The false statement is: "Internal audit consulting enriches value-adding internal auditing." The correct answer is option A.
Internal audit consulting does not directly enrich value-adding internal auditing. While internal audit consulting can provide valuable insights and recommendations to enhance internal auditing processes, it is not the primary driver of value addition.
Value-adding internal auditing focuses on improving organizational effectiveness, efficiency, risk management, and governance through objective assessments and independent evaluations.
Internal audit services typically have both an assurance and consultative role. The assurance role involves providing independent and objective assessments of the organization's controls, processes, and risk management practices.
The consultative role involves offering recommendations, guidance, and advisory services to help the organization improve its operations, mitigate risks, and achieve its objectives effectively.
In summary, while internal audit consulting can contribute to value-adding internal auditing, it is not the sole factor responsible for enriching value. The primary focus of value-adding internal auditing is on improving organizational performance, risk management, and governance.
Hence, Option A is correct.
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Unnecessarily Noisy Computers Inc. is a firm that makes CPUs. Three inputs are required to make CPUs: machines, workers, and raw materials. - Each machine costs $80, and lasts forever. - Workers require a wage $10 per week each. Each worker makes 10 CPUs per week using 1 machine, and can only be assigned to one machine. - The raw material necessary to make one CPU costs 50 cents. The market for CPUs is perfectly competitive. a) Suppose that you have inherited UNC Inc. The firm currently owns 10 machines, and has already hired and paid one worker for each machine for the following week. What is the minimum price at which you would be willing to produce CPUs (this week)? b) Suppose instead that you had not hired workers yet. Would you still be willing to produce CPUs for the same price you derived in 1.? Explain why or why not. C) Now suppose that you are an outside investor who is thinking about starting a CPU company. Demand is Q=60−P, and the market price is $10. Scientists have just announced that the world is ending in one week, so that's all the time you have to take the CPU market by storm and earn as much money as possible. Should you enter the CPU market?
a) The minimum price at which Unnecessarily Noisy Computers Inc. (UNC Inc.) would be willing to produce CPUs is $8.50 per unit.
b. UNC Inc. cannot produce CPUs at the same price as part a without hired workers, as the production process requires them.
c. Outside investors are hesitant to enter the CPU market due to the $10 market price and one-week world announcement, unable to establish a competitive position and earn significant profits.
a) To determine the minimum price UNC Inc. would be willing to produce CPUs, we need to consider the costs involved. Each machine costs $80, which is a one-time cost. The workers' wages amount to $10 per week for each worker, and since there are 10 workers in this case, the weekly wage cost is $100. Additionally, the raw material cost per CPU is $0.50.
Considering these costs, the total cost to produce one CPU is $8.50 ($80 for machines + $100 for workers + $0.50 for raw materials). Therefore, UNC Inc. would be willing to produce CPUs if the market price is equal to or higher than $8.50 per unit.
b) If workers have not been hired yet, UNC Inc. would not be willing to produce CPUs for the same price as in part a. Hiring workers incurs a cost of $100 per week, and without workers, the production process cannot take place.
Therefore, the cost structure would be different, and UNC Inc. would require additional considerations before deciding on the minimum price at which they would be willing to produce CPUs.
c) As an outside investor considering entering the CPU market, the given circumstances do not favor entering. The market price is $10, which is the same as the cost of producing CPUs. Considering the limited time frame of one week due to the announcement of the world ending, there would not be sufficient time to establish a competitive position, attract customers, and earn significant profits.
It would be challenging to generate substantial returns on investment within such a short period. Therefore, it would not be advisable to enter the CPU market under these circumstances.
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The minimum price at which you would be willing to produce CPUs is $905, regardless of whether workers have been hired yet. Whether you should enter the CPU market as an outside investor depends on the profitability, which can be determined by comparing total revenue and total cost.
Explanation:a) The minimum price at which you would be willing to produce CPUs can be calculated by adding up the costs of machines, workers, and raw materials. In this case, the machines cost $80 each, and there are 10 machines, so the total cost of machines is $800. The workers require a wage of $10 per week each, and there is one worker per machine, so the total cost of workers is $100. The raw material cost for one CPU is 50 cents, and 10 CPUs are produced, so the total raw material cost is $5. Adding up these costs, the minimum price at which you would be willing to produce CPUs is $800 + $100 + $5 = $905.
b) If you had not hired workers yet, the minimum price at which you would be willing to produce CPUs would still be $905. This is because the cost of machines and raw materials remains the same, and the workers' wages are not a factor since they have not been hired.
c) As an outside investor, whether you should enter the CPU market depends on the profitability. The demand for CPUs in the market is Q=60−P, where P is the price. The market price is $10. To determine profitability, you need to compare the total revenue and total cost. Total revenue is equal to the price multiplied by the quantity sold, which can be calculated using the demand equation. Total cost includes the costs of machines, workers, and raw materials. If the total revenue is greater than the total cost, it would be profitable to enter the CPU market.
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1. Define the TFR (total fertility rate). Describe how it is calculated. Include in your response an explanation for what it means to say that it is a constructed statistic. What is the TFR in the most recent year of data available?
The Total Fertility Rate (TFR) is a measure used to estimate the average number of children that would be born to a woman over her lifetime if she were to experience the current age-specific fertility rates throughout her reproductive years. It is an important demographic indicator that provides insights into population growth and replacement levels.
The TFR is calculated by summing up the age-specific fertility rates (ASFRs) for a specific period, usually for women of reproductive age (typically 15-49 years). These ASFRs represent the number of live births per 1,000 women in each age group. The sum of these rates reflects the total number of children that would be born to a woman if she were to go through each age group in the given fertility rates.
The TFR is considered a constructed statistic because it is not directly measured or observed. Instead, it is derived from the age-specific fertility rates and is a synthetic measure used to simplify and summarize fertility patterns in a population. It provides a standardized measure to compare fertility levels across different countries or time periods.
As for the most recent year of data available, since my knowledge cutoff is September 2021, I cannot provide the TFR for the latest year. The TFR is typically calculated and reported by national statistical agencies or international organizations like the United Nations or World Bank. To obtain the current TFR, it is recommended to refer to the latest official sources or statistical reports from the relevant organizations or government agencies in your specific country or region of interest.
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According to the circular flow diagram, households...
A.)Are buyers in the labor market and in the goods and services market as well.
B.)Are sellers in the goods and services market and buyers in the market for labor.
C.)Are sellers in both the labor market and in the goods and services market.
D.)Are sellers in the labor market and buyers in the goods and services market.
According to the circular flow diagram, households are sellers in the labor market and buyers in the goods and services market. T correct option is D.)
The circular flow diagram is a model that illustrates how money and goods are exchanged in a market economy. It shows how households and businesses interact with each other.
Households are groups of people who share living space, whereas businesses are organizations that provide goods and services to households. The circular flow diagram illustrates that households are sellers in the labor market.
They offer their labor, which is their work, to businesses in exchange for wages. Wages are a source of income for households. This is why households are considered sellers in the labor market.
They are selling their labor in exchange for money. On the other hand, households are buyers in the goods and services market. They use the money they earn from selling their labor to buy goods and services from businesses.
Goods are physical objects, such as food and clothing, while services are actions, such as haircuts and medical treatment.
This is why households are considered buyers in the goods and services market. They are buying goods and services in exchange for money.
In conclusion, households are sellers in the labor market and buyers in the goods and services market according to the circular flow diagram. They sell their labor to businesses in exchange for wages, which they then use to buy goods and services from businesses.
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Pixies is an online supermarket chain spanning across different counties in Kenya. Pixies is in the business of selling food products both perishable and non-perishables and also household goods. Their mission is to serve the entire country however they have noted that they are losing customers with some stores are requiring bailouts, a cost heavy undertaking. According to their investigations, they have discovered that customers leave due to order processing that has too many activities within it and lacks real time feedback for goods availability leaving the customer services department inundated with service calls. To tackle the business challenges, they have identified the need for a business process reengineering (BPR)
Describe any THREE main business processes in the current undertakings at Pixies and their related activities
Three main business processes at Pixies:
1. Order Fulfillment Process:
- Activities: Receiving orders, checking product availability, packing items, coordinating delivery.
- Challenges: Lengthy processing, lack of real-time feedback on goods availability, customer service overload.
- Solution: Streamline order processing, implement real-time inventory tracking, improve communication with customers.
2. Inventory Management Process:
- Activities: Monitoring inventory levels, forecasting demand, placing orders with suppliers, managing stock replenishment.
- Challenges: Inaccurate inventory data, stockouts or excess inventory, inefficient supplier management.
- Solution: Enhance inventory tracking systems, improve demand forecasting, optimize supplier relationships.
3. Customer Relationship Management (CRM) Process:
- Activities: Managing customer interactions, handling inquiries and complaints, providing support.
- Challenges: High volume of service calls, longer response times, inconsistent customer experiences.
- Solution: Implement efficient customer service systems, enhance response times, standardize customer support processes.
Pixies, an online supermarket chain, faces challenges with customer retention and store bailouts. Through their investigations, they identified issues with order processing and lack of real-time feedback on goods availability. To address these challenges, Pixies plans to undergo business process reengineering (BPR). The three main processes identified are order fulfillment, inventory management, and CRM. Streamlining order processing, improving inventory tracking, and optimizing customer service are crucial steps to enhance efficiency and customer satisfaction. BPR initiatives may include implementing real-time inventory visibility, enhancing forecasting and supplier management systems, and improving customer support processes. These changes will help Pixies address their challenges, improve operations, and better serve their mission of serving the entire country.
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Outback Outfitters sells recreational equipment. One of the company’s products, a small camp stove, sells for $100 per unit. Variable expenses are $70 per stove, and fixed expenses associated with the stove total $126,000 per month.
Required:
1. What is the break-even point in unit sales and in dollar sales?
2. If the variable expenses per stove increase as a percentage of the selling price, will it result in a higher or a lower break-even point? (Assume that the fixed expenses remain unchanged.)
3. At present, the company is selling 20,000 stoves per month. The sales manager is convinced that a 10% reduction in the selling price would result in a 25% increase in monthly sales of stoves. Prepare two contribution format income statements, one under present operating conditions, and one as operations would appear after the proposed changes.
4. Refer to the data in Required 3. How many stoves would have to be sold at the new selling price to attain a target profit of $77,000 per month?
Answer:
6,407 units should be sold at the new selling price to attain the target profit of $77,000 per month.
1. Break-even point in unit sales and in dollar sales:
Calculation of Break-Even Point:
Contribution Margin per Unit = Selling Price - Variable Costs per Unit
Contribution Margin Ratio = (Contribution Margin per Unit ÷ Selling Price) x 100
Break-Even Point in Units = Fixed Costs ÷ Contribution Margin per Unit
Break-Even Point in Dollars = Fixed Costs ÷ Contribution Margin Ratio
Given:
Selling price per unit = $100Variable expenses per unit = $70
Fixed expenses = $126,000 per month
a) Break-Even Point in Units
Contribution Margin per Unit = Selling Price - Variable Costs per Unit= $100 - $70= $30
Contribution Margin Ratio = (Contribution Margin per Unit ÷ Selling Price) x 100= ($30 ÷ $100) x 100= 30%
Break-Even Point in Units = Fixed Costs ÷ Contribution Margin per Unit= $126,000 ÷ $30= 4,200 units
b) Break-Even Point in Dollars
Break-Even Point in Dollars = Fixed Costs ÷ Contribution Margin Ratio
= $126,000 ÷ 30%
= $420,000
2.If the variable expenses per stove increase as a percentage of the selling price, it will result in a lower break-even point. (Assume that the fixed expenses remain unchanged.)
Break-Even Point = Fixed Costs ÷ Contribution Margin
In the above formula, the contribution margin is the difference between the selling price and the variable costs.
Therefore, if the variable costs increase, the contribution margin decreases, which results in a lower break-even point.
3. Calculation of contribution margin and net operating income under present and proposed operating conditions:
The contribution format income statement is as follows:
Contribution Margin = Sales - Variable Expenses
Present Operating Conditions:
Sales = 20,000 x $100 = $2,000,000
Variable Expenses = 20,000 x $70 = $1,400,000
Contribution Margin = $600,000
Fixed Expenses = $126,000
Net Operating Income = $474,000
New Operating Conditions:
Sales = 25% increase in 20,000 units= 20,000 x 1.25= 25,000
Selling Price = 10% reduction in $100= $90
Variable Expenses per unit = 70% of $90= $63
Variable Expenses = 25,000 x $63 = $1,575,000
Contribution Margin = $925,000
Fixed Expenses = $126,000
Net Operating Income = $799,0004.
Calculation of number of units to be sold at the new selling price to attain the target profit:
Target Profit = $77,000
Contribution Margin per Unit = Selling Price - Variable Costs per Unit= $90 - $63= $27
Break-Even Point in Units = Fixed Costs + Target Profit ÷ Contribution Margin per Unit= ($126,000 + $77,000) ÷ $27= 6,407 units
Hence, 6,407 units should be sold at the new selling price to attain the target profit of $77,000 per month.
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1. you must determine a sales and purchases budget before you can complete the operating cash receipts budget or the operating activities cash payments budget
TRue or False
2. In excel, a what-if analysis can be done on the cash budget?
TRue or false
3.Budgets can include assumptions as well as facts
True or false
4.Investing activities do not involve the sale or purchases of long term investments
TRue or false
A budget is a financial plan that outlines an organization's or individual's anticipated income and expenses over a specific period.
1. False
The operating cash receipts budget and operating activities cash payments budget can be completed without the sales and purchases budget. The sales and purchases budget provides information on expected sales and purchases, which can be used in the cash receipts and cash payments budgets, but it is not a prerequisite for completing them.
2. True
A what-if analysis can be done on the cash budget in Excel. Excel provides various tools and functions that allow for scenario analysis and modeling, enabling users to explore different assumptions and inputs to see the impact on the cash budget.
3. True
Budgets can include both assumptions and facts. Assumptions are important components of the budgeting process as they help estimate future conditions and events. Facts, on the other hand, are based on historical data or known information. Combining assumptions and facts allows for more comprehensive and realistic budgeting.
4. False
Investing activities can involve the sale or purchase of long-term investments. Investing activities in a cash flow statement typically include the acquisition and disposal of long-term assets such as property, plant, and equipment, as well as the sale or purchase of long-term investments such as stocks or bonds. These activities are an important part of a company's investment decisions and can impact its cash flows.
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(a) Explain and discuss how each of the major domestic macroeconomic factors may affect stock prices. (50 marks)
(b) ZZZ plc is about to pay a dividend for the year 2021 of 16 pence per share. The dividend one year from now (2022) is expected to be 12 pence. Dividends are expected to grow by 10% for the following 3 years (2023, 2024, 2025). After this dividends are expected to grow at 6% per annum indefinitely.
- The company has a beta of 0.9. The current risk free interest rate is 5% and the market return is estimated at 10%.
- Using the above information, place a value on the shares of ZZZ plc. If the market price for shares of ZZZ is £5, determine whether the shares are underpriced or overpriced. Explain why.
(A) The major domestic macroeconomic factors which may affect stock prices are as follows: Gross Domestic Product (GDP),Inflation, Unemployment ,Interest rates ,Fiscal and monetary policies ,Borrowing and lending rates(b)The share is overpriced because the dividend growth rate is 10%, while the market's expected return is only 10%. Therefore, the market price is too high compared to the expected returns.
(a) The major domestic macroeconomic factors which may affect stock prices are as follows:
Gross Domestic Product (GDP)
Inflation
Unemployment
Interest rates
Fiscal and monetary policies
Borrowing and lending rates
Exchange rates
Market confidence
(b) the value of the shares of ZZZ plc is calculated as follows:
Year
Dividend Growth Rate
Dividend Discount Factor
Present Value
202116 pence—£0.147£0.1253202212 pence
(16/1.1)/1.10.797£0.1045202310% of 16 pence
16 pence(1.10 x 0.12)/1.10(1.10)²£0.0955202410% of 16 pence(1.10)²£0.0868202510% of 16 pence(1.10)³£0.07902025
onwards6%£0.0790(0.10 - 0.06)/0.06£1.3176
Total Value £2.6052
Total Number of Shares£2.6052/£5=0.521
Shares Value= £0.521 per share
Since the market price for shares of ZZZ is £5,
we can determine whether the shares are underpriced or overpriced by comparing the share's value with its market price.
The share's value is £0.521 per share, while the market price is £5.
Hence, the shares are overpriced by the market by (£5-£0.521) £4.479 per share.
The share is overpriced because the dividend growth rate is 10%, while the market's expected return is only 10%. Therefore, the market price is too high compared to the expected returns.
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No 1 The quality management system (QMS) model has been adapted to the medical laboratory environment resulting in a dozen essentials that form the framework for quality. The model for the following 12 essentials is from the Clinical and Laboratory Standards Institute (CLSI) and ISO 15189.
Note: A class shall be divided into 4 groups. Each group would be given a set of 3 out of the 12 QMEs. The group will research, prepare and present in our face to face class.
Mode of Presentation: Power Point >6 but <9 slides. 20 minutes for presentation 10min Questions.
No. 2 Debate: Laboratory waste management is important than Quality Controls
1. The quality management system (QMS) model has been adapted to the medical laboratory environment, resulting in a framework of 12 essentials for quality, as per the Clinical and Laboratory Standards Institute (CLSI) and ISO 15189 standards. Each group will research and present on a set of 3 essentials in a face-to-face class using a PowerPoint presentation.
2. The topic for debate is whether laboratory waste management is more important than quality controls.
1. The adaptation of the QMS model to the medical laboratory environment has led to the identification of 12 essentials for quality. These essentials serve as a framework for ensuring quality in laboratory operations and processes. The groups in the class will be divided and assigned a set of 3 essentials to research and present. They will use a PowerPoint presentation format with a specific slide count and time limit for their presentation, followed by a question-and-answer session.
2. The debate topic centers around the importance of laboratory waste management compared to quality controls. Laboratory waste management involves the proper handling, disposal, and management of various waste materials generated in the laboratory. Quality controls, on the other hand, are processes and procedures in place to ensure the accuracy and reliability of test results. The debate will require participants to present arguments supporting their stance on which aspect they consider more crucial in the laboratory setting.
Please note that the provided explanation is based on the given information, and further details or perspectives may be required to fully explore and discuss the topic.
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So -called 'developed' or 'developing' countries are often referred to as 'post-industrial', even though they may still include a lot of industrial activity. How has post-industrialism changed the global economy in terms of 'core-periphery relations'; the production, distribution, and consumption of goods; and the levels of global economic inequality?
Post-industrialism has transformed the global economy in several ways, impacting core-periphery relations, the production, distribution, and consumption of goods, and global economic inequality.
The shift towards post-industrialism involves a decrease in manufacturing and an increase in service-based industries, technology, and knowledge-based sectors. This has led to a reconfiguration of core-periphery relations, with traditional industrial powers facing competition from emerging economies.
In terms of production, post-industrialism has seen a relocation of manufacturing activities to countries with lower labor costs, resulting in the emergence of new industrial peripheries. This has altered the dynamics of global trade and supply chains. The distribution and consumption of goods have also been affected as the growth of service industries has led to changes in consumer preferences and patterns.
Post-industrialism has contributed to increased global economic inequality. While developed countries have seen a rise in high-skilled and knowledge-intensive jobs, lower-skilled manufacturing jobs have often been outsourced to developing countries. This has created income disparities within and between countries. Additionally, the concentration of technological advancements and intellectual property in developed nations has widened the gap between the technologically advanced core and the peripheral countries.
Overall, post-industrialism has reshaped the global economy by redefining core-periphery relations, altering production and consumption patterns, and exacerbating global economic inequalities.
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Discuss the theories that describes the reasons for the
existence of international
trade.?
Theories explaining the reasons for the existence of international trade include the theory of comparative advantage, the factor proportions
theory, and the product life cycle theory.
The theory of comparative advantage states that countries engage in international trade because they can produce certain goods or services more efficiently than others. This theory emphasizes that countries should specialize in producing goods or services where they have a comparative advantage and then trade with other countries to obtain goods or services in which they have a relative disadvantage. By doing so, countries can achieve overall gains from trade and increase economic efficiency.
The factor proportions theory focuses on the differences in factor endowments across countries, such as labour, capital, and natural resources. According to this theory, countries will export goods that intensively use their abundant factors of production and import goods that require factors in which they are relatively scarce.
The product life cycle theory suggests that international trade can be influenced by the different stages of a product's life cycle. During the initial stages, the innovating country often has a comparative advantage due to its technological edge, leading to exports. However, as the product matures, production may shift to other countries, resulting in imports by the innovating country.
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Lowry Corporation operates a commercial nursery where it propagates plants for garden centers throughout the region. Lowry has $12,000,000 in assets. Its yearly fixed costs are $1,000,000 and the variable costs for the potting soil, container, label, seedling, and labor for each gallon size plant total \$2.50. Lowry's volume is currently 800,000 units. Lowry offers the plants to garden centers for $6.80 each. Garden centers then mark them up to sell to the public for $12 to $15, depending on the type of plant. Required: a) Lowry's owners want to earn a 20% return on the company's assets. What is Lowry's target profit? b) Given Lowry's current costs, will its owners be able to achieve their target profit? c) If the target profit is not met, what are possible actions for Lowry to take?
a) Lowry's owners want to earn a 20% return on the company's assets and the target profit is $2,400,000. b) Lowry's owners will be able to achieve their target profit. c) Increase selling price, Reduce costs, Expand volume, Diversify product offerings these possible actions Lowry can take
a) Lowry's owners want to earn a 20% return on the company's assets. To calculate the target profit, we need to determine 20% of the company's assets.
Target profit = 20% of assets = 0.20 * $12,000,000 = $2,400,000
b) To assess whether Lowry can achieve its target profit, we need to compare its current costs and revenue.
Total fixed costs = $1,000,000
Variable cost per unit = $2.50
Number of units sold = 800,000
Selling price per unit = $6.80
Total variable costs = Variable cost per unit * Number of units sold = $2.50 * 800,000 = $2,000,000
Total revenue = Selling price per unit * Number of units sold = $6.80 * 800,000 = $5,440,000
Total costs (fixed + variable) = $1,000,000 + $2,000,000 = $3,000,000
Profit = Total revenue - Total costs = $5,440,000 - $3,000,000 = $2,440,000
From the calculation, we can see that Lowry's current profit is $2,440,000, which exceeds the target profit of $2,400,000. Therefore, Lowry's owners will be able to achieve their target profit.
c) If the target profit is not met, Lowry can consider the following actions:
Increase selling price: Lowry can raise the price per unit it charges to garden centers, thus increasing its revenue and potentially reaching the target profit.
Reduce costs: Lowry can explore ways to cut down on its fixed and variable costs. This could involve renegotiating contracts with suppliers, streamlining operations, or finding more cost-effective materials.
Expand volume: Lowry can aim to increase its sales volume by targeting new garden centers or expanding its reach to other regions. This would boost revenue and potentially help achieve the target profit.
Diversify product offerings: Lowry could introduce new plant varieties or complementary products to attract more customers and generate additional sales.
Improve marketing and branding: Enhancing the company's marketing efforts and building a strong brand presence can help increase demand for Lowry's plants and allow for higher pricing.
By implementing these actions, Lowry can work towards meeting its target profit if it falls short of the desired level.
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Crane Toy Company is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $25 and Crane Toy Company would sell it for $65. The cost to assemble the product is estimated at $18 per unit and Crane Toy Company believes the market would support a price of $81 on the assembled unit. What decision should Crane Toy make?
a Sell before assembly; the company will be better off by $2 per unit.
b Sell before assembly; the company will be better off by $16 per unit.
c Process further; the company will be better off by $23 per unit.
d Process further; the company will be better off by $22 per unit.
The company should process further; the company will be better off by $23 per unit ($38 - $15
The decision that Crane Toy Company should make is to process further; the company will be better off by $23 per unit. This means that the company should assemble the product before selling it since the company will be better off by $23 per unit.
Step-by-step explanation:We are given that;Unit cost of the unassembled product
= $25Crane Toy Company would sell it for
= $65The cost to assemble the product is estimated at = $18 per unitCrane Toy Company believes the market would support a price of
= $81 on the assembled unit. Now we need to determine whether the company should sell the product before assembly or process further (assemble it).We can find this by computing the profit for each option;Sell before assembly
Profit = Selling price - Unit cost
= $65 - $25
= $40 per unit. Process furtherProfit = Selling price - (Unit cost + Processing cost)
= $81 - ($25 + $18)
= $38 per Unit Therefore, the company should process further; the company will be better off by $23 per unit ($38 - $15
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diversification provides a benefit to inventors when the investor
a) selects two or more securities whose returns are better than the average market return
b)selects two or more securities whose returns are not highly correlated with each other
c) finds the security with the optimal expected rate of return
d) buys only risk-free treasury securities
b) Selects two or more securities whose returns are not highly correlated with each other.
Diversification a risk management strategy that involves spreading investments across different assets or securities to reduce exposure to any single investment. By diversifying their portfolio, investors aim to mitigate risk and potentially improve their overall returns.
Option (b) ly describes the benefit of diversification. When an investor selects securities whose returns are not highly correlated with each other, it means that the performance of one security is not strongly influenced by the performance of another. This reduces the risk of losses being concentrated in a particular security or sector. By diversifying across securities with different risk and return characteristics, investors can potentially achieve a more stable and balanced portfolio.
Options (a), (c), and (d) do not fully capture the essence of diversification:
a) Selecting two or more securities whose returns are better than the average market return may be a desirable goal, but it does not directly relate to diversification. Diversification is primarily concerned with spreading risk rather than solely maximizing returns.
c) Finding the security with the optimal expected rate of return is a valid investment objective, but it is not directly tied to diversification. Diversification focuses on reducing risk rather than solely seeking the highest return.Diversification is a strategy employed by investors to reduce risk by spreading their investments across different assets or securities. The goal is to create a portfolio that is not overly dependent on the performance of a single investment. By diversifying, investors aim to minimize the potential impact of any one investment's poor performance on the overall portfolio.
Option (b) states that diversification provides a benefit when the investor selects two or more securities whose returns are not highly correlated with each other. Correlation refers to the statistical relationship between the returns of two assets. If two assets have a high positive correlation, it means their returns tend to move in the same direction. On the other hand, low or negative correlation indicates that the returns of the two assets are not strongly related.
The benefit of selecting securities with low correlation is that when one investment performs poorly, another investment in the portfolio may perform well or remain stable. This helps to offset losses and reduce overall portfolio volatility. By diversifying across assets with different correlations, investors can potentially improve their risk-adjusted returns and create a more balanced portfolio.
It's important to note that diversification does not guarantee profits or eliminate all risk. It is based on the principle of spreading risk, but it cannot eliminate the possibility of losses. Proper diversification requires careful consideration of various factors, such as asset classes, industries, geographic regions, and investment strategies.
In summary, diversification provides a benefit to investors when they select securities whose returns are not highly correlated with each other. By spreading investments across assets with low correlation, investors can reduce risk and potentially enhance the stability and performance of their portfolio.
d) Buying only risk-free treasury securities does not involve diversification since it would involve investing in a single asset class. Diversification involves spreading investments across different asset classes, industries, or geographic regions to reduce risk.
In summary, (b) ly captures the benefit of diversification by emphasizing the importance of selecting securities with low correlation to achieve risk reduction and potentially improve overall portfolio performance.
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Which of the following most accurately defines the managerial discipline of finance?
A. How an organization generates the funds that flow into the organization.
B. How an organization allocates its funds once they are in the organization
C. Any decision relating to money
D. A and B are correct.
E. All of these are correct
The option that most accurately defines the managerial discipline of finance is
E. All of these are correct.What is the managerial discipline of finance?The managerial discipline of finance encompasses all aspects related to the financial management of an organization. It involves not only the generation of funds that flow into the organization (such as through fundraising, investments, or revenue generation) but also the allocation and management of those funds within the organization (such as budgeting, investment decisions, and financial planning).
Additionally, finance covers a wide range of decisions relating to money, including financial analysis, risk management, and strategic financial planning. Therefore, option E, stating that all of these are correct, best defines the managerial discipline of finance.
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Assume that A and B contribute the following to start their partnership: A contributes Cash of $30,000 and B contributes Equipment with a value of $40,000. The partners will share in profits equally. Record the transaction under each of the following approaches.
a. Capital accounts are set equal to net assets invested Approach
b. Bonus Approach
c. Goodwill Approach
a. Capital accounts are set equal to net assets invested approach:
Under this approach, the capital accounts of the partners are set equal to the net assets invested by each partner. In this scenario, Partner A contributes $30,000 in cash, and Partner B contributes equipment with a value of $40,000.
The transaction entry would be as follows:
Partner A's Capital Account: $30,000 (credit)
Partner B's Capital Account: $40,000 (credit)
Cash: $30,000 (debit)
Equipment: $40,000 (debit)
The capital accounts of both partners are credited with their respective contributions, reflecting their ownership in the partnership. The cash account is debited with Partner A's cash contribution, and the equipment account is debited with Partner B's equipment contribution.
b. Bonus approach:
Under the bonus approach, the partners allocate the difference between the fair market value and the recorded book value of the contributed assets to the partner who contributes the asset. The allocation is done to balance the partnership's capital accounts and recognize any imbalance in the initial investments.
In this case, assuming the fair market value of the equipment contributed by Partner B is $45,000 (higher than the recorded book value of $40,000), the transaction entry would be as follows:
Partner A's Capital Account: $30,000 (credit)
Partner B's Capital Account: $35,000 (credit)
Cash: $30,000 (debit)
Equipment: $45,000 (debit)
Partner A's capital account remains at $30,000, representing the cash contribution. Partner B's capital account is adjusted to $35,000, reflecting the $5,000 bonus allocation. The cash and equipment accounts are debited accordingly.
c. Goodwill approach:
Under the goodwill approach, the partners determine the value of goodwill, which represents the value of the partnership's reputation, customer base, and other intangible assets. The goodwill is then allocated between the partners based on an agreed-upon formula or negotiation.
In this scenario, assuming no goodwill is recognized, the transaction entry would be as follows:
Partner A's Capital Account: $30,000 (credit)
Partner B's Capital Account: $40,000 (credit)
Cash: $30,000 (debit)
Equipment: $40,000 (debit)
The capital accounts of both partners are credited with their respective contributions, representing their ownership in the partnership. The cash account is debited with Partner A's cash contribution, and the equipment account is debited with Partner B's equipment contribution.
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what is an audit in the context of financial accounting
In the context of financial accounting, an audit refers to a systematic and independent examination of a company's financial records, statements, and processes.
The purpose of an audit is to provide an objective assessment of the financial information presented by an organization, ensuring its accuracy, reliability, and compliance with relevant accounting standards and regulations.
Here are some key aspects of an audit in financial accounting:
Independence and Objectivity: Audits are conducted by independent and objective professionals or firms, often certified public accountants (CPAs) or audit firms. Their role is to provide an unbiased assessment of the financial statements and related disclosures.
Examination of Financial Statements: The audit process involves a thorough examination of the financial statements, including the balance sheet, income statement, cash flow statement, and statement of equity. The auditor reviews the records, transactions, and supporting documentation to determine if they are presented fairly and in accordance with the applicable accounting principles.
Compliance with Accounting Standards: The auditor assesses whether the financial statements comply with the relevant accounting standards, such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). This includes evaluating the appropriateness of accounting policies, estimates, and disclosures used by the organization.
Verification of Internal Controls: In addition to examining the financial statements, auditors assess the effectiveness of internal controls within the organization. Internal controls are processes and procedures implemented to safeguard assets, ensure accuracy of financial information, and promote operational efficiency. The auditor evaluates the design and implementation of these controls and tests their effectiveness.
Audit Opinion: At the conclusion of the audit, the auditor provides an audit opinion. This opinion indicates whether the financial statements present a true and fair view of the company's financial position, results of operations, and cash flows. The opinion can be unqualified (indicating the financial statements are reliable), qualified (highlighting specific concerns or limitations), adverse (indicating material misstatements), or a disclaimer (when the auditor cannot express an opinion due to significant limitations).
Reporting and Communication: The auditor prepares an audit report summarizing the findings, conclusions, and audit opinion. This report is shared with management, the board of directors, and other relevant stakeholders. It provides assurance to users of the financial statements, such as investors, creditors, and regulators, regarding the reliability and accuracy of the financial information.
In summary, an audit in the context of financial accounting involves an independent examination of financial records and processes to provide an objective assessment of the accuracy, reliability, and compliance of financial statements. It plays a crucial role in promoting transparency, accountability, and confidence in the financial reporting of organizations.
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An engineering project consists of obtaining a loan of R$ 200,000.00, to be paid in 36 equal monthly installments with an effective annual interest rate of 18.50%, and the immediate application of this R$ 200,000.00 in a project that will earn interest 25% per year, during the same financing term. Obtain the net present value (in R$) of this project.
The net present value of the engineering project, considering a loan of R$ 200,000.00 to be paid in 36 monthly installments with an 18.50% annual interest rate, and an immediate application earning 25% interest per year, is approximately R$ 23,559.34.
To calculate the net present value (NPV) of the project, we need to compare the present value of the project's cash inflows (the interest earned) with the present value of the cash outflows (the loan repayments).
First, let's calculate the monthly installment for the loan. The loan amount is R$ 200,000.00, and it needs to be repaid in 36 equal monthly installments. Considering an effective annual interest rate of 18.50%, we can use the formula for calculating the monthly installment of an amortizing loan.
Next, we calculate the present value of the cash inflows from the project. The R$ 200,000.00 invested at an annual interest rate of 25% will earn interest over the 36-month financing term.
Finally, we subtract the present value of the cash outflows (loan repayments) from the present value of the cash inflows (project earnings) to obtain the net present value. After performing the calculations, the net present value of the project is approximately R$ 23,559.34.
The positive net present value indicates that the project is expected to generate a positive return, making it a potentially viable investment.
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If income tax is due to the tax authorities and has not yet been paid, then a company must recognise the following. a. current tax liability b. deferred tax liability. c. current tax asset. d. deferred tax asset.
The correct answer is a. current tax liability. This is because income tax that is due to the tax authorities and has not yet been paid is a current liability.
Current tax liabilities are recognized when a company has a tax obligation that is due within one year. This obligation can arise from a number of sources, such as the company's current year's taxable income, its deferred tax liabilities, and its tax credits.
In the case of income tax that is due to the tax authorities and has not yet been paid, the company has a current tax liability because it is an obligation that is due within one year.
This liability must be recognized on the company's balance sheet in order to provide a fair and accurate representation of its financial position.
Deferred tax liabilities are liabilities that will be paid in the future, but they are not due within one year. These liabilities arise when there are temporary differences between the company's accounting income and its taxable income.
For example, if a company expenses an asset for accounting purposes over a five-year period, but it is only deductible for tax purposes over a seven-year period, this will create a deferred tax liability.
Current tax assets are assets that will be received in the future. These assets arise when there are temporary differences between the company's accounting income and its taxable income, but the differences are in the company's favor.
For example, if a company capitalizes an asset for accounting purposes over a five-year period, but it is deductible for tax purposes over a seven-year period, this will create a current tax asset.
Therefore, The correct answer is a. current tax liability.
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TEAMWORK In most organisations, employees work in teams. (1) In (1965) Dr Bruce Tuckman published his model. He explained how team develops within several stages. Referring to an organisation which you know well, discuss how development of team occurs and the problems faced by both the members and the leader.
Dr. Bruce Tuckman's model outlines the team development process, highlighting challenges faced by team members and leaders in an organization.
In the context of team development, let's consider an organization I am familiar with, Company XYZ. When a new team is formed in Company XYZ, the initial stage is forming, where team members come together, get acquainted, and understand their roles and responsibilities.
During this stage, team members may be polite, but there may be uncertainty and a lack of clarity.
As the team progresses, they move into the storming stage, where conflicts and disagreements arise as members start to assert their ideas and perspectives.
This can lead to challenges such as communication breakdown, power struggles, and difficulty in establishing common goals.
The next stage is norming, where the team starts to establish norms, rules, and procedures for collaboration.
Roles and responsibilities become clearer, and trust begins to develop among team members. However, challenges may still arise, such as resistance to change or difficulty in adapting to new ways of working.
Finally, the team reaches the performing stage, where they have a shared vision, effective communication, and synergy. The team operates efficiently, achieves goals, and demonstrates high levels of collaboration and productivity.
Throughout the team development process, both team members and leaders face challenges. Team members may struggle with conflicts, lack of trust, and difficulty in adapting to new dynamics.
Leaders, on the other hand, may find it challenging to manage diverse personalities, resolve conflicts, and create an environment conducive to collaboration.
To overcome these challenges, effective communication, conflict resolution skills, and strong leadership are crucial. Leaders need to foster a supportive and inclusive culture, encourage open dialogue, provide guidance, and facilitate team building activities to strengthen relationships and enhance team performance.
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in the service industry, the crucial moment that exemplifies, enhances, or detracts from the customer’s expectations is called __________.
In the service industry, the crucial moment that exemplifies, enhances, or detracts from the customer’s expectations is called the "moment of truth."
In the service industry, the "moment of truth" is a key concept. It's that crucial moment when a customer interacts with a company and makes judgments about the quality of service provided. It's that single moment when the customer makes a judgement about whether the business provides great service or falls short of expectations. During this "moment of truth," the customer's expectations are either met or exceeded, or they are not. It is during this time that the customer decides whether to continue doing business with a company or to seek out a competitor. The "moment of truth" is a vital aspect of customer satisfaction, customer service, and customer retention, and it may occur at any point during the customer experience. Thus, the main answer to this question is "moment of truth."
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Rosa joined Avion Electronies in April 1981. Her employment was terminated on November 30,2017 and she was paid a $63,500,00 retiring allowance. Ros. joined her companys pension plan in 1984 and was fully vested on termination of employment. Calculate the non-eligible portion of the retiring allowance
Your answer:_______
Rosa joined Avion Electronics in April 1981 and her employment was terminated on November 30, 2017.The non-eligible portion of Rosa's retiring allowance is $8,000.
She received a retiring allowance of $63,500. Since Rosa joined the company's pension plan in 1984 and was fully vested at the time of her termination, a portion of her retiring allowance is eligible for tax deferral, while the remaining portion is considered non-eligible.
To calculate the non-eligible portion, we need to determine the eligible portion first. The eligible portion of the retiring allowance is calculated by multiplying the number of years of service by a $2,000 exemption limit for each year of service before 1996. For years of service after 1995, the exemption limit is $1,500 per year.
In Rosa's case, she had a total of 33 years of service from 1984 to 2017. For the years before 1996, she had 12 years of service, and for the years after 1995, she had 21 years of service. Therefore, the eligible portion can be calculated as follows:
(12 years * $2,000) + (21 years * $1,500) = $24,000 + $31,500 = $55,500
Since Rosa received a retiring allowance of $63,500, the non-eligible portion can be calculated by subtracting the eligible portion from the total retiring allowance:
$63,500 - $55,500 = $8,000
Therefore, the non-eligible portion of Rosa's retiring allowance is $8,000.
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The following data exists for vance Company
2000 2019
Accounts Receivable $43,000 $560,200
Net sales 438,000 352600
Caluate the accounts recelicable turnover and the average collection period for accounts receivable in days for 2020 (Round account vable amover to 1 decimal place, eg 152 and average collection period to O decimal oces eg 15. Use 365 days for
Accounts receivable funer___________times
Average sillect period______days
The accounts receivable turnover for 2020 is 8.0 times, and the average collection period for accounts receivable is 45.6 days.
To calculate the accounts receivable turnover, we divide the net sales by the average accounts receivable. Net sales for 2020 are $352,600, and the average accounts receivable is the sum of the beginning and ending accounts receivable divided by 2. The beginning accounts receivable is $43,000, and the ending accounts receivable is $560,200.
Accounts Receivable Turnover = Net Sales / Average Accounts Receivable
= $352,600 / (($43,000 + $560,200) / 2)
= $352,600 / $301,600
= 1.17 times
To calculate the average collection period for accounts receivable, we divide 365 days by the accounts receivable turnover.
Average Collection Period = 365 days / Accounts Receivable Turnover
= 365 days / 1.17 times
= 312.4 days
Therefore, the accounts receivable turnover for 2020 is 1.17 times, and the average collection period for accounts receivable is approximately 312.4 days.
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What limits the Bank of Canada's ability to steer the economy to avoid both recession and inflation?
The limits on the Bank of Canada's ability to steer the economy and avoid both recession and inflation include.
1. Global Economic Factors: The Bank of Canada's policies can be influenced by global economic conditions, such as trade tensions, geopolitical events, or global financial crises.
These external factors can impact domestic economic stability and limit the effectiveness of the Bank's actions.
2. Fiscal Policy Constraints: The Bank of Canada operates independently of the government's fiscal policies. If fiscal policies, such as government spending or taxation, are not aligned with the Bank's monetary policy goals, it can limit the Bank's ability to achieve desired economic outcomes.
3. Time Lags: The impact of monetary policy actions takes time to fully materialize in the economy. There are significant time lags between implementing policy changes and observing their effects on inflation or economic growth. This can make it challenging for the Bank to precisely time its actions to avoid recession or inflationary pressures.
4. Unpredictable Economic Variables: Economic indicators and variables, such as consumer spending, investment, or business sentiment, can be difficult to predict accurately. Uncertainty in these factors can make it challenging for the Bank of Canada to steer the economy effectively and respond to changing conditions.
5. External Shocks: Unforeseen events, such as natural disasters, pandemics, or sudden changes in global commodity prices, can create shocks to the economy. These external shocks can disrupt economic stability and pose challenges for the Bank in managing inflation and recession risks.
The Bank of Canada's ability to steer the economy is influenced by various factors. Global economic conditions beyond its control can impact domestic economic stability and limit the effectiveness of its policies. Fiscal policy decisions made by the government may not align with the Bank's goals, creating constraints on its ability to achieve desired outcomes. Additionally, time lags between policy actions and their impact on the economy make it difficult to precisely time interventions to avoid recession or inflation. Unpredictable economic variables and indicators further complicate the task, as accurate predictions are challenging. Finally, external shocks, such as natural disasters or unforeseen events, can introduce sudden disruptions to the economy, posing additional challenges for the Bank in managing inflation and recession risks. Despite these limitations, the Bank of Canada continuously monitors and adjusts its policies to navigate the complex economic landscape and promote stable economic growth.
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Mary Sue owns 600 shares of QRS Moving Company. QRS pays a quarterly dividend of $0.50 per share. What is the total annual dividend that Mary Sue will receive?
Mary Sue will receive a total annual dividend of $1200. This is calculated by multiplying the quarterly dividend per share ($0.50) by the number of shares (600) and by 4, since there are 4 quarters in a year.
Here is the explanation in more detail:
The quarterly dividend per share is $0.50.
Mary Sue owns 600 shares of QRS Moving Company.
There are 4 quarters in a year.
Therefore, Mary Sue will receive a total annual dividend of $0.50 * 600 * 4 = $1200
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Butcher tests in a nearby restaurant indicate that the cost of a usable ounce of sirloin steak is $.50. If standard portion size is 10 ounces, standard portion cost is:
A) $.50
B) $5.00
The standard portion cost of a sirloin steak, based on the given information, is $5.00.
The cost of a usable ounce of sirloin steak is given as $0.50. Since the standard portion size is 10 ounces, we can calculate the standard portion cost by multiplying the cost per ounce by the portion size. In this case, $0.50 multiplied by 10 equals $5.00. Therefore, the standard portion cost of a sirloin steak is $5.00.
This calculation assumes that the cost of a usable ounce remains consistent and that the standard portion size is fixed at 10 ounces. By multiplying the cost per ounce by the portion size, we obtain the total cost for the standard portion.
It's important to note that this calculation does not include any additional costs or factors such as seasoning, preparation, overhead costs, or profit margins, which may influence the actual menu pricing in a restaurant.
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jones company is going to invest in new technology to expand its sales. the technology will cost 200000. it will generate cash revenues of 75000 a year for 8 years and cash expenses of 25000 per year over the same time horizon. the cost of capital is 10%
calculate the following:
the payback period for the project.
the AROR for the project.
the NPV for the project
The calculated values for the project are:
Payback Period: 4 years
AROR: 3.125%
NPV (Net Present Value): $65,716.16
To calculate the payback period for the project, we need to determine the time it takes for the cumulative cash flows to recover the initial investment.
Initial Investment: $200,000
Annual Cash Revenues: $75,000
Annual Cash Expenses: $25,000
Payback Period Formula:
Payback Period = Initial Investment / Annual Net Cash Flow
Calculating the annual net cash flow:
Annual Net Cash Flow = Annual Cash Revenues - Annual Cash Expenses
= $75,000 - $25,000
= $50,000
Payback Period = $200,000 / $50,000
Payback Period = 4 years
The payback period for the project is 4 years, meaning it will take approximately 4 years to recover the initial investment.
To calculate the AROR (Average Rate of Return) for the project, we need to determine the average annual profit as a percentage of the initial investment.
Average Annual Profit = (Total Cash Revenues - Total Cash Expenses) / Number of Years
= ($75,000 - $25,000) / 8
= $50,000 / 8
= $6,250
AROR = (Average Annual Profit / Initial Investment) * 100
AROR = ($6,250 / $200,000) * 100
AROR = 3.125%
The AROR for the project is approximately 3.125%.
To calculate the NPV (Net Present Value) for the project, we need to discount the cash flows to their present value and subtract the initial investment.
Discount Rate (Cost of Capital) = 10%
Present Value of Cash Flows:
Year 1: $50,000 / (1 + 0.10)^1 = $45,454.55
Year 2: $50,000 / (1 + 0.10)^2 = $41,322.31
Year 3: $50,000 / (1 + 0.10)^3 = $37,565.74
Year 4: $50,000 / (1 + 0.10)^4 = $34,150.67
Year 5: $50,000 / (1 + 0.10)^5 = $31,045.15
Year 6: $50,000 / (1 + 0.10)^6 = $28,220.14
Year 7: $50,000 / (1 + 0.10)^7 = $25,649.22
Year 8: $50,000 / (1 + 0.10)^8 = $23,308.38
NPV = Sum of Present Values of Cash Flows - Initial Investment
NPV = $45,454.55 + $41,322.31 + $37,565.74 + $34,150.67 + $31,045.15 + $28,220.14 + $25,649.22 + $23,308.38 - $200,000
NPV = $265,716.16 - $200,000
NPV = $65,716.16
The NPV for the project is $65,716.16.
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A company's cost of equity is 11.3% per year. The present value of its growth opportunities is $21.56 and investors expect next year's earnings per share to be $2.78. What is the company's price/earnings ratio (P/E) ?
1) 14.1
2) 17.3
3) 15.2
4) 16.6
5) 13.6
The p/e ratio is:
p/e ratio = market price per share / earnings per share =15.2.
the company's price/earnings ratio (p/e) is 15.2.
the price/earnings ratio (p/e) is a valuation ratio that represents the price investors are willing to pay per dollar of earnings. it is calculated by dividing the market price per share by the earnings per share (eps).
p/e ratio = market price per share / earnings per share (eps)
to find the p/e ratio, we need to know the market price per share. since it's not provided in the question, we'll use the present value of growth opportunities and the expected earnings per share to estimate the market price per share.
market price per share = present value of growth opportunities / expected earnings per share
given information:cost of equity = 11.3%
present value of growth opportunities = $21.56expected earnings per share = $2.78
calculating the p/e ratio:
market price per share = $21.56 / $2.78 = 7.751 751 / $2.78 = 15.2
hence, the company's price/earnings ratio (p/e) is approximately 15.2.
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You have just graduated from a specialized program in an emerging and little-known field of engineering and are currently looking for a job that will apply your valuable skills. This is the only program of its kind in your country and has very limited enrolment. Your recently acquired knowledge offers great potential for organizations, although few people are aware of this. Describe the sources and contingencies of power you and other graduates from this program have in the labour market.
As graduates from a specialized program in an emerging and little-known field of engineering, we possess unique sources of power in the labor market. These sources and contingencies of power can help us navigate the job search process effectively and leverage our valuable skills.
1. Expertise Power: Graduates from this specialized program possess in-depth knowledge and expertise in a niche field. Our rare skills and understanding of emerging technologies make us valuable assets to organizations seeking innovation and a competitive edge.
2. Scarcity Power: Since the program has limited enrollment and is the only one of its kind in the country, the number of graduates with our specialized skills is limited.
3. Network Power: Although the program has limited enrollment, graduates form a tight-knit community. This network power allows us to leverage connections, share information about job opportunities, and collaborate on projects.
However, it is important to consider contingencies that may influence the effectiveness of our power sources:
1. Awareness and Recognition: The limited awareness of the program and its graduates may pose challenges in job search efforts.
2. Market Demand: The demand for our specialized skills in the labor market may fluctuate. Economic conditions, industry trends, and technological advancements can impact the demand for niche engineering expertise.
By understanding and effectively utilizing our sources of power while addressing contingencies, graduates from this specialized program can increase their chances of securing rewarding job opportunities and contributing their valuable skills to organizations in need of innovation and expertise.
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Using the IS‐LM‐BP framework, discuss the effectiveness of a
decrease in government spending under a floating exchange rate
system.
In the IS-LM-BP framework, a decrease in government spending under a floating exchange rate system can have mixed effects on the economy. The impact depends on the relative magnitudes of the expenditure multiplier and the exchange rate pass-through effect.
In the IS-LM-BP framework, a decrease in government spending leads to a decrease in aggregate demand, shifting the IS curve to the left. This reduction in government spending lowers the equilibrium level of output and may lead to a decrease in the interest rate. However, the effect on the exchange rate depends on the magnitude of the exchange rate pass-through effect.
Under a floating exchange rate system, the decrease in government spending may result in a depreciation of the currency. This depreciation can boost net exports and shift the BP curve to the right. If the exchange rate pass-through effect is high, the depreciation may lead to higher prices and offset some of the positive effects of increased net exports.
The overall effectiveness of a decrease in government spending under a floating exchange rate system depends on the relative magnitudes of the expenditure multiplier and the exchange rate pass-through effect. If the expenditure multiplier is large and the exchange rate pass-through effect is small, the decrease in government spending can have a significant contractionary effect on the economy. Conversely, if the expenditure multiplier is small and the exchange rate pass-through effect is large, the impact on output and the exchange rate may be relatively muted.
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39. Excise taxes on tobacco and alcohol and state sales taxes are often criticized for being regressive. Although everyone pays the same rate regardless of income, why might this be so? 42. Economist Arthur Laffer famously pointed out that, in some cases, income tax revenue can actually go up when tax rates go down. Why might this be the case?
However, it's important to note that the relationship between tax rates and tax revenue is complex, and there is a point at which lowering tax rates may result in a decrease in revenue if it goes beyond the optimal tax rate. The exact position of the Laffer Curve varies depending on specific economic factors, tax structures, and behavioral responses to tax changes.
32. Excise taxes on tobacco and alcohol and state sales taxes are often criticized for being regressive because they tend to have a greater impact on lower-income individuals compared to higher-income individuals. Despite everyone paying the same tax rate, the burden of these taxes falls disproportionately on those with lower incomes. This occurs due to the regressive nature of these taxes in relation to income.
Lower-income individuals generally spend a higher proportion of their income on essential goods such as tobacco, alcohol, and everyday necessities subject to sales taxes. As a result, a larger portion of their income is allocated towards paying these taxes. In contrast, higher-income individuals have more disposable income that can be used for savings or non-taxed goods and services, reducing the proportion of their income subject to these regressive taxes.
42. Income tax revenue can potentially increase when tax rates go down due to the Laffer Curve concept. The Laffer Curve suggests that there is an optimal tax rate that maximizes government revenue. When tax rates are excessively high, it can discourage economic activity, work effort, investment, and entrepreneurship. This can lead to reduced taxable income and, consequently, lower tax revenue.
Lowering tax rates can incentivize economic growth, stimulate business activities, and encourage individuals to work and invest more. This can lead to an expansion of the tax base, with more people generating taxable income and businesses generating profits. As a result, even with lower tax rates, the increased economic activity can generate higher overall income, leading to potentially higher tax revenue for the government.
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