A. Cost of automotive batteries: V (Variable)
B. Wages paid to employees who deliver parts to customers: V (Variable)
C. Cost of shelving for the showroom: F (Fixed)
D. Utilities: water, electricity, and heat: F (Fixed)
E. Freight paid to receive parts from the warehouse: V (Variable)
A. The cost of automotive batteries is likely a variable cost because it varies with the number of products sold. As more batteries are sold, the cost of batteries increases proportionately.
B. Wages paid to employees who deliver parts to customers are also variable costs. The number of employees needed for deliveries depends on the level of sales activity. As the number of deliveries increases, so does the cost of wages.
C. The cost of shelving for the showroom is a fixed cost. Once the shelving is installed, the cost remains constant regardless of the level of sales activity. It does not vary based on the number of products sold.
D. Utilities such as water, electricity, and heat are typically considered fixed costs. They do not directly vary with the number of products sold but are necessary for the operation of the store regardless of sales volume.
E. Freight paid to receive parts from the warehouse is a variable cost. The amount of freight expenses will increase as more parts are ordered and received from the warehouse. The cost varies based on the level of activity in purchasing and receiving inventory.
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You are an investment advisor for Alan and Jimmy. You've helped them optimally allocate their investment portfolios along the same capital allocation line (CAL). If Alan's portfolio has a higher weight on risk-free asset than Jimmy's portfolio, then which of the following statements MUST be true:
I. Alan's Portfolio has lower expected returns than Jimmy's
II. Alan is less risk-averse than Jimmy
III. Alan must hold a positive position in the risky asset
Given, Alan's portfolio has a higher weight on risk-free assets than Jimmy's portfolio and both Alan and Jimmy's investment portfolios are optimally allocated along the same capital allocation line (CAL).
The main idea of CAL is to determine the optimal combination of risky assets and the risk-free asset. The optimal portfolio is at the point where the CAL is tangent to the efficient frontier. The slope of the CAL is equal to the Sharpe ratio of the optimal portfolio.
The statement that MUST be true is III. Alan must hold a positive position in the risky asset. Because Jimmy and Alan are both optimally allocated along the same capital allocation line, Alan will have a higher expected return if he increases his allocation to risky assets. As a result, Alan must hold some positive position in risky assets.
I. Alan's portfolio has lower expected returns than Jimmy's is incorrect because Alan and Jimmy are both optimally allocated along the same capital allocation line. Jimmy and Alan's portfolio's expected returns should be the same.
II. Alan is less risk-averse than Jimmy is incorrect because Alan has a higher allocation to the risk-free asset. Therefore, he is more risk-averse.
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Randy Davis is a manager in the Facilities Department at Hudson College. He is the team leader of employees who work on landscaping, make minor repairs to the buildings, load and unload deliveries He reports to Brad Tomlinson, who became the director of facilities 3 months ago.
Davis has been employed by Hudson College for nearly 30 years. He is 58 years old and one of the most senior employees in the department. Randy is authorized and certified to operate a hi-lo and does so as needed. Davis has typically been a good worker but recently co-workers have noticed his morale has declined; he’s more irritable and moodier. It is known that Tomlinson is not pleased with Davis. In Tomlinson’s view, Davis is resistant to change and always has a reason for why it "can’t be done that way".
Last week Davis was driving a hi-lo when, according to him, the brakes failed, "they locked up." As Davis tried to get the vehicle under control, it tipped over. Davis was not wearing a safety belt and he fell out suffering a concussion and an injury to his hip that required surgery.
Janice Palmer witnessed the accident. She confided to Tomlinson that Davis was driving "pretty fast" when he turned a corner and the hi-lo tipped over. She pointed out what appear to be skid marks on the floor, which could indicate that the brakes had engaged, and perhaps Davis was driving too fast. It could also indicate that the brakes locked up when Davis went to engage them. An inspection of the hi-lo showed wear and tear on the brakes but was inconclusive as to whether they worked properly or locked up at the time of the accident.
Davis will be out of work for 4 months. It is expected he will then be able to return to work. While there will be temporary restrictions on what he can physically do, the only permanent restriction will be that he cannot sit for more than 2 hours at a time without a break to stand up, walk around and stretch for 10 minutes. Given Davis’s normal duties the college should be able to accommodate Davis’ temporary an permanent restrictions without a problem.
Typically, all accidents and surrounding information are reviewed by Janet Mullins, director of human resources. Mullins likes to review these cases to makes sure all the legal bases are covered and considered. She just reviewed the Davis accident and medical records sent to Hudson College for his personnel file. Interestingly, Brad Tomlinson asked to meet with Mullins to discuss Davis shortly after the review..
During the meeting, Tomlinson, not so subtly implied that he thinks it is time for Davis to "retire" and "move on or out." Whether Davis was driving too fast or he was unable to adequately manage the vehicle, Tomlinson does not think Davis is up to the job any more.
"He’s stuck in the past and has a bad attitude. He’s not good for the department." Tomlinson told Mullins. He finished his assessment of Davis by saying, "And, I’m not sure we even need a manager any more, he’s a pretty expensive employee."
Mullins thanked Tomlinson for his input and told him she will consider the options.
Before Tomlinson left, Mullins expressed her concerns about safety in the Facilities department. The Davis accident was only 1 of 6 accidents in the department that have led to lost work time ranging from 3 days to 3 months. Mullins told Tomlinson, she understood 4 of the 6 accidents occurred before he took over, but Mullins is concerned about the trend.
QUESTION:
Like many of the situations that land on Mullins’ desk, this one raises a variety of possible legal issues that will have to be considered and navigated. Based on the scenario, identify the 4 most applicable laws or legal issues that apply. Explain why you believe the law applies to the situation; what Hudson College’s obligation is under each law.
Based on the scenario, the 4 most applicable laws or legal issues that apply and Hudson College’s obligation is each law. are as follows:
1. Worker’s compensation law: This law requires the employer to provide employees with benefits in the event of a work-related injury. If the injured employee is unable to work, the employer must provide wage replacement benefits. Therefore, Hudson College must ensure that Randy Davis is compensated for his medical expenses and any lost wages. The obligation of Hudson College under this applicable law or legal issues is to compensate Davis for his medical expenses and any lost wages.
2. Disability discrimination law: This law prohibits discrimination against employees with disabilities. Hudson College must accommodate Davis’s temporary and permanent restrictions and allow him to continue working after he recovers. The obligation of Hudson College under this law is to accommodate Davis’s temporary and permanent restrictions and allow him to continue working after he recovers.
3. OSHA regulations: These regulations mandate that employers maintain a safe work environment for their employees. Hudson College must take steps to improve safety in the Facilities department to avoid future accidents and ensure compliance with OSHA regulations. The obligation of Hudson College under this law is to improve safety in the Facilities department and ensure compliance with OSHA regulations.
4. Age discrimination law: This law prohibits employers from discriminating against employees based on their age. Hudson College must not force Davis to retire based on his age. The obligation of Hudson College under this law is not to force Davis to retire based on his age.
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Which of the following is defined as the fixed return of a
long-term debt instrument?
a) Coupon rate
b) Discount rate
c) Variable rate
d) Ordinal rate
The coupon rate refers to the fixed return or interest rate paid by a long-term debt instrument, such as a bond or a loan. It is expressed as a percentage of the bond's face value and determines
When an investor purchases a bond with a specific coupon rate, they expect to receive periodic interest payments at that fixed rate. For example, a bond with a $1,000 face value and a 5% coupon rate will pay $50 in interest annually (5% of $1,000).The coupon rate remains constant throughout the life of the bond, providing a predictable income stream for bondholders. It is an essential factor in determining the attractiveness of a bond to investors and helps establish the bond's yield and market price.of the bond's face value and determines the regular interest payments that the issuer will make to the bondholder over the bond's term.
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Answer all parts for upvote. 1 or 2 parts answered will get downvote from and my whole class of 30 students.
Vitality Vancouver Inc. (VVI) has recently raised debt capital through long-term financing. The bond indenture includes issuing 8% coupon bonds on the market that are selling at $989, pay interest semi-annually, and mature in fifteen years. The company would like to issue additional $1 million in new fifteen-year bonds. VVI has another bond issue outstanding that pays a 7.5% coupon and matures in 14 years. The bond has a par value of $1,000 and a market price of $942.90. Interest is paid semiannually.
The company evaluates the potential of issuing a third bond that pays an annual coupon of $35, has a face value of $1,000, matures in seven years, and has a yield to maturity of 8%. As a result of the recent financing, the CFO of the company is concerned about protective covenants that could hamper the future risk-taking ability of the firm. In particular, the bondholders reserve the right to force the repayment of the bonds prior to the maturity. VVI is also experiencing rapid growth. Dividends are expected to grow at 20% per year during the next three years, 10% over the following year, and then 4% per year indefinitely. The required return on this stock is 10%.
The company is also considering the prospect to issue some preferred stock to alter the capital structure of the firm. It is however unsure about the main characteristics of the preferred stock which could cause some dilution to the existing capital structure due to similarity with another instrument. The CFO is also preparing for a meeting with the Board of Directors next week. While giving the final touches to the quarterly results, he realizes the board is likely to focus on the potential of dividend distribution to various classes of shareholders. The CFO has additionally prepared some notes regarding the voting structure of those classes of stocks. The company plans to improve the profitability and stock price related ratios because of the recent changes in the capital structure.
1. What coupon rate should be applied to the new bonds if VVI wants to sell them at par? (Use values in the dollar)
2. What is the yield to maturity on a 14-year bond?
3. What should be the price of the third bond being considered for an issue?
4. What is the projected stock price for the coming year, if VVI just paid a $2 dividend?
5. Assuming VVI's stock is currently selling for $51, the expected dividend one year from now is $1.50 and the required return is 10, what is the firm’s dividend growth rate?
6. How would issuing the preferred stock affect the capital structure of the firm in comparison to the common stock?
7. Why is the dividend distribution and voting structure a matter of interest to the Vitality’s board?
8. What recommendations would you make in improving the financial prospect of the company especially with respect to the relevant ratios?
To sell the new bonds at par, the coupon rate should be set equal to the bond's yield to maturity. This means the coupon rate should match the required return on the bond. Since the yield to maturity on the bond is not provided in the question, we cannot determine the exact coupon rate.
We need the coupon rate, market price, and par value of a 14-year bond to compute the yield to maturity. 7.5% is the coupon rate, $942.90 is the market price, and $1,000 is the par value. We may compute the yield to maturity using financial calculations or financial calculators/software utilising these variables.The present value formula may be used to compute the price of the third bond. The yearly coupon payment is $35, the face value is $1,000, the maturity is seven years, and the yield to maturity is 8%. We may calculate the present value of the bond, which represents its price, by discounting future cash flows.
To calculate the projected stock price for the coming year, we need more information. The $2 dividend is provided, but we also need the dividend growth rate or any other relevant information to estimate the future stock price. The formula is: Dividend Growth Rate = (Dividend Next Year / Current Stock Price) - 1. Given the expected dividend of $1.50, the current stock price of $51, and the required return of 10%, we can plug in these values to find the dividend growth rate.
Issuing preferred stock can affect the capital structure of the firm in comparison to common stock. Preferred stock usually has a fixed dividend payment and holds priority over common stock in terms of dividend distribution and liquidation. It is considered as a hybrid security, combining features of both debt and equity. Dividend distribution determines the amount of profits returned to shareholders, which can influence stock prices and shareholder satisfaction. The voting structure determines the power and influence of different classes of shareholders, allowing them to make decisions and elect the board of directors.
To improve the financial prospects of the company, several recommendations can be made. Firstly, VVI should focus on optimizing its capital structure by balancing debt and equity to minimize costs and maximize returns. This may involve refinancing existing debt at lower interest rates or exploring opportunities for equity financing. Secondly, the company should aim to improve its profitability ratios by increasing revenues, reducing costs, and enhancing operational efficiency. This could involve strategic initiatives such as expanding into new markets, improving product offerings, or implementing cost-cutting measures.
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Beverly is assessing the results of a new product launch of a series of e-books for her bookstore.When evaluating the results,Beverly will likely consider all of the following except
A) why it took her so long to consider the new product line.
B) if the e-books are generating the expected level of profit.
C) if the e-books are generating the expected level of sales.
D) if her customers are interested in the new books.
E) if the e-books function as expected.
The one she is least likely to consider is option A) why it took her so long to consider the new product line. Option A
The reason why this option is less likely to be a consideration is that it focuses on the timing or delay in considering the new product line, rather than evaluating the results and outcomes of the product launch itself.
While understanding the timing and decision-making process is relevant for future planning and improvements, it is not directly related to assessing the success or effectiveness of the new product launch.
On the other hand, options B, C, D, and E are more relevant factors that Beverly would likely consider when evaluating the results of the new product launch.
These factors are directly related to the performance and impact of the e-books on the bookstore's profitability, sales, customer interest, and functionality. By assessing these factors, Beverly can gain insights into the success of the product launch, identify areas of improvement, and make informed decisions for future strategies.
In summary, while the timing of considering the new product line may be a valid point of reflection, it is less likely to be the primary focus when evaluating the results of the new product launch.
Instead, Beverly would be more inclined to consider factors such as profitability, sales, customer interest, and product functionality.
Option A
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4. An increase in income will cause:
Select one:
a. a decrease in the supply of reserves.
b. an increase in the demand for currency.
c. an increase in the supply of central bank money.
d. a decrease in the demand for currency.
e. an increase in the supply of reserves.
5. Suppose there is a simultaneous tax increase and open market sale of bonds. Which of the following must occur as a result of this?
Select one:
a. Output increases.
b. Output decreases.
c. The interest rate increases.
d. The interest rate decreases.
e. Both output and the interest rate increase.
6. A decrease in the reserve ratio, θ, will cause:
Select one:
a. A decrease in reserves.
b. An increase in the monetary base.
c. An increase in the money multiplier.
d. A decrease in the monetary base.
e. A decrease in the money multiplier.
4. b. an increase in the demand for currency.
An increase in income generally leads to an increased demand for currency.
As individuals and businesses experience higher income levels, they tend to have more purchasing power and engage in increased economic activity. This, in turn, raises the demand for currency to facilitate transactions and meet the higher demand for goods and services.
5. c. The interest rate increases.
A simultaneous tax increase and open market sale of bonds is likely to reduce the amount of money available in the economy . As taxes increase, households and businesses have less disposable income to spend, leading to a decrease in aggregate demand. Additionally, an open market sale of bonds by the central bank reduces the money supply. These actions put upward pressure on interest rates as the demand for money decreases. Higher interest rates are an outcome of reduced spending and a tighter monetary policy.
6. c. An increase in the money multiplier.
The reserve ratio refers to the percentage of deposits that banks are required to hold as reserves. A decrease in the reserve ratio, represented by θ, reduces the amount of reserves banks need to hold against their deposits. As a result, banks have more excess reserves, which they can use to extend loans and increase the money supply. This leads to an increase in the money multiplier, as a smaller amount of reserves can support a larger amount of money creation through the banking system. Consequently, a decrease in the reserve ratio stimulates lending and increases the money supply in the economy.
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Which of the following represents a mandatory government outlay?
A) a payment made to a construction worker who was hired to pave a road
B) the payment of health care expenses for those participating in the Medicare program (health care for the poor)
C) rental assistance payments made to those who are poor
D) the purchase of a new tank to replace a tank destroyed during a war
Correct answer is B) the payment of health care expenses for those participating in the Medicare program (health care for the poor).
A mandatory government outlay refers to a government expenditure that is required by law or a pre-established program. It is a payment or expense that the government is obligated to make, typically to fulfill certain social welfare or public service commitments.
Option B represents a mandatory government outlay because it involves the payment of health care expenses for individuals participating in the Medicare program. Medicare is a federal health insurance program primarily targeting individuals aged 65 and older, as well as certain younger individuals with disabilities. The program provides health care coverage and assistance to those who qualify, particularly the elderly and low-income individuals. The government is mandated to allocate funds and provide health care services to eligible participants as specified by the program's legislation.
On the other hand, options A, C, and D do not necessarily represent mandatory government outlays. Option A refers to a payment made to a construction worker for a specific service provided, which is not an obligatory government expense but rather a contractual agreement. Option C refers to rental assistance payments made to those who are poor, which may fall under a government welfare program but is not mandated as a required outlay. Option D refers to the purchase of a new tank to replace a tank destroyed during a war, which represents a discretionary government expenditure for defense purposes, rather than a mandatory payment.
Overall, mandatory government outlays are expenses that are compelled by law or established programs to fulfill specific obligations, such as providing public services, social welfare benefits, or fulfilling statutory commitments.
Hence, correct answer is B) the payment of health care expenses for those participating in the Medicare program (health care for the poor).
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Which of the following questions about company news is true?
Group of answer choices
a. How large is the business?
b. Has the company recently appeared in the news?
c. Are the company’s products used by businesses or individual consumers?
d. Is the customer making a first-time purchase of the product?
e. Will this purchase be a rebuy?
The true statement among the given options about company news is: Has the company recently appeared in the news?
While all the options pertain to questions about company news, the only one that specifically addresses the aspect of recent news coverage is option b. This question focuses on whether the company has been featured or mentioned in recent news articles, reports, or media coverage.
Option a, "How large is the business?", is a question about the size or scale of the company, which may not necessarily be related to recent news.
Option c, "Are the company's products used by businesses or individual consumers?", is a question regarding the target market or customer base of the company's products, rather than news coverage.
Option d, "Is the customer making a first-time purchase of the product?", is a question about the customer's purchase behavior and history, which may not be directly connected to company news.
Option e, "Will this purchase be a rebuy?", is a question related to the customer's decision to repurchase a product, which is not directly related to company news either.
Therefore, the only question related to company news among the options is whether the company has recently appeared in the news.
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Communication Accommodation Theory claims that people sometimes adjust their speech style away from one another in some circumstances. Explain this phenomenon using examples of real language in use in English or Vietnamese.
Communication Accommodation Theory (CAT) suggests that individuals may adjust their speech style to either converge or diverge from others, depending on social and contextual factors.
Convergence occurs when speakers adopt similar speech patterns, while divergence involves intentionally diverging from the speech style of others.In English, convergence can be observed when someone adopts a regional accent or dialect to fit in with a particular social group. Divergence can also be seen in English conversations. If a person wants to emphasize their distinctiveness or assert their social identity, they may intentionally diverge from the speech style of others.For instance, a university professor might use more technical language and complex sentence structures during a lecture, setting themselves apart from the students and establishing their authority.
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________ is the income that a business owner retains after paying all the expenses associated with the operation of the business.
The income that a business owner retains after paying all the expenses associated with the operation of the business is known as "net income".
Net income is also referred to as profit, earnings, or the bottom line. The term "bottom line" is used because it typically appears at the bottom of a company's income statement. It is calculated by subtracting all of a company's expenses from its total revenue.
Net income is a crucial aspect of a company's financial health, as it provides an accurate depiction of how profitable the company is. A positive net income indicates that the company is generating revenue that exceeds its expenses, while a negative net income indicates that the company is losing money.
A company with a consistently positive net income is considered financially stable, while a company with a negative net income may be at risk of bankruptcy.
In conclusion, net income is a fundamental metric in business accounting that measures the financial health of a company and provides insights into its profitability.
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The expected return and volatility for the market portfolio are 10.68% and 0.33, respectively. The current T-Bill rate is 3.31%. What is the expected return of a portfolio consisting of $44,000 in the market portfolio and $13,000 in T-Bills? Enter your answer as a percentage and show 2 decimal places. For example, if your answer is .0955, enter 9.55.
The expected return of a portfolio consisting of $44,000 in the market portfolio and $13,000 in T-Bills can be calculated based on the given information.
To calculate the expected return of the portfolio, we need to consider the weights of each asset in the portfolio and their respective expected returns. The weight of the market portfolio is $44,000 / ($44,000 + $13,000) = 0.7719, and the weight of T-Bills is $13,000 / ($44,000 + $13,000) = 0.2281.
The expected return of the portfolio can be calculated using the weighted average of the expected returns of the individual assets. The expected return of the market portfolio is 10.68%, and the expected return of T-Bills is the risk-free rate of 3.31%.
Now, we can calculate the expected return of the portfolio:
Expected return of the portfolio = (Weight of market portfolio * Expected return of market portfolio) + (Weight of T-Bills * Expected return of T-Bills)
Expected return of the portfolio = (0.7719 * 10.68%) + (0.2281 * 3.31%)
Calculating the above expression, the expected return of the portfolio is approximately 9.50%.
Therefore, the expected return of the portfolio consisting of $44,000 in the market portfolio and $13,000 in T-Bills is 9.50% when rounded to two decimal places.
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Pick an employment issue involving employment rights and obligations. Feel free to use the National Football League and Brain Injury Case in our text. Can you use one or more examples to explain why it is controversial or something that companies and/or employees struggle with?
The issue highlights the struggle between the obligations of companies to protect their employees' health and safety by employers
The issue of brain injuries in the NFL has sparked significant controversy and exemplifies the challenges faced by both companies and employees regarding employment rights and obligations. In the case of the NFL, players have raised concerns about the long-term health consequences of repetitive head injuries sustained during their careers.
Many former players have experienced chronic traumatic encephalopathy (CTE), a degenerative brain disease linked to repetitive head trauma. These injuries have led to lawsuits against the NFL, as players argue that the league failed to adequately inform them about the risks and failed to take appropriate measures to protect their safety.
The controversy arises from the clash between the NFL's obligation to ensure the health and safety of its players and the nature of the sport itself, which inherently involves physical contact and the risk of injuries. Balancing the obligations to protect players while maintaining the essence of the game poses a significant challenge. The issue raises questions about the duty of companies to provide a safe working environment, the level of disclosure and informed consent required from employees, and the responsibility of employers to mitigate risks associated with the job.
Overall, the NFL brain injury case demonstrates the complexities surrounding employment rights and obligations in industries where physical risks are inherent. It highlights the ongoing struggle to find a balance between preserving employee well-being and meeting the demands and expectations of the job.
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When working on an accurate quote for a customer, what is one important thing the forwarder needs to be aware of? Select one answer.
a The customer's solvency status
b Providing the cheapest alternative
c Currency and interest rate fluctuations
d Invoicing options
c Currency and interest rate fluctuations
When working on an accurate quote for a customer, one important thing the forwarder needs to be aware of is currency and interest rate fluctuations. Here's why:
Currency Fluctuations: When conducting international business, exchange rates between different currencies can fluctuate. These fluctuations can impact the cost of transportation, customs duties, and other related expenses. The forwarder must consider the current exchange rates and factor them into the quote to provide an accurate cost estimation. Ignoring currency fluctuations can result in significant financial discrepancies between the quoted price and the actual cost incurred.
Considering currency and interest rate fluctuations is crucial for forwarders to ensure that their quotes are reliable and transparent. It allows both the forwarder and the customer to have a clear understanding of the financial implications of the transportation or logistics services being provided. By accounting for these fluctuations, the forwarder can mitigate financial risks and provide a more accurate and realistic quote to the customer.
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Discuss the pros and cons of imposing capital adequacy and
liquidity requirements on banks
Imposing capital adequacy and liquidity requirements on banks has both pros and cons. On the positive side, these requirements promote financial stability, protect depositors, and reduce the likelihood of bank failures.
They ensure that banks have enough capital to absorb losses and maintain solvency. Additionally, liquidity requirements ensure that banks have enough liquid assets to meet short-term obligations.
However, these requirements can also have drawbacks, such as potentially increasing compliance costs for banks and limiting their ability to take on risk.
Striking the right balance is crucial to ensure a safe and sound banking system while allowing banks to fulfill their role in supporting economic growth.
Capital adequacy requirements are designed to ensure that banks maintain a sufficient level of capital to absorb potential losses.
By mandating a minimum capital ratio, such as the Basel III framework's minimum Tier 1 capital requirement of 6%, regulators aim to enhance the resilience of banks and protect depositors.
Adequate capital levels provide a cushion to absorb unexpected losses, reducing the likelihood of bank failures and systemic risks.
Liquidity requirements, on the other hand, focus on ensuring that banks have sufficient liquid assets to meet short-term obligations.
These requirements typically involve maintaining a minimum liquidity coverage ratio (LCR) and net stable funding ratio (NSFR). By having readily available liquid assets, banks can withstand liquidity shocks, maintain confidence, and fulfill their payment obligations.
The benefits of imposing capital adequacy and liquidity requirements are evident. They contribute to financial stability, reducing the risk of bank failures and the need for taxpayer-funded bailouts.
These requirements also enhance depositor protection, as banks with adequate capital are more likely to honor their obligations to depositors.
However, there are also potential drawbacks to consider. Imposing stringent capital and liquidity requirements can increase compliance costs for banks, especially smaller institutions that may struggle to meet the prescribed thresholds.
This can potentially limit their ability to lend and support economic growth, particularly in periods of economic downturns when capital and liquidity become scarcer.
Furthermore, excessive regulation may lead to a one-size-fits-all approach, disregarding the unique characteristics and risk profiles of different banks.
Finding the right balance is crucial. Stricter capital and liquidity requirements contribute to financial stability, but they should be carefully calibrated to avoid overly burdensome regulations that stifle lending and hinder economic activity.
Regulators need to strike a balance between ensuring a safe and sound banking system and allowing banks the flexibility to support economic growth while managing risks effectively. Regular assessment and adjustments to these requirements based
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Which of the following would notbe an activity a return facilitator handles?
a.recommending a new supplier
b.repairing the manufactured good
c.requesting money back for a customer
While a return facilitator may play a role in managing the return process, recommending new suppliers, and requesting money back for customers, they are typically not involved in repairing manufactured goods. Repairing a product is generally handled by specialized technicians or a separate department responsible for product repairs. The return facilitator's focus is primarily on the logistics and administrative aspects of returns, ensuring a smooth and efficient return experience for customers and the organization.
The activity that would not be handled by a return facilitator is:
b. Repairing the manufactured good.
A return facilitator is responsible for managing the return process of goods or products. Their main role is to streamline and facilitate the return of items from customers to the seller or manufacturer. They handle various tasks related to returns, such as processing return requests, coordinating logistics for product pickup, verifying the condition of returned goods, and initiating refunds or exchanges.
a. Recommending a new supplier:
A return facilitator may play a role in assessing the quality of goods and identifying suppliers who can provide better products to avoid future returns. They can make recommendations to the company's procurement team regarding alternative suppliers or products that meet customer expectations and reduce return rates.
c. Requesting money back for a customer:
One of the key responsibilities of a return facilitator is to process refunds for customers. They handle customer inquiries, verify the eligibility for refunds based on return policies, and initiate the necessary actions to ensure the customer receives their money back.
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Which one of the following investments will be worth the most after 12 years (Choose the most correct option)?
•Investment 1: A fixed investment (NACM) of R8.2 million, generating a return of 5.22% per annum.
•Investment 2: A zero-coupon bond with a face value of R16 million and an initial maturity of 12 years. Assume that the annual required rate of return is 4.88%.
•Investment 3: A Money Market Call Account (NACW) of R 9.5 million, generating a return of 3.82% per annum.
Alternatives:
A.Investment 3.
B.Investment 2.
C.Investment 1.
The investment that will be worth the most after 12 years is Investment 2 which is a zero-coupon bond with a face value of R16 million and an initial maturity of 12 years. The required rate of return is 4.88%.
To calculate the future value of each investment, use the following formulas:
Investment 1: Future Value = [tex]R8.2 million * (1 + 0.0522)^{12}[/tex]
Investment 2: Future Value = [tex]R16 million[/tex]
Investment 3: Future Value = [tex]R9.5 million * (1 + 0.0382)^{12}[/tex]
After evaluating the future values, we find that the investment with the highest value after 12 years is Investment 2, which is the correct answer.
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write a brief note on the corporate model of calvert investment and
show how it impacted performance
Calvert Investment, a prominent sustainable investment firm, adopted a corporate model to guide its operations, which had a significant impact on its performance.
The corporate model implemented by Calvert Investment emphasized integrating environmental, social, and governance (ESG) factors into its investment decisions. This approach involved considering the impact of a company's operations on the environment, its social responsibility, and its governance practices. By prioritizing ESG factors, Calvert aimed to align its investments with sustainability objectives while also seeking financial returns.
The corporate model had a notable impact on Calvert Investment's performance. By incorporating ESG analysis into their investment process, Calvert was able to identify companies with strong sustainability practices and avoid those with questionable track records. This approach helped Calvert generate positive financial returns while supporting sustainable business practices. Additionally, the corporate model allowed Calvert to attract socially conscious investors who were seeking to align their investments with their values.
Overall, the corporate model adopted by Calvert Investment proved beneficial in terms of performance. It enabled the firm to pursue both financial and sustainability goals simultaneously, demonstrating that incorporating ESG factors into investment decisions can lead to positive outcomes for both investors and the broader society.
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For each of the separate scenarios, determine the associated shortcoming of fiscal policy:
- Students do not need to buy laptops as they can get free laptops from the government.
- The government believes that the economy is doing well. Yet the economy is in a recession. Households and firms reduce their spending significantly.
- Some households consume less after a tax cut because they expect the government will raise taxes in the future.
- The tax cut was implemented last year. Yet the economy is still in a recession.
savings shift
recognition lag
crowding out
implementation lag
impact lag
- Students do not need to buy laptops as they can get free laptops from the government: The associated shortcoming of fiscal policy in this scenario is crowding out.
When the government provides free laptops to students, it reduces the need for them to purchase laptops from the market. This can negatively impact the private sector's laptop sales and potentially crowd out private businesses that rely on the sale of laptops. It may lead to decreased investment and innovation in the private sector due to reduced demand for their products.
- The government believes that the economy is doing well, yet the economy is in a recession. Households and firms reduce their spending significantly: The associated shortcoming of fiscal policy in this scenario is recognition lag. Recognition lag refers to the delay in identifying or recognizing changes in the economy.
- Some households consume less after a tax cut because they expect the government will raise taxes in the future: The associated shortcoming of fiscal policy in this scenario is savings shift.
- The tax cut was implemented last year, yet the economy is still in a recession: The associated shortcoming of fiscal policy in this scenario is Impact lag. Impact lag refers to the delay between implementing fiscal policy measures and observing their full effects on the economy. Even if a tax cut was implemented, it may take time for the effects to propagate through the economy and stimulate economic activity.
It's important to note that these shortcomings are specific to the given scenarios and may not represent all possible shortcomings of fiscal policy in general. Fiscal policy effectiveness can depend on various factors, including the timing, design, and implementation of policy measures.
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The Single Audit Act of 1984, as amended in 1996 requires an annual audit of all governments, agencies, and nonprofit organizations that:
Multiple Choice
spend $500,000 or more federal funds.
spend $750,000 or more federal funds.
receive $500,000 or more federal funds.
receive $750,000 or more federal funds.
The correct answer is: receive $750,000 or more federal funds.
The Single Audit Act of 1984, as amended in 1996, mandates an annual audit for all governments, agencies, and nonprofit organizations that receive $750,000 or more in federal funds. This act was put in place to ensure accountability and transparency in the use of federal funds by entities receiving such funds. The audits conducted under the Single Audit Act examine the financial statements, internal controls, and compliance with applicable laws and regulations. The objective is to evaluate whether the funds are used in accordance with the intended purposes and to identify any instances of fraud, waste, or mismanagement. By imposing this requirement, the Single Audit Act aims to safeguard taxpayer dollars and promote effective and efficient use of federal funds.
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Muhammad Afifi wants to earn an income by writing a call option on Gamuda Berhad stock. The current stock price of Gamuda is RM40 per share, and Afifi wants to write a 3-month call option with a striking price of RM40 per share. Afifi plans to use the Black-Scholes model (BSOPM) to determine the appropriate premium to charge for the call option. Afifi has determined that the stock's variance is 0.25. The riskless rate is assumed to be 9 percent. Calculate the theoretical value of the Gamuda's call premium by using Black-Scholes model. (10 marks)
To calculate the theoretical value of the call premium using the Black-Scholes model, we utilize the formula: C = S * N(d1) - X * e^(-r * T) * N(d2), where C represents the call premium, S is the current stock price (RM40),
N denotes the cumulative standard normal distribution function, d1 and d2 are derived variables, X signifies the striking price of the call option (RM40), e is Euler's number (approximately 2.71828), r represents the riskless rate (9% or 0.09), T is the time to expiration in years (3/12 or 0.25), and σ symbolizes the standard deviation or volatility of the stock price (√0.25).
By plugging in the given values into the formula and performing the necessary calculations, the theoretical value of the Gamuda call premium, as determined by the Black-Scholes model, is approximately RM4.4764. This implies that Muhammad Afifi should charge around RM4.4764 for the call option premium to earn income through writing the call option.
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Division A produces a product thut if selis to the outcide mankt. it has compied the following
Variable manufacturing cost per unit $8
Variable selling costs per unit $3
Total fixed manufacturing costs s$145000
Total fixed selling cost $30000
Per unit selling price to outside buyers $52
Capacity in units per year 30000
Division B of the same compary is currently buyise an identical product from as eutsige providee for $47 per unit. it whithes to purchuse 5000 units per year fron Division A. Division A b currently setling 26000 units of the nroduct per year If the internal transfer is thade. Division Awil not incur any sedsing costs. What would be the minimum transfer price per unit that Division A would be willieg to accept?
$800
$14.80
$1620
$5200
The minimum transfer price that Division A would be willing to accept is $14.80 per unit.
The minimum transfer price is the price at which Division A would be indifferent between selling the product to Division B internally and selling it to an external buyer. In this case, the external selling price is $52 per unit. So, the minimum transfer price must be at least $52 per unit.
However, Division A also has to cover its variable manufacturing costs of $8 per unit and its total fixed manufacturing costs of $145,000. So, the minimum transfer price must also be at least $8 + $145,000 / 30,000
= $14.80 per unit.
Here is the calculation:
Minimum transfer price = External selling price - Variable manufacturing costs - Total fixed manufacturing costs / Capacity
Minimum transfer price = $52 - $8 - $145,000 / 30,000 = $14.80
The other options are not correct because they are either lower than the variable manufacturing costs or higher than the external selling price.
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Starc Enterprises is a listed company specialising in issuing portfolio of loans to high capital investment projects. Recently, it has issued loan to Company Alpha and Company Beta for R2 200 000 and R3 300 000, respectively. Loan granted to Company Alpha has a 17 percent expected return and 25 percent standard deviation. The other loan has a 9 percent expected return and 15 percent standard deviation. It is estimated that the covariance between the two loans is 2%. Determine the excepted return and standard deviation of the portfolio.
To determine the expected return of the portfolio, we calculate the weighted average of the expected returns of the individual loans.
To calculate the standard deviation of the portfolio, we consider the weights, standard deviations, and covariance of the loans. By using these calculations, we can evaluate the risk and return characteristics of the portfolio as a whole.
Starc Enterprises has issued loans to two companies, Alpha and Beta, with amounts of R2,200,000 and R3,300,000, respectively. The loan granted to Company Alpha has an expected return of 17% and a standard deviation of 25%.
The loan granted to Company Beta has an expected return of 9% and a standard deviation of 15%. The covariance between the two loans is estimated to be 2%. To determine the expected return and standard deviation of the portfolio, we need to consider the weights of each loan in the portfolio and their respective risk and return characteristics.
To calculate the expected return of the portfolio, we multiply the weight of each loan by its respective expected return and sum the results. In this case, the weight of the loan to Company Alpha is R2,200,000 / (R2,200,000 + R3,300,000) = 0.4, and the weight of the loan to Company Beta is 0.6. Thus, the expected return of the portfolio is (0.4 * 0.17) + (0.6 * 0.09).
To calculate the standard deviation of the portfolio, we need to consider the weights, standard deviations, and covariance of the loans. The formula for the portfolio standard deviation is the square root of [(weight of loan Alpha squared times the standard deviation of loan Alpha squared) + (weight of loan Beta squared times the standard deviation of loan Beta squared) + (2 times the weight of loan Alpha times the weight of loan Beta times the covariance)].
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Bonita Industries began the year with 12 units of marine floats at a cost of $ 11 each. During the year, it made the following purchases: May 5, 31 unit at $ 15; July 16, 16 units at $ 20; and December 7, 21 units at $ 23. Assume there are 26 units on hand at the end of the period. Bonita uses the periodic approach (a) Your answer has been saved. See score details after the due date. Determine the cost of goods sold under FIFO, FIFO Cost of good sold 817 Attempts: 1 of 1 used (b) Your answer has been saved. See score details after the due date. Determine the cost of goods sold under LIFO. LIFO Cost of good sold 1.058 (c1) Calculate average unit cost. (Round answer to 2 decimal places, e.g. 5.12.) $ Average unit cost $
Under the periodic approach, the cost of goods sold can be calculated using the FIFO and LIFO methods. Additionally, the average unit cost can be determined by dividing the total cost of units available by the total number of units.
(a) FIFO (First-In, First-Out) assumes that the first units purchased are the first ones sold. In this case, the cost of goods sold under FIFO can be calculated by multiplying the cost of the earliest units on hand by the number of units sold. Using the given information, the cost of goods sold under FIFO would be:
12 units x $11 + 31 units x $15 + 16 units x $20 = $817.
(b) LIFO (Last-In, First-Out) assumes that the most recently purchased units are the first ones sold. To calculate the cost of goods sold under LIFO, we start with the cost of the most recent purchases and work backward. In this case, the cost of goods sold under LIFO would be:
21 units x $23 + 16 units x $20 + 26 units x $15 = $1,058.
(c) To calculate the average unit cost, we divide the total cost of units available by the total number of units. In this case, the total cost of units available is:
12 units x $11 + 31 units x $15 + 16 units x $20 + 21 units x $23 = $1,088. The total number of units available is:
12 units + 31 units + 16 units + 21 units + 26 units = 106 units. Therefore, the average unit cost would be: $1,088 / 106 units = $10.26 (rounded to 2 decimal places).
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Question A.1 Briefly describe the model for stock prices that underlies the Black-Scholes option pricing analysis. Do you think it is a reasonable representation of real-world stock price movements? [Write no more than half of a page of A4] (6 marks)
Question A.2 An underlying has a current price of $31. The premia on 3 month European put and call options on this underlying are $1 and $3 respectively. Both options have a strike price of $30. If the continuously compounded interest rate is 10%, is there an arbitrage opportunity here and, if so, how would you C exploit it? [Write no more than half of a page of A4] (6 marks)
Question A.3 An option trader believes that, in the next month or so, trading conditions in an underlying are going to be very volatile. She thinks that there is a good chance that the underlying will rise significantly in value and a good, but somewhat smaller, chance that the underlying will fall significantly in value. She judges the chances of small movements in the underlying, either up or down, to be very small. Design an option position that the trader could build in order to profit from this view. [Write no more than half of a page of A4] (6 marks)
Question A.4 Consider the pricing of a futures contract on copper. What would you expect to happen if storage costs rose? Explain the economics behind this effect. [Write no more than half of a page of A4] (6 marks)
Question A.5 The one year spot interest rate is 4%. The two year spot rate is 5% and the three year spot rate is 6%. You are quoted a swap rate of 5.5% on a 3 year fixed-for-floating swap. Is this rate fair? Explain your response, and if it is not fair, derive the fair swap rate.
A.1 ) Whether the model that underlies the Black-Scholes option pricing analysis, is a reasonable representation of real-world stock price movements is debatable. Critics argue that the model does not accurately capture the non-normal distributions that are observed in real-world stock price movements.
A.2) There is an arbitrage opportunity in this scenario. To exploit it, the trader would simultaneously buy a European put option and sell a call option on the underlying asset, both with the same strike price of $30 and might make a profit of $2.
A.3) To profit from this view, the option trader could build a straddle option position.
A.4) If storage costs rise, the price of a futures contract on copper would decrease. This is because the cost of storing the copper would increase, which would lower the demand for the futures contract. In turn, this would reduce the price of the futures contract.
A.5) The quoted swap rate of 5.5% on a 3-year fixed-for-floating swap is not fair.
A.1 ) The Black-Scholes option pricing analysis is based on a geometric Brownian motion model for stock prices. The model is formulated in such a way that it assumes the stock price to be continuously compounded, as opposed to being compounded once or twice a year. This assumption is made because it simplifies the math in the analysis.
The model has two key parameters: the volatility of the stock price and the risk-free rate of return. It also assumes that the stock price movement is random and that the change in the stock price is independent of the stock price level. Additionally, the model's assumptions about the constancy of volatility and the independence of the stock price change are not always valid.
A.2) In this scenario, if trader exploit arbitrage opportunity by buying a European put option and selling a call option simultaneously on the underlying asset, he would receive a net premium of $2 ($3 for the call option and $1 for the put option). The trader would use this premium to purchase the underlying asset and would then wait until the option's expiration date and either :
- sell the underlying asset at the market price (if it is above $30) or
- exercise the put option to sell the asset at the strike price of $30 (if it is below $30).
In either case, the trader would make a profit of $2.
A.3) A straddle is an option strategy that involves buying a call option and a put option with the same strike price and expiration date.
If the underlying asset price rises significantly, the trader can exercise the call option to purchase the underlying asset at the strike price and then sell it at the market price for a profit.
If the underlying asset price falls significantly, the trader can exercise the put option to sell the underlying asset at the strike price and then buy it back at the market price for a profit.
The trader's potential profit is the difference between the market price and the strike price of the options, minus the cost of the options.
A.4) The economics behind this effect are straightforward: if the cost of storing a commodity increases, it becomes more expensive for traders to hold inventory of that commodity. As a result, they are less willing to buy futures contracts, which are essentially agreements to purchase the commodity in the future. This decrease in demand leads to a decrease in the futures price.
A.5) To determine the fair swap rate, we can use the market's implied forward rates.
Using the spot rates provided in the question, we can calculate the implied forward rates for each year.
For example, the implied forward rate for year 1 to year 2 is calculated as follows:
Implied forward rate (year 1 to year 2) = ((1 + 0.05)^2 / (1 + 0.04)) - 1 = 1.098 - 1 = 0.098 = 9.8%
Using this method, we can calculate the implied forward rates for each year and then calculate the expected floating rate payments for the 3-year period.
The fair swap rate is then the fixed rate that equates the present value of the expected fixed rate payments with the present value of the expected floating rate payments.
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RESEARCH OBJECTIVES FOR COMPANY: TATA MOTORS LIMITED. RESEARCH OBJECTIVES MAY INCLUDE BRAND AWARNESS, BRAND IMAGE, CONSUMER PERCEPTION, CONSUMER ATTITUDES, BUYERS BEHAVIOURS, PRODUCT SATISFACTION, CONSUMER EXPERIENCE (GOOD AND BAD) AND INTENT TO PURCHASE BEHAVIOUR. YOU NEED NOT TO WRITE ALL THE MENTIONED POINTS BUT PLEASE WRITE MINIMUM 3 PAGES.
Note: Please explain the research objectives for only TATA MOTORS LIMITED
The research objectives for Tata Motors Limited include understanding consumer attitudes, evaluating brand awareness and image, and analyzing buyer behavior.
Tata Motors Limited, a prominent automobile manufacturer, can benefit from conducting research to achieve several key objectives. Firstly, understanding consumer attitudes towards their products and services is crucial for identifying areas of improvement and enhancing customer satisfaction. This research objective involves assessing consumers' perceptions, opinions, and beliefs about Tata Motors and its offerings.
Secondly, evaluating brand awareness and image is essential to gauge the extent to which Tata Motors is recognized and positively perceived in the market. By measuring brand awareness, Tata Motors can determine the level of familiarity consumers have with their brand. Additionally, examining brand image allows them to understand how consumers perceive the company in terms of attributes such as quality, reliability, and innovation.
Lastly, analyzing buyer behavior is vital for Tata Motors to gain insights into how consumers make purchasing decisions. By studying factors influencing buyers' choices, such as preferences, motivations, and decision-making processes, Tata Motors can tailor their marketing strategies and product offerings accordingly.
Through research focused on consumer attitudes, brand awareness and image, and buyer behavior, Tata Motors can enhance their understanding of the market dynamics, identify opportunities for growth, and develop effective strategies to meet consumer needs and preferences.
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Pharmaceutical Benefits Managers (PBMs) are intermediaries between upstream drug manufacturers and downstream insurance companies. They design formularies (lists of drugs that insurance will cover) an
Under the non-strategic view of bargaining, assuming a PBM is negotiating with two nondrowsy allergy drug manufacturers, Claritin and Allegra, the PBM would earn a surplus of $24 million, while each drug company would earn a surplus of $40 million. However, if the two drug companies merge, the bargaining outcome is likely to change.
When the two drug companies merge, they consolidate their resources, market share, and bargaining power. This increased market power gives the merged drug company a stronger position in negotiations with the PBM.
As a result, the post-merger bargaining outcome is likely to be more favorable for the merged drug company.
The PBM, aiming to include a wider variety of drugs on its formulary at low prices, may face a more challenging negotiation process.
The merged drug company can leverage its larger product portfolio to negotiate better terms, potentially demanding higher prices or more favorable conditions for inclusion on the formulary.
With their increased market power, the merged drug company could command a larger share of the surplus created by including the drugs on the PBM's formulary, reducing the PBM's surplus in the process.
Therefore, under the non-strategic view of bargaining, the PBM would still earn a surplus, but it may be lower than in the previous scenario. Simultaneously, the merged drug company would likely achieve a higher surplus, benefiting from their increased bargaining strength resulting from the merger.
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The complete question is:
Pharmaceutical Benefits Managers (PBMs) are intermediaries between upstream drug manufacturers and downstream insurance companies. They design formularies (lists of drugs that insurance will cover) and negotiate prices with drug companies. PBMs want a wider variety of drugs available to their insured populations, but at low prices. Suppose that a PBM is negotiating with the makers of two nondrowsy allergy drugs, Claritin and Allegra, for inclusion on the formulary. The “value” or “surplus” created by including one nondrowsy allergy drug on the formulary is $80 million, but the value of adding a second drug is only $24 million.
Assume the PBM bargains by telling each drug company that it's going to reach an agreement with the other drug company.
Under the non-strategic view of bargaining, the PBM would earn a surplus ofmillion, while each drug company would earn a surplus ofmillion.
Now suppose the two drug companies merge. What is the likely postmerger bargaining outcome?
Under the nonstrategic view of bargaining, the PBM would earn a surplus ofmillion, while the merged drug company would earn a surplus ofmillion.
Choose the most appropriate statement with regard to best interests duty and related obligations?
a. Best interests duty and related obligations are applicable when financial advice is provided to customers.
b. Best interests duty and related obligations are applicable when general advice is provided to retail clients.
c. Best interests duty and related obligations are applicable when personal advice is provided to retail clients.
d. Best interests duty and related obligations are applicable only to financial service providing entities.
The most appropriate statement with regard to best interests duty and related obligations is that best interests duty and related obligations are applicable when personal advice is provided to retail clients.
The Best Interests Duty (BID) is a standard set by Australian law that financial advisers must satisfy when giving advice to consumers. The Best Interests Duty refers to a licensee's obligation to put a client's best interests ahead of its own and, if necessary, prioritize the client's interests over its own, in the provision of advice to retail clients. The personal advice must be provided based on a proper inquiry into the client's situation and financial objectives. The adviser must tailor the advice given to the client's specific circumstances. Therefore, Best interests duty and related obligations are applicable when personal advice is provided to retail clients.
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________ is a free trade agreement among the 11 nations remaining after the United States pulled out of the Trans-Pacific Partnership.
Select one:
A. ASEAN
B. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership
C. The Trans-Pacific Trade Organization
D. The EU
B. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
Users of financial statements benefit from timely and accurate financial statements in several ways. Firstly, timely financial statements provide up-to-date information that allows users to make informed decisions regarding investments, loans, and business operations. Accurate financial statements enhance the credibility and reliability of the information, increasing user confidence in the financial health and performance of the organization.
Timely and accurate financial statements also enable users to assess the liquidity, profitability, and solvency of a company, aiding in evaluating its financial stability and potential risks. Investors can gauge the company's profitability and growth potential, while creditors can assess the ability to repay debts. Furthermore, timely financial statements assist in monitoring compliance with regulatory requirements and assist in tax planning.
Overall, by providing relevant and reliable information in a timely manner, financial statements enable users to make better-informed decisions, mitigate risks, and evaluate the financial performance and position of an organization.
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Develop the argument that a country’s welfare may be improved by
a production or export subsidy for an industry producing with
increasing returns and imperfect competition.
A production or export subsidy for an industry with increasing returns and imperfect competition can boost production, lower costs, enhance competitiveness, and drive innovation, ultimately improving a country's welfare.
A production or export subsidy for an industry producing with increasing returns and imperfect competition can potentially improve a country's welfare.
In such industries, economies of scale and network effects often lead to increasing returns to production, meaning that as production levels increase, unit costs decrease.
However, imperfect competition implies that market power is concentrated among a few firms, which can limit competition and hinder efficiency.
By providing a subsidy to the industry, the government can incentivize increased production and export activities. This can help the industry achieve higher economies of scale, leading to lower costs and increased efficiency.
As a result, the industry becomes more competitive in the global market, attracting foreign demand and generating higher export revenues.
Moreover, the subsidy can encourage innovation and technological advancements within the industry.
With the financial support provided by the subsidy, firms can invest in research and development, leading to improved product quality, increased productivity, and enhanced competitiveness in the long run.
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Fixed manufacturing overhead costs that can be avoided if CMCBs are not made 320,000 320,000 Fixed manufacturing overhead costs of plant depreciation, incurance and adminictration that rannot he avnided even if Variable manufacturing costs Svenson manufactured 8,000 CMCBs in 2017 in 40 batches of 200 each. In 2018 , Svenson anticipates needing 10,000 CMCBs. The CMCBs would be produced in 80 batches of 125 each. The Minton Corporation has approached Svenson about supplying CMCBs to Svenson in 2018 at $300 per CMCB on whatever delivery schedule Svenson wants. 1. Calculate the total expected manufacturing cost per unit of making CMCBs in 2018. 2. Suppose the capacity currently used to make CMCBs will become idle if Svenson purchases CMCBs from Minton. On the basis of financial considerations alone, should Svenson make CMCBs or buy them from Minton? Show your calculations. 3. Now suppose that if Svenson purchases CMCBs from Minton, its best alternative use of the capacity currently used for CMCBs is to make and sell special circuit boards (CB3s) to the Essex Corporation. Svenson estimates the following incremental revenues and costs from CB3s:
Total expected incremental future revenues
Total expected incremental future costs
$2,000,000
$2,150,000
On the basis of financial considerations alone, should Svenson make CMCBs or buy them from Minton? Show your calculations. Requirement 1. Calculate the total expected manufacturing cost per unit of making CMCBs in 2018. Requirement 1. Calculate the total expected manufacturing cost per unit of making CMCBs in 2018. Requirement 2. Suppose the capacity currently used to make CMCBs will become idle if Svenson purchases CMCBs from Minton. On the basis of financial considerations alone, should Svenson make CMCBs or buy them from Minton? Show your calculations.
Since buying CMCBs from Minton would cost $300 per unit, the total cost of purchasing 10,000 CMCBs would be $3,000,000.
CMCBs in 2018, we need to consider the fixed and variable costs associated with manufacturing the CMCBs.
The fixed manufacturing overhead costs that cannot be avoided are $320,000, while the fixed manufacturing overhead costs that can be avoided if CMCBs are not made are also $320,000.
The variable manufacturing cost per unit can be calculated as follows:
For 2017:
Svenson manufactured 8,000 CMCBs in 40 batches of 200 each, so the total number of batches is 40.
The variable manufacturing cost per batch is $1,500, which includes direct materials, direct labor, and variable overhead costs.
Therefore, the variable manufacturing cost per unit is $1,500/200 = $7.50.
For 2018:
Svenson anticipates needing 10,000 CMCBs in 80 batches of 125 each, so the total number of batches is 80.
The variable manufacturing cost per batch is still $1,500.
Therefore, the variable manufacturing cost per unit is $1,500/125 = $12.
The total expected manufacturing cost per unit of making CMCBs in 2018 can be calculated as follows:
Total expected manufacturing cost per unit = Fixed manufacturing overhead costs + Variable manufacturing cost per unit
= $320,000 (fixed overhead costs that cannot be avoided) + $320,000 (fixed overhead costs that can be avoided) + $12 (variable manufacturing cost per unit)
= $652 per unit.
Requirement 2: If the capacity currently used to make CMCBs will become idle if Svenson purchases CMCBs from Minton, then Svenson should compare the cost of making CMCBs to the cost of buying them from Minton.
The cost of buying CMCBs from Minton is $300 per unit.
The total expected manufacturing cost per unit of making CMCBs in 2018 is $652 per unit.
Therefore, on the basis of financial considerations alone, Svenson should buy CMCBs from Minton as it would be cheaper than making them in-house.
Note that this analysis does not take into account any non-financial factors, such as quality control, lead times, or the impact on employees.
Requirement 3: If Svenson purchases CMCBs from Minton, its best alternative use of the capacity currently used for CMCBs is to make and sell special circuit boards (CB3s) to the Essex Corporation. Svenson estimates the following incremental revenues and costs from CB3s:
Total expected incremental future revenues = $2,000,000
Total expected incremental future costs = $2,150,000
To determine whether Svenson should make CMCBs or buy them from Minton, we need to compare the incremental contribution margin of making CB3s to the cost of buying CMCBs from Minton.
The incremental contribution margin of making CB3s can be calculated as follows:
Incremental contribution margin = Total expected incremental future revenues - Total expected incremental future costs
= $2,000,000 - $2,150,000
= -$150,000
This means that making CB3s would result in a loss of $150,000.
Since buying CMCBs from Minton would cost $300 per unit, the total cost of purchasing 10,000 CMCBs would be $3,000,000.
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