie Wong \& Luk. With reference to the facts given bbowe, please answer the following questions:
What is likely to be the paseed actioa. applicable in this case?
Charles is likely to file a lawsuit against Wong & Luk Accounting Firm for misrepresenting the Company's profits.
In this case, Charles, who inherited shares in Brightman Company Ltd., acquired full ownership of the company based on the auditor's reports provided by Wong & Luk Accounting Firm. However, after assuming management, Charles discovered that the actual financial situation of the company was worse than what was presented in the reports. Upon a detailed examination of the accounts, Charles found that the auditor's report had misrepresented the profits of the company, leading him to make an uninformed decision to acquire the shares. In response, Charles intends to take legal action against Wong & Luk Accounting Firm for their negligence in providing accurate financial information, seeking to hold them accountable for the misrepresentation and its resulting consequences.
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Questions:
1. UsingthePESTLEanalysis,doacomprehensivescanningofthebusiness environment discussing in detail the threats and opportunities for Gredon Nigeria Limited
2. Basedonyouranalysisinno.1above,suggeststrategiesonhowtotake advantage of the opportunities and how to mitigate the identified threats.
3. HowcanGredonNigeriaLtdtakeadvantageofthedemographicprofileand broadband penetration in Nigeria to increase sales
1. Gredon Nigeria Limited can leverage the demographic profile and broadband penetration in Nigeria to increase sales.
Gredon Nigeria Limited can take advantage of the demographic profile and broadband penetration in Nigeria to increase sales by implementing targeted marketing strategies and embracing digital platforms. The demographic profile of Nigeria, with its large and diverse population, offers opportunities for Gredon to tailor its products and marketing campaigns to specific consumer segments. By conducting market research and understanding the preferences and needs of different demographic groups, Gredon can develop personalized offerings that resonate with their target audience. Additionally, with the increasing broadband penetration in Nigeria, the company can leverage digital platforms to reach a broader customer base. By utilizing social media marketing, influencer collaborations, and online advertising, Gredon can effectively promote its products and engage with customers. Furthermore, partnering with internet service providers or telecommunications companies can allow Gredon to explore bundled services and enhance its online presence. By capitalizing on the demographic profile and broadband penetration in Nigeria, Gredon Nigeria Limited can tap into a larger customer base, drive sales growth, and establish a strong market presence.
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CRP CAnadian Railway Pacific .Select one company or organization according to your choice. You have to assess the Strength, weakness, opportunities and threats in respect to chosen organization.
Canadian Pacific Railway (CPR) is a prominent transportation company that operates a transcontinental railway network in Canada and the United States. It demonstrates several strengths, weaknesses, opportunities, and threats in its business operations.
Extensive Railway Network: CPR has a vast railway network spanning thousands of kilometers, allowing it to serve a wide range of markets and customers.
Efficient Operations: The company has a reputation for operational excellence, including reliable freight transportation and on-time delivery.
Strategic Partnerships: CPR has established strategic partnerships with other railroads and logistics providers, enhancing its connectivity and expanding its service offerings.
Weaknesses:
Reliance on External Factors: CPR's operations are susceptible to external factors such as weather conditions and regulatory changes, which can impact service reliability and operational efficiency.
Limited Market Share: In certain regions, CPR faces competition from other transportation providers, limiting its market share and potential revenue growth.
Infrastructure Maintenance: Maintaining and upgrading the railway infrastructure requires significant investments, posing a financial challenge for CPR.
Opportunities:
Intermodal Growth: The increasing demand for intermodal transportation presents an opportunity for CPR to expand its services and capture additional market share.
E-commerce Boom: The rapid growth of e-commerce creates opportunities for CPR to provide efficient transportation solutions for online retailers and fulfill last-mile delivery needs.
International Trade Expansion: CPR can leverage its transcontinental network to facilitate trade growth between Canada, the United States, and global markets.
Threats:
Competitive Landscape: CPR faces competition from other major railroads and transportation modes, which can potentially affect pricing, market share, and customer retention.
Regulatory Environment: Changes in regulations governing the transportation industry can introduce compliance challenges and impact operational costs for CPR.
Technological Disruption: Advancements in technology, such as autonomous vehicles or alternative transportation modes, could pose a threat to traditional rail transportation in the long run.
In conclusion, Canadian Pacific Railway possesses strengths such as an extensive network and operational excellence, but it also faces weaknesses related to external dependencies and limited market share. The company has opportunities in intermodal growth, e-commerce, and international trade expansion, but it must also navigate threats from competition, regulatory changes, and technological disruption.
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While the NCAA acts like a cartel, it differs from a standard cartel in that it
a) coordinates schools’ activities so as to fix the market price, assign output levels to their members, divide revenue, and erect barriers to entry by outside producers, which are not typically cartel activities.
b) was formed to monopolize a market.
c) None of the statements are true.
d) was not formed to monopolize the market.
The NCAA acts like a cartel but differs from a standard cartel in that it coordinates schools' activities to fix the market price, assign output levels, divide revenue, and erect barriers to entry, which are not typically cartel activities.
The correct option is (a)
It differs from a standard cartel in terms of its specific activities. While standard cartels focus on fixing prices and output levels, dividing revenue, and restricting entry by outside producers, the NCAA engages in activities beyond these typical cartel behaviors.
The NCAA coordinates the activities of member schools in collegiate sports, setting rules and regulations that govern various aspects of intercollegiate athletics. These activities include establishing eligibility criteria for student-athletes, enforcing recruiting rules, and organizing and regulating competitions. The NCAA also plays a role in revenue distribution and enforcement of rules related to amateurism and fair competition.
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Suppose the government gives every firm enough permits so that, without trade, every firm must clean two units of pollution. What will the cost be to every firm, and the cost to clean 6 units of pollution? The market price for a permit is $1300. Net Cost for US Steel ={ Net Cost for Ford =↑ Net Cost for Apple = \{ Societal cost to clean =$
The cost to every firm is $2600, the cost to clean 6 units of pollution is $7800, and the societal cost to clean the pollution is also $7800.
To calculate the cost to every firm and the cost to clean 6 units of pollution, we need to consider the cost of permits and the amount of pollution each firm needs to clean.
Every firm must clean two units of pollution without trade.
The market price for a permit is $1300.
Cost to every firm:
Since every firm needs to clean two units of pollution, and the market price for a permit is $1300, the cost to every firm would be:
Cost to every firm = 2 units of pollution * $1300/permit
Cost to every firm = $2600
Cost to clean 6 units of pollution:
To clean 6 units of pollution, we need to determine the number of permits required. Since each permit allows the firm to clean one unit of pollution, we divide the total units of pollution by the number of units cleaned per permit:
Number of permits required = 6 units of pollution / 1 unit per permit
Number of permits required = 6 permits
The cost to clean 6 units of pollution would be the cost of the permits:
Cost to clean 6 units of pollution = Number of permits * Market price per permit
Cost to clean 6 units of pollution = 6 permits * $1300/permit
Cost to clean 6 units of pollution = $7800
Societal cost to clean:
The societal cost to clean the pollution would be the sum of the costs to every firm. If we assume there are three firms (US Steel, Ford, and Apple), the societal cost to clean the pollution would be:
Societal cost to clean = Cost to every firm * Number of firms
Societal cost to clean = $2600 * 3
Societal cost to clean = $7800
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Rogers Communications offers live, online chat options for customers lookng to solve a concern of liwe a question. These agents can hrowse customers' accounts and suggest products and services that would serve the specific needs of the custome. This beneff that the customer geis from this experience ls?
The benefit that the customer gets from live, online chat options offered by Rogers Communications is personalized offerings. The correct option is C.
Rogers Communications' live, online chat options provide customers with the benefit of personalized offerings. Through these chat sessions, trained agents have the ability to browse customers' accounts, gaining insights into their specific needs and preferences. This enables the agents to suggest products and services that are specifically tailored to meet those individual requirements.
By offering personalized offerings and recommendations, customers are more likely to find solutions that address their unique concerns and provide them with the best value. This level of customization enhances the browsing experience by saving customers time and effort in searching for suitable options, ultimately resulting in a more satisfying and efficient customer service experience. Therefore, the correct option is C.
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Your question seems incomplete, but I suppose the question was:
"Rogers Communications offers live, online chat options for customers looking to solve a concern or have a question. These agents can browse customers' accounts and suggest products and services that would serve the specific needs of the customer. This benefit that the customer gets from this experience is?
A) enhanced browsing
B) entertainment value
C) personalized offerings
D) deeper and broader selection
E) personalized customer service
The business idea component of the feasibility study includes which of the following aspects?
A. Stage of development
B. Competition
C. Market penetration
D. You, your firm, and your fit
The business idea component of the feasibility study includes aspects A, B, C, and D.
Here's an explanation of each aspect:
A. Stage of development: This aspect examines the current stage of development of the business idea. It assesses whether the idea is still in the conceptual phase, has progressed to the prototype or testing stage, or is ready for commercialization. Understanding the stage of development helps determine the feasibility of implementing the idea.
B. Competition: This aspect focuses on analyzing the competitive landscape related to the business idea. It involves identifying and evaluating existing competitors, their strengths and weaknesses, market share, pricing strategies, and any potential barriers to entry. Assessing competition provides insights into the viability and potential market position of the business idea.
C. Market penetration: This aspect involves assessing the potential market demand and the ability of the business idea to penetrate and capture a share of that market. It includes analyzing market size, target audience, market trends, customer needs, and the uniqueness or value proposition of the business idea. Evaluating market penetration helps determine the market potential and the likelihood of success for the business idea.
D. You, your firm, and your fit: This aspect focuses on assessing the capabilities, resources, and fit of the individuals or organization behind the business idea. It includes evaluating the qualifications, experience, skills, and expertise of the key individuals involved in executing the idea. Additionally, it considers the organization's resources, such as financial capacity, infrastructure, and operational capabilities, to determine if they align with the requirements of the business idea.
Considering these aspects within the business idea component of the feasibility study provides a comprehensive evaluation of the idea's potential for success. It helps identify any strengths, weaknesses, opportunities, or threats associated with the idea and aids in making informed decisions about its feasibility and potential implementation.
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Consider an economy that produces one good, chairs. Chairs sell for a price of $100. This economy can produce a maximum of 12 million chairs; currently, they’re producing 11.3 million. This economy also has a government which issues bonds to raise revenue. Suppose the demand for government bonds with a $500 face value is P = 500 − 0.002Q, and there are currently 10,000 bonds issued.
(a) What is the current price of $500 face value bonds? What is the interest rate associated with this?
(b) Suppose the government issues an additional 1,000 bonds to raise revenue. What is the new price of bonds? What is the interest rate associated with this?
(c) Suppose the central bank wishes to intervene to restore interest rates to the level you found in part (a). Do they sell or purchase bonds, and how many?
(d) Assuming the central bank pays the price you found in part (a) for all the bonds it purchases, how much money does it spend in the economy? Assuming an MPC of 0.52, how much does this increase nominal GDP?
(e) Assume that additional spending in the economy first generates as much additional production as possible before bidding up prices. Does the central bank’s action described in parts (c) and (d) generate inflation? If so, how much?
(a) The current price of $500 face value bonds can be determined by substituting the given quantity of bonds (Q = 10,000) into the demand equation P = 500 - 0.002Q.
Thus, the current price is $480, and the associated interest rate can be calculated by dividing the difference between the face value and the price by the face value, i.e., (500 - 480) / 500 = 0.04 or 4%.
In detail, the demand equation for bonds, P = 500 - 0.002Q, represents the relationship between the price (P) and the quantity of bonds demanded (Q). By substituting the given quantity of bonds (Q = 10,000) into the equation, we find P = 500 - 0.002 * 10,000 = $480. The interest rate associated with this can be calculated as (500 - 480) / 500 = 0.04 or 4%.
(b) If the government issues an additional 1,000 bonds, the new quantity of bonds (Q) becomes 10,000 + 1,000 = 11,000. Substituting this value into the demand equation P = 500 - 0.002Q, we find that the new price of bonds is $478, and the associated interest rate remains the same at 4%.
To determine the new price of bonds, we substitute the new quantity of bonds (Q = 11,000) into the demand equation: P = 500 - 0.002 * 11,000 = $478. The interest rate remains unchanged at (500 - 478) / 500 = 0.04 or 4%.
(c) To restore interest rates to the level found in part (a), the central bank needs to **purchase bonds**. The quantity of bonds the central bank needs to purchase can be calculated by equating the new demand equation P = 500 - 0.002Q to the original price found in part (a) (P = $480). Solving for Q, we find Q = (500 - 480) / 0.002 = 10,000.
By equating the demand equation P = 500 - 0.002Q to the original price found in part (a) (P = $480), we can solve for Q: Q = (500 - 480) / 0.002 = 10,000. Hence, the central bank needs to purchase 10,000 bonds.
(d) Assuming the central bank pays the price found in part (a) ($480) for all the bonds it purchases, the total expenditure in the economy can be calculated by multiplying the price per bond by the number of bonds purchased. Thus, the central bank spends $480 * 10,000 = $4,800,000 in the economy. Given an MPC (marginal propensity to consume) of 0.52, the increase in nominal GDP can be calculated by multiplying the central bank's expenditure by the multiplier: $4,800,000 * (1 / (1 - 0.52)) = $10,000,000.
The total expenditure in the economy is calculated by multiplying the price per bond by the number of bonds purchased: $480 * 10,000 = $4,800,000. Assuming a marginal propensity to consume (MPC) of 0.52, the increase in nominal GDP is obtained by multiplying the central bank's expenditure by the multiplier: $4,800,000 * (1 / (1 - 0.52)) = $10,000,000.
(e) The central bank's action described in parts (c)
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Following is the unadjusted Trail balance of Dhananjay Sanskruti Twinkle & Co as on 31.03.2021 Sales 215200 Sales Return 5000 Sales Discount 1200 Purchase 80000 Purchase return and allowances 9500 Purchase discount 2500 Freight In 3300 Salary and wages 11000 Rent 6000 Interest 1200 Office furniture 50000 Inventory 15000 Bills Receivable 13000 Cash and Bank 15000 Rent paid in advance 3000 Bills Payable 9000 Retained Earning 6500 Share Capital 30000 Secured Loan 11000 Accumulated Depreciation 3000 Software 40000 Accumulated Amortization 5000 Promotion expenses 3000 Loan and advances 45000 Total 291700 291700 Prepare the statement of profit and loss and Balance sheet after considering following adjustment (50)
a. Current year depreciation 3000 and amortization 2500
b. Accrued interest on Loan and advances 1700.
c. Outstanding salary and wages 1500
d. Estimated income tax, 5000
e. Closing inventory 26000
The given task requires the preparation of the statement of profit and loss and the balance sheet for Dhananjay Sanskruti Twinkle & Co as of March 31, 2021, after considering certain adjustments. The adjustments include current year depreciation and amortization, accrued interest on loan and advances, outstanding salary and wages, estimated income tax, and closing inventory.
To prepare the statement of profit and loss, we need to consider the adjustments provided. The adjustments include current year depreciation of $3,000 and amortization of $2,500, which are subtracted from their respective expense categories. The accrued interest on loan and advances of $1,700 is added to the interest expense category. The outstanding salary and wages of $1,500 are added to the salary and wages expense category. The estimated income tax of $5,000 is subtracted from the net income. Finally, the closing inventory of $26,000 is subtracted from the purchases category.
Once the statement of profit and loss is prepared, we can use the information to prepare the balance sheet. The balance sheet includes various asset, liability, and equity categories. The given trial balance provides the necessary information for these categories. The adjustments do not directly impact the balance sheet items. However, they may indirectly affect retained earnings and income tax payable.
By properly incorporating the adjustments and organizing the information from the trial balance, we can prepare the statement of profit and loss and the balance sheet as required.
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Suppose you wish to insure an asset valued at $900. Only two states of the world can occur in the future, FIRE and NO FIRE, with probabilities .20 and .80 respectively. In the FIRE event, the asset is completely destroyed. Your initial wealth (including this asset) is $1,000, and your utility U(W)=lnW. A. Suppose an insurer offers to fully insure your fire risk for a price of $180. Should you purchase this insurance policy? Why or why not? B. If the price for full coverage is $250, should you fully insure? Why or why not? C. What is the maximum price you are willing to pay to fully insure this risk? Explain how you determined the answer to this question.
Solving for p gives the maximum price as $205.
A. Yes, you should purchase this insurance policy. The reason is that if you don't purchase insurance policy and the fire occurs, you will lose the asset completely which means that your wealth will fall from $1,000 to $100 and your utility level will also fall.
On the other hand, if you buy the insurance, then you have to pay $180 but if the fire occurs, you will receive the full $900 as a replacement of the asset.
The expected wealth with insurance is
$1000 - $180 + $720 = $1,540
while expected wealth without insurance is
$1000 x 0.2 + $1000 x 0.8 x $100 = $280.
Comparing the two expected wealth levels, we can say that purchasing insurance policy would be more profitable than not buying insurance policy.
B. No, you should not fully insure at this price. The reason is that if you buy the insurance policy at $250, then your expected wealth level would be
$1000 - $250 + $720 = $1470. While expected wealth without insurance policy is
$1000 x 0.2 + $1000 x 0.8 x $100 = $280.
Comparing the two expected wealth levels, we can see that without insurance policy the expected wealth level is higher. Thus, it is better to not buy the insurance policy at this price.
C. The maximum price you are willing to pay to fully insure this risk is $205.
The expected utility level without insurance is
ln $280 + ln $720 = ln $201,
which gives us a utility level of approximately 5.3.
To find the maximum price, set the expected utility level from buying insurance equal to the expected utility level without buying insurance, and solve for the price of the insurance. We have,
ln($1000 − p + 0.8($900)) = ln($1000 + 0.2($900)),
where p is the price of the insurance.
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