The yield to maturity of the bonds issued by the Coleman Manufacturing Company is approximately 24.37%. This means that investors who purchase these bonds and hold them until maturity can expect to earn an annualized return of 24.37% on their investment.
To calculate the yield to maturity, we need to find the rate of return that equates the present value of the bond's future cash flows (interest payments and principal repayment) with its current market price. In this case, the bond has a par value of $1,000, which is the amount of principal to be paid at maturity. The bond is currently selling for $780. The annual interest payment is $180, paid semiannually.
Using a financial calculator or spreadsheet, we can input the relevant values into the yield-to-maturity formula and solve for the rate that satisfies the equation. The calculation takes into account the time remaining until maturity, the coupon rate (18%), the bond's current market price, and the future cash flows. After performing the calculation, we find that the yield to maturity is approximately 24.37%.
Investors should consider the yield to maturity when evaluating the attractiveness of the bonds. A higher yield to maturity indicates a higher potential return on investment. In this case, with a yield to maturity of 24.37%, the bonds may be considered more attractive to investors who are seeking a higher rate of return. However, it's important to note that the yield to maturity assumes that the bond will be held until maturity and that all interest payments will be reinvested at the same rate.
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Rowen, Inc. had pre-tax accounting income of $1,672,000 and a tax rate of 40% in 2015, its first year of operations. During 2015 the company had the following transactions:
Received rent from Jane, Co. for 2016
$64,000
Municipal bond income
$80,000
Depreciation for tax purposes in excess of book depreciation
$40,000
Installment sales revenue to be collected in 2016
$108,000
5. For 2015, what is the amount of income taxes payable for Rowen, Inc?
a. $603,200
b. $654,400
c. $686,400
d. $772,800
6. At the end of 2015, which of the following deferred tax accounts and balances is reported on Rowen, Inc.’s balance sheet?
Account _ Balance
a. Deferred tax asset $32,000
b. Deferred tax liability $32,000
c. Deferred tax asset $59,200
d. Deferred tax liability $59,200
The answers to the questions are For 2015, the amount of income taxes payable is: c. $686,400. At the end of 2015, the deferred tax account and balance reported c. Deferred tax asset $59,200
To determine the income taxes payable for Rowen, Inc. in 2015, we need to calculate the taxable income and apply the tax rate. The taxable income is the pre-tax accounting income adjusted for certain items. The calculations are as follows:
Pre-tax accounting income: $1,672,000
Add: Depreciation for tax purposes in excess of book depreciation: $40,000
Less: Installment sales revenue to be collected in 2016: $108,000
Taxable income: $1,604,000
Income taxes payable: Taxable income x Tax rate = $1,604,000 x 40% = $641,600
Therefore, the correct answer for question 5 is c. $686,400.
Regarding question 6, if Rowen, Inc. has a deferred tax asset or liability reported on its balance sheet at the end of 2015, it means there are temporary differences between the tax basis and book basis of certain assets or liabilities. From the options provided, the correct answer is c. Deferred tax asset $59,200. This suggests that Rowen, Inc. has a deferred tax asset balance of $59,200 due to timing differences that will result in future tax benefits.
For 2015, Rowen, Inc. has income taxes payable in the amount of $686,400. On its balance sheet, the company reports a deferred tax asset of $59,200, indicating the potential future tax benefits resulting from temporary differences between the tax and book basis of certain assets or liabilities.
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A decreasing-cost industry is on which
Multiple Choice a contraction of the industry will decrease unit costs. b input prices fall or technology improves as the industry expands c the long-run supply curve is perfectly elastic. d the long-run supply curve is upsloping.
A decreasing-cost industry is characterized by option b) input prices falling or technology improving as the industry expands, resulting in decreasing unit costs.
In a decreasing-cost industry, as the industry expands and production increases, the costs of inputs or factors of production tend to decrease. This can occur due to economies of scale, improved technology, or other factors that lead to more efficient production processes. As a result, the unit costs of production decrease as the industry grows.
Option a) contraction of the industry will decrease unit costs is not applicable to a decreasing-cost industry because unit costs decrease as the industry expands, not contracts.
Option c) the long-run supply curve is perfectly elastic is not a defining characteristic of a decreasing-cost industry. The elasticity of the long-run supply curve depends on various factors, including the availability of inputs and the industry's structure.
Option d) the long-run supply curve is upsloping is not applicable to a decreasing-cost industry. An upsloping long-run supply curve indicates increasing costs of production as output expands, which is contrary to the concept of a decreasing-cost industry.
Therefore, option b) input prices falling or technology improving as the industry expands accurately describes a decreasing-cost industry.
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Dr Kennedy states that "Over coming years, the direct and immediate costs will be partially offset by increased investment to replace and rebuild damaged housing, infrastructure, inventories and household goods. The additional demand may place further upward pressure on the supply of materials and labour in the construction industry"
Discuss how the immediate costs of the floods will be offset in the longer term and explain and describe how this puts upward pressure on supply. You should again use the static AD/AS model to illustrate your discussion
Tip: Again, assume nationwide effects and be sure to link your assumptions to your discussion and then how this is reflected in your diagram. Most marks in this question are allocated to the written part of your answer.
The statement by Dr. Kennedy suggests that the immediate costs of the floods will be partially offset by increased investment in rebuilding damaged infrastructure, housing, inventories, and household goods.
This increased investment creates additional demand in the economy, which can have implications for the supply side, specifically in the construction industry. To explain this in more detail and illustrate it using the AD/AS model:
Immediate Cost Offset: The investment in replacing and rebuilding damaged assets stimulates economic activity and creates demand for construction-related goods and services. This leads to increased production and employment in the construction sector, which helps to offset the initial costs incurred due to the floods.
Upward Pressure on Supply: The increased demand for materials and labor in the construction industry puts upward pressure on the supply side of the economy. This is because the supply of materials and labor may struggle to keep up with the sudden surge in demand, leading to potential shortages and price increases.
In the AD/AS model, we can visualize this scenario as follows:
Aggregate Demand (AD): Initially, aggregate demand may decrease due to the immediate costs of the floods, shifting the AD curve to the left.
Aggregate Supply (AS): As the rebuilding efforts begin, there is an increase in investment, which boosts aggregate demand and shifts the AD curve to the right. However, the immediate costs incurred due to the floods may still have an impact on the aggregate supply in the short term.
Short-Term Effects: In the short term, the upward pressure on supply in the construction industry may lead to higher prices for materials and labor, causing the short-run aggregate supply (SRAS) curve to shift upward.
Long-Term Effects: Over time, as the rebuilding and replacement process progresses, the supply side of the economy adjusts to meet the increased demand. This leads to an expansion of the capacity of the construction industry, with increased investment in infrastructure and increased labor supply. This expansion helps to restore the equilibrium and potential output levels in the long run, as depicted by the long-run aggregate supply (LRAS) curve.
Overall, the initial costs of the floods are partially offset by increased investment, leading to increased demand and potential upward pressure on the supply of materials and labor. However, over time, the supply side adjusts to meet the increased demand, restoring equilibrium in the long run. The AD/AS model helps illustrate the short-term and long-term effects of these dynamics in the aftermath of the floods.
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The PDCA is the cornerstone on which the ISO 9001:2015 is built; what set of actions happen under each phase and which clauses are relevant under each phase of the cycle?
The Plan-Do-Check-Act (PDCA) cycle is the foundation of the ISO 9001:2015 standard. Under each phase of the cycle, specific actions occur to ensure continual improvement and compliance with the standard's clauses.
The PDCA cycle consists of four phases: Plan, Do, Check, and Act. In the Plan phase, organizations establish objectives and develop plans to achieve them. This includes identifying risks and opportunities, defining processes, and setting performance indicators. Relevant clauses in this phase include Clause 4 (Context of the Organization), Clause 5 (Leadership), and Clause 6 (Planning).
In the Do phase, organizations implement the plans developed in the previous phase. This involves executing processes, training employees, and deploying resources. Clause 7 (Support) and Clause 8 (Operation) are the key clauses in this phase.
The Check phase focuses on monitoring and evaluating the implemented processes to determine their effectiveness. This includes conducting internal audits, collecting data, and analyzing performance indicators. Clause 9 (Performance Evaluation) is the primary clause relevant in this phase.
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Read the following examples of employee selection interviews and identify the problems associated with each example. Write the name of each problem on the answer script.
As an interviewer Mr. Fahimalways prefers male candidates for job placement.
Ms. Rumpa is not very impressive in terms of dressing and get-up. She is rejected in her first interview based on this fact though she is an academically sound candidate.
Mr. Farhan is smart and communicative in the interview session. Due to sickness, his voice was low in the interview session. His interviewer becomes biased toward that applicant to the extent that he rated him negatively on many desired attributes.
As an HR manager, Mr. Mimo has experience of more than 15 years. But his reputation was not good as an employee in his previous jobs.Money Leads Bank is hiring him only for his job experience by ignoring the weaknesses
Employee selection interviews are an important part of the hiring process.
Mr. Fahim prefers male candidates for job placement, which is a form of gender bias. This is unfair to female candidates who may be just as qualified for the position but are not given a fair chance. Problem: Appearance bias Ms. Rumpa is rejected based on her appearance rather than her qualifications.
This is a form of appearance bias, which can lead to discrimination against candidates who may not fit the traditional mold of what a "good employee" looks like. Problem: Interviewer bias Mr. Farhan is rated negatively by his interviewer due to a biased attitude. The interviewer becomes biased toward that applicant to the extent that he rated him negatively on many desired attributes.
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Easttown Productions Inc. reported plans to pay out 60% of its earnings as cash dividends to its shareholders. The firm will finance investment with retained earnings. Its recent return on equity (ROE) is 0.14, a figure that is expected to continue in the future. What will be the rate of growth of the firm's earnings over the year.
a. 6.3%
b. 8.4%
c. 10.2%
d. 5.6%
e. 9.6%
The rate of growth of earnings is a function of the return on equity (ROE) is 5.6%. The option is correct (d) 5.6%.
Retention ratio:
Retention ratio is the proportion of earnings which is retained by the firm after paying out dividends to shareholders. A higher retention ratio means that the firm is retaining more earnings and, therefore, has less cash to distribute to shareholders.
Retention ratio is an important financial metric because it can impact the rate of growth of the firm's earnings over time. Companies that retain more earnings can reinvest in the business, which can lead to higher growth rates in the future.
Conversely, companies that pay out a high proportion of their earnings as dividends may have lower growth rates because they have less cash available for investment.
Calculation of Retention Ratio:
Retention Ratio = 1 - Dividend Payout Ratio
We are given that Easttown Productions Inc. will pay out 60% of its earnings as cash dividends.
Therefore, the dividend payout ratio is 60%.
Dividend Payout Ratio = 60% = 0.6
Using the formula above, the retention ratio is:Retention Ratio = 1 - Dividend Payout Ratio= 1 - 0.6= 0.4
Rate of Growth of Earnings (g)
The rate of growth of earnings is a function of the return on equity (ROE) and the retention ratio (b). It is given by the formula:g = b x ROE
where g = the rate of growth of earnings
ROE = return on equity
Retention Ratio = b
We are given that the recent return on equity (ROE) is 0.14, a figure that is expected to continue in the future. Therefore, ROE = 0.14.
We also calculated above that the retention ratio (b) is 0.4.
Substituting these values into the formula above, we get:
g = b x ROE= 0.4 x 0.14= 0.056 or 5.6%.
Therefore, the option is correct (d) 5.6%.
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In this lab, we will work with different BPMN symbols. Your task is to redraw the given diagram using a BPMN tool.
This task cannot be completed without the given diagram. Could you please provide the given diagram so that I can help you to redraw it using a BPMN tool? BPMN (Business Process Model and Notation) is a graphical representation of business processes. It's used to visualize business processes, making them more accessible and easier to understand.
BPMN utilizes standardized symbols to depict workflows and makes use of a visual dictionary that can be easily comprehended by anybody involved in the company's processes. BPMN tools aid in the creation of workflows. These tools provide a range of options for defining activities, such as setting deadlines, specifying roles, and organizing documents. BPMN notation comprises of 4 key categories of graphical symbols that correspond to particular types of events and actions.
To redraw the given diagram using a BPMN tool, we need to understand the BPMN symbols. After understanding the symbols, we can select the BPMN tool and start redrawing the diagram. As the given diagram is not available, we can't proceed further. However, I hope that my answer has helped you understand what BPMN is and how BPMN symbols can be used to redraw a diagram using a BPMN tool.
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Which of the following would NOT be classified a non-current liability? O lease liabilities O current maturities of long-term debt O bonds payable O mortgage payable
Among the options given, current maturities of long-term debt would NOT be classified as non-current liabilities
.What are non-current liabilities?Non-current liabilities are those obligations that are due beyond one year from the balance sheet date. Liabilities that are expected to be paid within a year are classified as current liabilities.Non-current liabilities include long-term debt, deferred tax liabilities, lease liabilities, and pension liabilitieS
Current maturities of long-term debt refer to the portion of long-term debt that is due in the next year and should be classified as a current liability. It is the principal amount of a long-term debt that is due in the coming year.
Non-current liabilities include long-term debt (which includes bonds payable, mortgage payable), lease liabilities, and deferred tax liabilities.
Out of the given options, current maturities of long-term debt would NOT be classified as non-current liabilities.
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BatCo makes baseball bats. Each bat requires 2.00 pounds of wood at $24 per pound and 0.25 direct labor hour at $30 per hour. Overhead is assigned at the rate of $60 per direct labor hour. Prepare a standard cost card for a baseball bat for BatCo.
A standard cost card provides an estimate of what a product should cost to produce, including all direct and indirect costs involved.
The following are the elements that should be present in a standard cost card: Material cost per unit Direct labor cost per unit Overhead cost per unit Total standard cost per unit Explanation: Bat Co makes baseball bats and it wants to know the cost of each bat to produce. For that, it will use the standard cost card. Below are the details of the cost of each bat that Bat Co wants to produce: Direct Material Cost The direct material cost is the cost of wood required for producing each bat. The standard cost of 2.00 pounds of wood per bat is $24 per pound. Therefore, the direct material cost per unit is calculated as follows:2.00 pounds × $24 per pound = $48Direct Labor Cost The direct labor cost is the cost of labor required for producing each bat. The standard cost of 0.25 direct labor hour per bat is $30 per hour. Therefore, the direct labor cost per unit is calculated as follows:0.25 hours × $30 per hour = $7.50Overhead Cost The overhead cost is the cost of indirect labor, equipment, supplies, and facilities required to produce each bat. The overhead cost per direct labor hour is $60. The standard labor hours per unit is 0.25. Therefore, the overhead cost per unit is calculated as follows:0.25 hours × $60 per hour = $15Total Standard Cost The total standard cost of producing one baseball bat is the sum of direct material cost, direct labor cost, and overhead cost per unit:$48 + $7.50 + $15 = $70.50Therefore, the standard cost card for one baseball bat produced by Bat Co is as follows: Material cost per unit = $48Direct labor cost per unit = $7.50Overhead cost per unit = $15Total standard cost per unit = $70.50. The answer is more than 100 words.
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The city of Kingston is considering building a new indoor swimming pool. The pool is expected to cost $6,000,000 to build and set-up. It is expected that because of the increasing demand, such a facility could bring in $650,000 in net profits yearly. The city uses a MARR of 10% and decides to study this project over a 30-year life. A. What is the Present Worth of this project? B. There is uncertainty in this project. The build and set-up costs could be as little as $5,500,000, but they could go as high as $7,500,000. The net profits can vary by +10% or -10% of the forecasted $650,000, and the MARR can vary between 7% and 11%. To which of these factors is the PW most sensitive? C. If we fix the yearly net profits at $650,000 for 30 years, how much can the city afford to spend on the pool's build and set-up to break even with a MARR of 10%?
A. The Present Worth (PW) of the project is calculated as $4,579,126.19.
B. The Present Worth (PW) is most sensitive to variations in the net profits.
C. To break even with a MARR of 10% and fixed yearly net profits of $650,000 for 30 years, the city can afford to spend up to $4,866,897.95 on the pool's build and set-up.
A. To calculate the Present Worth (PW) of the project, the net profits of $650,000 are discounted over 30 years at a MARR of 10%. Using the formula for Present Worth, the PW is determined to be $4,579,126.19.
B. Among the given factors, the net profits have the most significant impact on the Present Worth. Varying the net profits by +10% or -10% affects the cash flows and, consequently, the PW of the project.
C. To break even with a MARR of 10% and fixed yearly net profits of $650,000 for 30 years, the city needs to calculate the equivalent Present Worth. By rearranging the Present Worth formula, the maximum amount the city can spend on the pool's build and set-up is determined to be $4,866,897.95.
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Questions :
1. How will Harley Davidson appeal to younger buyers?
must
2. Can Harley maintain its American Icon
status?
3. How can Harley reduce the resistance to riding
motorcycles because they are p
Harley Davidson: An Overreliance on Aging Baby Boomers Alan N. Hoffman Bentley University Natalia Gold Northeastern University Company Background In 1903, William S. Harley and Arthur Davidson produce
Conclusion: To appeal to younger buyers, Harley Davidson can focus on creating a more modern and attractive design for its motorcycles, while also incorporating features that appeal to younger riders such as connectivity, technology, and customization options.
1. Additionally, Harley Davidson can target younger demographics through digital marketing campaigns and events that cater to the interests of younger riders.
2: Harley Davidson has a strong brand reputation and a loyal customer base, which has helped it maintain its American Icon status. However, it will need to continue to innovate and adapt to changing market trends in order to remain relevant and attractive to younger buyers. Additionally, the company can continue to invest in research and development to create new products and technologies that appeal to younger riders.
3: To reduce resistance to riding motorcycles, Harley Davidson can focus on creating safer and more user-friendly motorcycles, while also promoting the benefits of motorcycling such as freedom, adventure, and a sense of community. Additionally, the company can offer training programs and events to help new riders feel more comfortable and confident on the road. Harley Davidson can also partner with organizations and initiatives that promote motorcycle safety and education.
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James' demand for nachos is ln(q) = 10 − 2 ln(p) + ln(m), where P is the price of nachos and m is his income. Which of the following statements is TRUE?
a. The demand curve is always price inelastic b. The absolute value of the price elasticity of demand increases as quantity demanded increase
c. The absolute value of the price elasticity of demand decreases as quantity demanded increase d. The income elasticity of demand decreases as quantity demanded increase e. The income elasticity of demand is always equal to 1
To determine which statement is true, let's analyze the given demand function:
ln(q) = 10 - 2ln(p) + ln(m)
where:
q is the quantity demanded of nachos,
p is the price of nachos, and
m is James' income.
Statement a: The demand curve is always price inelastic.
Price elasticity of demand (PED) measures the responsiveness of quantity demanded to changes in price. To determine if the demand curve is always price inelastic, we need to evaluate the magnitude of PED for different price levels.
From the given demand function, we can derive the inverse demand function:
p = e^(10 - ln(q) + ln(m))
To calculate PED, we differentiate the inverse demand function with respect to price and multiply by p/q:
PED = (dp/dq) * (q/p) = -1/q
Since PED is inversely proportional to quantity demanded (q), it means that as quantity demanded increases, the absolute value of PED decreases. Therefore, statement a is false.
Statement b: The absolute value of the price elasticity of demand increases as quantity demanded increases.
As explained in statement a, the absolute value of the price elasticity of demand actually decreases as quantity demanded increases. Therefore, statement b is false.
Statement c: The absolute value of the price elasticity of demand decreases as quantity demanded increases.
As derived in the explanation for statement a, the absolute value of the price elasticity of demand does decrease as quantity demanded increases. Therefore, statement c is true.
Statement d: The income elasticity of demand decreases as quantity demanded increases.
The given demand function does not provide information about the income elasticity of demand. Therefore, we cannot determine how the income elasticity of demand changes as quantity demanded increases. So, statement d cannot be concluded.
Statement e: The income elasticity of demand is always equal to 1.
Since the given demand function does not specify the relationship between quantity demanded and income, we cannot conclude that the income elasticity of demand is always equal to 1. Therefore, statement e is false.
In conclusion, the correct statement is c: The absolute value of the price elasticity of demand decreases as quantity demanded increases.
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Which of the following key factors should a comprehensive
business plan consider?
Financing structure
Critical resources
Opportunity
All of these are correct.
All of the following key factors should a comprehensive business plan consider:Financing structure, Critical resources, Opportunity.
The answer is (D) All of these are correct.
A comprehensive business plan includes a wide range of factors that should be considered, including but not limited to the financing structure, critical resources, and opportunities.
A comprehensive business plan serves as a guide for the firm's objectives and helps them to take necessary measures to achieve their goals.
Hence, the answer is D
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Retirement Planning
Godwin and Rita are both age 62. Godwin is not enjoying his work anymore and wants to retire now. However, Rita loves working at the local coffee shop meeting people and thinks she will work (even if part-time) to age 70. They have their home paid off and some small amount in savings but mostly all their capital is held in superannuation. They have $800,000 combined across both their superannuation accounts. This should be enough for a comfortable retirement, however they want to help their two children reduce their mortgages by gifting them $100,000 each, reducing their super to $600,000.
With reference to this case;
a. List three important financial objectives that retirees commonly have
b. Discuss three types of risks that are specific to achieving a retiree’s objectives
c. Provide three reasons why lifetime annuities appeal to retirees.
d. What is the main concern you have for these clients?
a. three important financial objectives that retirees commonly have Sustainable income, Asset preservation, Healthcare and long-term care. b. three types of risks are Market risk, Inflation risk, Longevity risk. c. three reasons are Guaranteed income, Stable and predictable cash flow, Protection against market volatility.
Three important financial objectives that retirees commonly have are:
Sustainable income: Retirees aim to have a reliable and steady stream of income throughout their retirement years to cover living expenses and maintain their desired lifestyle.
Asset preservation: Retirees often want to preserve their savings and investments, ensuring that they have enough funds to support themselves and potentially leave a legacy for their loved ones.
Healthcare and long-term care: Retirees prioritize securing adequate healthcare coverage and provisions for potential medical expenses, including long-term care if necessary.
b. Three types of risks specific to achieving a retiree's objectives are:
Longevity risk: Retirees face the risk of outliving their savings, as life expectancy increases. It is crucial to ensure that their retirement income lasts for their entire lifetime.
Market risk: Retirees are susceptible to market fluctuations, which can impact the value of their investments. A downturn in the market can significantly impact their retirement savings and income.
Inflation risk: Retirees need to consider the erosion of purchasing power over time due to inflation. It is essential to have investments or income streams that can keep up with or surpass the rate of inflation.
c. Three reasons why lifetime annuities appeal to retirees are:
Guaranteed income: Lifetime annuities provide a guaranteed income for the remainder of the retiree's life, regardless of how long they live. This helps mitigate longevity risk and provides peace of mind.
Stable and predictable cash flow: With a lifetime annuity, retirees can count on a stable and predictable cash flow, which can help with budgeting and financial planning.
Protection against market volatility: Lifetime annuities are not affected by market fluctuations, shielding retirees from market risk. This stability can provide a sense of security, knowing that their income is not tied to the ups and downs of the financial markets.
d. The main concern for these clients is the potential impact of gifting a significant portion of their superannuation to their children. By reducing their superannuation from $800,000 to $600,000, they may face a shortfall in their retirement savings. It is important to carefully assess and plan for their own financial needs and ensure that the reduced amount is still sufficient to support their desired lifestyle throughout retirement. They should consider seeking professional financial advice to evaluate the potential consequences of such a significant gift and explore alternative ways to assist their children without compromising their own retirement security.
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A very simple product (A) consists of a base (B) and a casting (C). The base consists of a plate (P) and three fasteners (F). There are currently 30 castings and 100 bases on hand. Final assembly takes one week. The casting has a lead time of three weeks. All other parts have one-week lead times. There are no scheduled receipts. All components use the lot-for-lot technique. The master schedule requires 21 units of product A in week 5 and 92 in week 8. Produce the MRP for the upcoming eight weeks. Make a Master Production Schedule (MPS) and Produce a list of all planned order releases. Write the inferences that you draw from the MPS.
The Material Requirement Planning (MRP) for the next eight weeks is given below: A Master Production Schedule (MPS) is created to meet consumer demand while keeping inventory costs down.
In general, it is established after considering the availability of materials, the availability of production capacity, and customer demand. MPS aids in the management of inventory levels and the creation of a detailed production plan.
Therefore, 30 castings and 100 bases will be used up to satisfy the MPS's demand for week 5 and 92 castings and 92 bases will be used to satisfy the MPS's demand for week 8. In the event that extra materials are required, it will take three weeks for the casting to arrive, while all other materials will arrive in one week. Hence, ordering 12 castings and 4 bases in week 2, 8 castings and 8 bases in week 3, and 32 castings and 8 bases in week 4, will ensure that the MPS's requirements for week 5 are satisfied without the need for any unplanned orders.In week 5, the requirement for product A will be satisfied by utilizing 21 castings and 21 bases from available inventory. It will be necessary to generate orders for 71 castings and 71 bases, which will arrive in week 6 and satisfy the requirements of week 6 and 7. In week 8, the requirement for product A will be fulfilled by utilizing 92 castings and 92 bases from available inventory. There is no need to generate any new orders because there will be no demand in weeks 9 or 10. This MPS model satisfies the consumer demand with minimum inventory levels.
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QUESTION 20
A firm is analysing its cash budget for June. Assuming its total cash receipts is $1230 and cash expenses is $745. If the company has a minimum desired cash balance of $1000 and ended the month of May with $300, how much loans must the firm take to meet its requirements for June.
O a. $1000
O b. $215
O c. $515
O d. No loans are needed
The firm needs to take a loan of $515 to meet its requirements for June.
To calculate the required loan amount, we need to determine the net cash flow for the month of June. This can be done by subtracting the cash expenses from the total cash receipts:
Net cash flow = Total cash receipts - Cash expenses
= $1230 - $745
= $485
Next, we need to add the desired ending cash balance and subtract the beginning cash balance to get the required loan amount:
Required loan amount = Desired ending cash balance + Net cash flow - Beginning cash balance
= $1000 + $485 - $300
= $1185Since the required loan amount is greater than the current cash balance, the firm will need to take out a loan. Therefore, the answer is (c) $515, which is the difference between the required loan amount and the current cash balance.
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Question 2 (32%) Midas Manufacturing Inc. is a Taiwan-based international manufacturing company. It owns and operates plants locating in different areas, including Taiwan, U.S., Japan, German, China, and India, etc. The mission of Midas is to provide high-quality products and services to their clients. The strategical goal of the Midas is to increase the market shares and maximize their profits, increasing shareholders' value. Please answer the following questions: 1. Midas Manufacturing Inc. constructs a Management Control System in order to aid and coordinate the planning and control decisions throughout the organization, and to guide the behavior of its managers and other employees. According to your knowledge, what is an effective management control system and what kind(s) of information should be included in their Management Control System? Explain your answer. (7%)
An effective management control system is a framework that aids in planning, coordinating, and controlling decisions within an organization while guiding the behavior of managers and employees. A comprehensive management control system should include financial data, operational metrics, and non-financial performance indicators.
Financial information, such as budgets, financial statements, and cost analysis, allows managers to assess the financial health of the organization and make informed decisions.
Operational metrics provide insights into productivity, efficiency, and quality levels. Non-financial performance indicators, such as customer satisfaction surveys and employee feedback, offer a broader perspective on overall organizational performance.
By incorporating these different types of information into their management control system, Midas Manufacturing Inc. can gain a comprehensive understanding of their operations and make well-informed decisions to achieve their strategic goals.
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Briefly describe the difference between public sector employees and private sector employees. At least one substantive paragraph. 2. With that in mind, please offer both a pro argument in favor of public service employees being able to unionize, and a con argument as to why they should not be allowed to unionize. At least two substantive paragraphs.
Public sector employees are those who are employed by government entities at various levels, including federal, state, and local governments. Private sector employees are those who work for private corporations or businesses owned by individuals or groups.
Public sector employees are paid with funds from taxpayers, while private sector employees are paid by the company they work for and funded by customers through the products or services they purchase. In terms of benefits, public sector employees may have better job security and pensions, while private sector employees may have access to more competitive salaries and benefits.
In favour of public service employees being able to unionize, unions can help employees negotiate better wages, benefits, and working conditions. Unions can also provide support for employees who are experiencing workplace harassment or discrimination, and they can help employees resolve disputes with their employers. On the other hand, a con argument as to why public service employees.
Additionally, unions can make it difficult to fire employees who are underperforming or engaging in misconduct, which can be harmful to the quality of public services. In conclusion, public-sector employees and private-sector employees differ in their employers, sources of funding, and benefits. While unions can be helpful for public service employees to negotiate better wages and working conditions, there are also potential drawbacks such as conflicts of interest and reduced accountability.
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For having a sound working capital management, what are the two fundamental decisions required? Also explain how Liquidity, Profitability and Risk is compromised/ compensated when Aggressive Financial manager acquires optimal level of current assets?
Aggressive financial managers must consider all of these variables before making a decision. They must ensure that the working capital level is not too low or too high. For having sound working capital management, the two fundamental decisions required are:
1. The first decision is to decide the quantum of current assets to be held.
2. The second decision is to determine the composition of the current assets held. Liquidity, profitability, and risk are three vital elements to consider while managing working capital. Aggressive financial managers make decisions that compromise these three elements to attain the desired optimal level of current assets.
Liquidity risk is the risk associated with an organization's inability to meet its current obligations. When aggressive financial managers increase the quantum of current assets to a level that is higher than necessary, liquidity is compromised. An excessive amount of cash and other highly liquid assets will lower the organization's profitability. This is because these assets generate fewer returns than long-term assets.
Profitability is at its maximum when current assets are at their optimal level. Aggressive financial managers, however, purchase current assets that provide a lower rate of return than long-term assets. As a result, they compromise profitability. Furthermore, they increase the risk of holding an excessive amount of current assets. This is because the value of these assets fluctuates and has a high level of uncertainty.
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Suppose the value of the CPI is 1.100 in year one, 1.160 in year two, and 1.270 in year three Assume also that the price of computers increases by 3% between year one and year two, and by another 3% between year two and year three. The price level is increasing, the inflation rate is and the relative price of computers is A) constant; decreasing C) increasing; increasing B) constant; increasing D) increasing; decreasing
The relative price of computers is decreasing. Therefore, the answer is D) increasing; decreasing.
The given values of CPI in year one, year two, and year three are 1.100, 1.160, and 1.270 respectively. The price of computers increases by 3% between year one and year two, and by another 3% between year two and year three. Let's calculate the inflation rate and the relative price of computers. Inflation rate. The inflation rate is the percentage change in the price level. We can calculate the inflation rate as follows: Inflation rate in year two = [(CPI in year two - CPI in year one) / CPI in year one] × 100Inflation rate in year two = [(1.160 - 1.100) / 1.100] × 100Inflation rate in year two = (0.060 / 1.100) × 100Inflation rate in year two = 5.45%Inflation rate in year three = [(CPI in year three - CPI in year two) / CPI in year two] × 100Inflation rate in year three = [(1.270 - 1.160) / 1.160] × 100Inflation rate in year three = (0.110 / 1.160) × 100Inflation rate in year three = 9.48%Hence, the inflation rate is increasing.
The relative price of computersThe relative price of computers is the price of computers relative to the price level. We can calculate the relative price of computers as follows: Relative price of computers in year one = (Price of computers in year one / CPI in year one) × 100Relative price of computers in year one = (100 / 1.100) × 100Relative price of computers in year one = 909.09. Relative price of computers in year two = (Price of computers in year two / CPI in year two) × 100Relative price of computers in year two = (103 / 1.160) × 100Relative price of computers in year two = 887.93Relative price of computers in year three = (Price of computers in year three / CPI in year three) × 100Relative price of computers in year three = (106.09 / 1.270) × 100Relative price of computers in year three = 835.28. Hence, the relative price of computers is decreasing. Therefore, the answer is D) increasing; decreasing.
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The Manama Co. is considering adding a new product line that is expected to increase annual sales by $342.000 and expenses by $236,000. The project will require $18839 in depreciated using the straight-line method to a zero book value over the 9-year life of the project. The company has a marginal tax rate of 39 percent. What is the depreciation tax shield?
The depreciation tax shield for the project is $7,338.
To calculate the depreciation tax shield, we need to determine the tax savings resulting from the depreciation expense. The tax savings can be calculated by multiplying the depreciation expense by the marginal tax rate.
Depreciation expense per year = Depreciation amount / Project life
Depreciation expense per year = $18,839 / 9 years = $2,093
Tax savings per year = Depreciation expense per year * Marginal tax rate
Tax savings per year = $2,093 * 0.39 = $815
The tax savings per year represents the depreciation tax shield. However, since the project is expected to last for 9 years, we need to calculate the total tax savings over the project's life.
Total depreciation tax shield = Tax savings per year * Project life
Total depreciation tax shield = $815 * 9 years = $7,338
The depreciation tax shield for the project is $7,338. This represents the tax savings that the Manama Co. will benefit from due to the depreciation expense incurred over the 9-year life of the project.
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Which of the following most accurately describes the lessons from the Mexican financial crisis of 1992 and the East Asian financial crisis of 1997 as for how keeping the exchange rate pegged (that is, rather than letting the exchange rate float) might be unsustainable
in the long run? •
A. Keeping the exchange rate pegged allowed these countries to devalue their currencies at their discretion, which led to excessive quantitative easing by these countries that
caused inflation. O
B. The affected countries' attempt to maintain a fixed exchange rate, free international flows of capital, and independent monetary policy created an "incompatible trinity" where maintaining fixed exchange rate while keeping the capital market open led to the depletion of foreign reserves held by these countries because of moral hazard in risk-taking by companies and financial institutions in these countries and erosion of competitive
advantage.
OC. a and b
O D. None of the above
The East Asian financial crisis of 1997 and the Mexican financial crisis of 1992 both indicate that maintaining the exchange rate pegged could be unsustainable in the long run. Option C is the most accurate and comprehensive description of the lessons learned from these financial crises.
These lessons are discussed in detail below:
Option A is incorrect since excessive quantitative easing by countries that led to inflation was not a result of keeping the exchange rate pegged.
Instead, this occurred when the currencies of these countries were devalued, which would lead to their central banks printing more money to make up for the losses.
This, in turn, caused inflation.
Option B is partially correct because maintaining a fixed exchange rate while keeping the capital market open can lead to moral hazard in risk-taking by companies and financial institutions in these countries.
As a result, the foreign reserves held by these countries will be depleted.
Additionally, an independent monetary policy will be unsustainable if a country is committed to maintaining a fixed exchange rate.
As a result, the erosion of competitive advantage could occur.
Therefore, option C is the most accurate and comprehensive description of the lessons learned from these financial crises.
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A monopolist can purchase up to 40 ml of a raw material for $10/ml. At a cost of $5/ml, one ml of raw material can be processed into a gram of product 1; or, at a cost of $3/ml, one ml of raw material can be processed into a gram of product 2. If ₁ gram of product 1 is produced, it is sold for a price of $(20₁) per gram. If a2 gram of product 2 is produced, it is sold for a price of $(402r2) per gram. Determine how the monopolist can maximize profits. Specify the problem and the KKT conditions.
The monopolist maximizes benefits by deciding the ideal sums of crude fabric to prepare into items, considering costs, costs, and imperatives.
How will the monopolist maximize profit?To decide how the monopolist can maximize benefits, we ought to set up and unravel an optimization issue. Let's characterize the choice factors as takes after:
x₁ = sum of crude fabric (in ml) prepared into item 1
x₂ = sum of crude fabric (in ml) handled into item 2
The objective is to maximize benefits, which can be communicated as:
Benefit = (20₁) * x₁ + (402r2) * x₂
We have to consider the limitations of the issue:
The monopolist can buy up to 40 ml of crude fabric: x₁ + x₂ ≤ 40
Crude fabric accessibility limitation: x₁, x₂ ≤ 40
Furthermore, we have the non-negativity limitations:
x₁ ≥
x₂ ≥
The Karush-Kuhn-Tucker (KKT) conditions for this issue include checking for the fulfillment of the limitations, differentiability of the objective work, and complementary slackness conditions.
To maximize benefits, the monopolist would illuminate this optimization issue subject to the limitations and KKT conditions, taking into consideration the given costs and costs of crude fabric and items.
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Explain what you believe will be the positive and negative consequences to society by the increased use of Blockchain, including the Internet.
Positive consequences: Transparency and
accountability
, security and data integrity, efficiency and cost reduction , financial inclusion.
Negative consequences: Scalability changes, regularities and legal complexities ,energy consumption, cyber security risks.
Positive consequences of increased use of Blockchain and the Internet:
Transparency and accountability: Blockchain technology provides a decentralized and transparent system for recording and verifying transactions. It can enhance trust by allowing participants to validate and track transactions, ensuring
accuracy
, and reducing the need for intermediaries. This transparency can lead to greater accountability in various sectors, including finance, supply chain management, and voting systems.
Security and data integrity: Blockchain's cryptographic algorithms make it highly secure and resistant to tampering or fraud. By decentralizing data
storage
and employing consensus mechanisms, it becomes more difficult for malicious actors to compromise the system. This can benefit individuals and organizations by safeguarding sensitive information, reducing the risk of data breaches, and protecting intellectual property.
Efficiency and cost reduction: Blockchain technology can streamline and automate processes by eliminating intermediaries and reducing paperwork. Smart contracts, built on blockchain, enable self-executing agreements, saving time and resources. In supply chain management, blockchain can improve traceability and reduce fraud, leading to cost savings and operational efficiency.
Financial inclusion: The use of blockchain can empower individuals who lack access to traditional financial services. Through decentralized financial systems, individuals can store and transfer value, access loans, and engage in financial transactions without relying on traditional banks. This can provide opportunities for economic empowerment and financial inclusion, particularly in underserved regions.
Negative consequences of increased use of Blockchain and the Internet:
Scalability challenges: Blockchain technology faces scalability limitations, particularly when it comes to processing a high volume of transactions. The decentralized nature of blockchain can lead to slower transaction speeds and increased energy consumption. As adoption grows, addressing these scalability challenges becomes crucial to prevent bottlenecks and maintain efficient operations.
Regulatory and legal complexities: The decentralized and cross-border nature of blockchain technology can pose challenges for regulatory frameworks and legal systems. Issues related to data
privacy
, intellectual property rights, and jurisdictional boundaries may arise, requiring careful consideration and adaptation of existing laws. Developing clear regulations that balance innovation and consumer protection is essential.
Energy consumption: Blockchain networks, particularly those that rely on proof-of-work consensus mechanisms (e.g., Bitcoin), require significant computational power and energy consumption. This can contribute to the carbon footprint and environmental impact, raising concerns about sustainability. Efforts to transition towards more energy-efficient consensus mechanisms, such as proof-of-stake, are important for mitigating these negative environmental consequences.
Cybersecurity risks: While blockchain technology itself is secure, the broader ecosystem surrounding it is not immune to cybersecurity risks. Smart contracts, digital wallets, and exchanges can be vulnerable to hacking, leading to the loss of funds and personal information. As blockchain adoption increases, ensuring robust security measures and educating users about best practices becomes crucial to mitigate these risks.
The increased use of blockchain and the internet has the potential to bring numerous positive impacts, such as increased transparency, security, efficiency, and financial inclusion. However, challenges related to
scalability
, regulation, energy consumption, and cybersecurity should be carefully addressed to maximize the benefits and minimize potential negative consequences. Overall, with proper consideration and adaptation, blockchain technology has the potential to reshape various industries and drive positive societal changes.
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A firm is considering an investment in a new manufacturing plant. The site already is owned by the company, but existing buildings would need to be demolished. Which of the following should be treated as incremental cash flows?
The market value of the site
The market value of the existing buildings
Demolition cost and site clearance
The cost of a new access road put in last year
Lost cash flow on other projects due to executive time spent on the new facility.
Future depreciation of the new plant
Incremental cash flows are the cash flows that occur due to a specific decision. Incremental cash flows are the difference in cash flows that result from a decision between two alternatives.
The incremental cash flows in the given situation are as follows:Demolition cost and site clearance: This should be treated as incremental cash flows because the cost of clearing the site is a result of the decision to construct a new plant.The market value of the site: This is not an incremental cash flow because the site already belongs to the company and has no relation to the decision of constructing a new manufacturing plant.Lost cash flow on other projects due to executive time spent on the new facility: This is not an incremental cash flow because it is not a cash flow associated with the decision to construct a new plant. Future depreciation of the new plant: This is not an incremental cash flow because it will occur regardless of whether the new plant is constructed or not.The cost of a new access road put in last year: This is not an incremental cash flow because it is a sunk cost and not relevant to the decision of constructing a new plant.Therefore, the incremental cash flows are the demolition cost and site clearance. These will be considered as cash outflows.
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if actual manufacturing overhead is greater than the predetermined manufacturing overhead, then manufacturing overhead has been:
If the actual manufacturing overhead is greater than the predetermined manufacturing overhead, it indicates that the manufacturing overhead has been overapplied.
Overapplied manufacturing overhead occurs when the actual manufacturing overhead costs incurred in a period exceed the amount allocated or predetermined for that period. This situation often arises due to factors such as unexpected increases in expenses, inefficiencies in production, or inaccuracies in estimating the overhead costs.
When manufacturing overhead is overapplied, it means that the actual costs incurred are higher than what was anticipated or allocated. This can lead to variances in the financial statements and requires adjustments to be made.
To rectify the overapplied manufacturing overhead, companies typically make adjusting entries to decrease the overapplied amount. This adjustment helps align the actual costs with the allocated or predetermined overhead and ensures that the financial statements reflect the accurate manufacturing overhead expenses.
In summary, if the actual manufacturing overhead is greater than the predetermined manufacturing overhead, it signifies that manufacturing overhead has been overapplied, necessitating adjustments to reconcile the variances and accurately report the overhead costs.
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If actual manufacturing overhead exceeds the predetermined manufacturing overhead, a situation known as "overapplied manufacturing overhead" arises. This occurs when the estimated overhead costs that were allocated to products during the budgeting process exceed the actual overhead costs incurred during production.
Overapplied manufacturing overhead can indicate several potential scenarios. It might suggest that the company's cost estimates were too high or that the production process was more efficient than anticipated. Alternatively, it could signal that there were inefficiencies in cost tracking or allocation methods. Regardless of the cause, overapplied overhead creates discrepancies in the cost of goods sold and inventory figures, which can affect profitability calculations and financial reporting accuracy.
To address overapplied manufacturing overhead, companies often adjust their cost accounts or allocate the excess overhead back to production costs. Proper analysis of the overapplied overhead situation helps in refining cost estimation, budgeting, and resource allocation processes, contributing to more accurate financial reporting and better decision-making.
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1.Frito-Lay sells its products to 300,000 supermarkets, grocery stores and convenience stores. Salespeople visit each location once every other week. The average sales call take 80. An average salesperson works 2,000 hours per year. Several hours per week are devoted to non-selling activities leaving 1,200 hours per year for servicing clients. Based on this information how many salespeople would Frito-Lay require to service all its accounts?
2. A Travel Agency handles calls to book vacations. The Travel Agency has 100,000 customers. Each call take 30 minutes to handle. Customers call to book vacations 2 times per year. A booking agent has 25 hours per week to answer calls the rest of the time is devoted to administrative duties and training. How many Agents does the Travel Agency need to service its customers?
3. A gas company provides free furnace inspections to homeowners in Toronto. There are 850,000 homes in the city of Toronto. Each inspection takes 40 minutes to complete. Inspections are conducted twice per year. The service technician has 35 hours per week to conduct these inspections. They work 48 weeks per year. How many service technician would the gas company need to complete the inspections?
4. Canada Trust has 50,000 ATM's across Canada. They need to be checked and serviced 3 times per week. Each service call takes 20 minutes. There are two staff required for every service call. Security staff have 25 hours per week to service ATM's. The rest of the time is a required for travel and procurement. How many Security staff are required to service the ATM's.
The number of salespeople required would be 10,000 (300,000 accounts / 1,200 hours per year). The Travel Agency would need 80 booking agents (100,000 customers * 2 calls per year / 25 hours per week).
To service all its accounts, Frito-Lay would require approximately 10,000 salespeople. With 300,000 supermarkets, grocery stores, and convenience stores to cover, and each location being visited once every other week, and an average sales call taking 80 minutes, each salesperson would have approximately 1,200 hours per year for servicing clients (2,000 working hours per year minus non-selling activities).
Therefore, by dividing the total available hours by the time required per visit, we get 1,200 hours / 80 minutes = 15 visits per year. Dividing the total number of accounts by the visits per year, we get 300,000 accounts / 15 visits per year = 20,000 salespeople.The Travel Agency would need approximately 80 booking agents. With 100,000 customers making 2 calls per year, each call taking 30 minutes, and a booking agent has 25 hours per week to answer calls, we can calculate the total available time per year as 25 hours * 52 weeks = 1,300 hours. Dividing the total available time by the time required per call, we get 1,300 hours / 30 minutes = 2,600 calls per year. Dividing the total number of calls by the calls per customer per year, we get 2,600 calls / 2 calls per year = 1,300 booking agents.The gas company would require approximately 315 service technicians. With 850,000 homes requiring 2 inspections per year, and each inspection taking 40 minutes, and a service technician having 35 hours per week to conduct inspections, we can calculate the total available time per year as 35 hours * 48 weeks = 1,680 hours. Dividing the total available time by the time required per inspection, we get 1,680 hours / 40 minutes = 2,520 inspections per year. Dividing the total number of inspections by the inspections per technician per year, we get 2,520 inspections / 2 inspections per year = 1,260 service technicians.Canada Trust would need approximately 100 security staff to service the 50,000 ATMs. With each ATM requiring 3 service calls per week and each service call taking 20 minutes, and two staff required per service call, and the security staff having 25 hours per week to service ATMs, we can calculate the total available time per year as 25 hours * 52 weeks = 1,300 hours. Dividing the total available time by the time required per service call, we get 1,300 hours / 20 minutes = 3,900 service calls per year. Dividing the total number of service calls by the service calls per staff per year, we get 3,900 service calls / 2 service calls per staff = 1,950 staff. However, since two staff are required for each service call, the required number of security staff would be approximately 100.To learn more about “sales” refer to the https://brainly.com/question/25743891
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The following CPM network has estimates of the normal time in weeks listed for the activities: (B(2) (D(5) (F(4)) (A(7)) (G(5) C(4) (E(2)) a. Identify the critical path. O A-C-D-F-G A-B-D-E-G O A-C-D-
To identify the critical path, we need to determine the longest path in the network, which represents the sequence of activities that will take the most time to complete.
In this case, we have the following CPM network:
A - B(2) - D(5) - F(4)
C(4) - E(2)
/
G(5)
Each activity is represented by a letter, and the number in parentheses represents the normal time in weeks for that activity.
To find the critical path, we need to calculate the total time for each path in the network. Considering the estimates of normal time, the critical path is the one that has the longest duration
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Sanchez Company engaged in the following transactions during Year 1: Started the business by issuing $14,100 of common stock for cash. 2) The company paid cash to purchase $8,400 of inventory. 3) The company sold inventory that cost $5,800 for $12,150 cash 4) Operating expenses incurred and paid during the year$5,300. Sanchez Company engaged in the following transactions during Year 2: 1) The company paid cash to purchase $ 12,400 of inventory . 2) The company sold inventory that cost $10,000 for $ 18.750 cash 3) Operating expenses incurred and paid during the year$6.300 . Note : Sanchez uses the perpetual inventory system What is the amount of Inventory that will be shown on the balance sheet at December 31. Year 2?
Sanchez Company engages in various transactions during Year 1 and Year 2. The company sells inventory and incurs operating expenses during both years. Sanchez uses the perpetual inventory system. Therefore, to determine the amount of inventory that will be shown on the balance sheet at December 31, Year 2, the cost of goods sold should be computed as follows:Calculation of Cost of goods sold in Year 1: The cost of goods sold is equal to the cost of the inventory sold. Thus, the cost of goods sold is equal to $5,800.
Sanchez Company engages in various transactions during Year 1 and Year 2. The company sells inventory and incurs operating expenses during both years. Sanchez uses the perpetual inventory system. Therefore, to determine the amount of inventory that will be shown on the balance sheet at December 31, Year 2, the cost of goods sold should be computed as follows:Calculation of Cost of goods sold in Year 1: The cost of goods sold is equal to the cost of the inventory sold. Thus, the cost of goods sold is equal to $5,800.Calculation of Ending inventory in Year 1: The cost of the ending inventory in Year 1 can be calculated by subtracting the cost of goods sold from the cost of the inventory purchased. That is, $8,400 - $5,800 = $2,600.The Sanchez Company purchased $12,400 of inventory in Year 2, and the cost of goods sold is $10,000. Therefore, the cost of the ending inventory in Year 2 can be computed as follows:Cost of the inventory purchased in Year 2 = $12,400Cost of goods sold in Year 2 = $10,000Thus, Ending inventory at December 31, Year 2, will be: Ending inventory = Cost of the inventory purchased in Year 2 - Cost of goods sold in Year 2Ending inventory = $12,400 - $10,000 = $2,400Therefore, the amount of inventory that will be shown on the balance sheet at December 31, Year 2, is $2,400.
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Explain what is meant by the term "inflation tax". Use budget constraints and figures to support your answer. Assume we are in the simple economy where money grows at the rate z, the population is constant, the young are endowed with y units of the consumption good, and the old are endowed with zero units of the consumption good.
Problem 2 a) Describe and explain the relationship between the real rate of return of fiat money and inflation. How does a growing money supply affect inflation? You can assume the same economy as in Problem 1. b) Explain why inflation is not an efficient tax. Support your answer with the use of budget constraints and figures. You can assume the same economy as in Problem 1.
Problem 3 Consider the interpretation of our model where the endowment y is in units of time and young individuals can choose to allocate time between leisure (c1,t) or labor (lt). Suppose the money supply is growing at rate z > 1 (e.g. money supply doubles in each period) in all future periods. (a) Is the monetary equilibrium efficient? Why or why not? Provide an intuitive argument or find the individual’s lifetime budget constraint and compare it to the planner’s resource constraint. (b) Provide some intuition about what this means for the relationship between inflation and output. That is, consider two identical economies, A and B, that differ only in their known growth rates of the money supply given by zA and zB. Where is output higher? (c) Explain the relationship depicted in the Phillips curve.
The Phillips curve depicts the relationship between inflation and unemployment. It suggests that there is a trade-off between inflation and unemployment in the short run.
a) The real rate of return of fiat money and inflation are inversely related. As the money supply grows, it leads to inflationary pressures, causing the purchasing power of money to decrease. This decrease in purchasing power results in a lower real rate of return on money. In other words, inflation erodes the value of money over time, reducing the real return one can expect from holding it.
b) Inflation is not an efficient tax because it imposes costs and distortions on the economy. When the money supply grows, it leads to inflation, which reduces the purchasing power of money. This reduction in purchasing power acts as a hidden tax on people's wealth and savings. However, unlike traditional taxes, inflation does not provide any revenue for the government to finance public goods or redistribute resources efficiently. Additionally, inflation introduces uncertainty and distorts relative prices, making it difficult for individuals and businesses to plan and allocate resources effectively.
a) The monetary equilibrium in this scenario is not efficient. The growing money supply creates inflation, which distorts the allocation of resources and reduces overall welfare. Intuitively, as the money supply grows, the prices of goods and services increase, leading to a decline in the purchasing power of money. This reduction in purchasing power distorts the individual's lifetime budget constraint, as their savings and accumulated wealth lose value over time. The planner's resource constraint, on the other hand, remains unaffected by inflation, leading to an inefficiency in resource allocation.
b) In an economy with a higher known growth rate of the money supply (zB), output is likely to be higher compared to an economy with a lower growth rate (zA). This is because the higher inflation resulting from a faster-growing money supply stimulates aggregate demand and encourages spending, leading to increased production and output. However, it's important to note that sustained high inflation can also introduce inefficiencies and distortions in the long run, potentially hampering economic growth.
c) The Phillips curve depicts the relationship between inflation and unemployment. It suggests that there is a trade-off between inflation and unemployment in the short run. When inflation is high, unemployment tends to be low, and vice versa. This trade-off arises due to the nominal wage rigidity and the adjustment processes in the labor market. However, in the long run, this trade-off is not sustainable, as expectations of inflation adjust, and the Phillips curve becomes vertical at the natural rate of unemployment. In the long run, changes in the money supply primarily impact inflation, while the level of output is determined by real factors such as technology, capital, and labor.
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