The correct answer is:
d. No: if we eliminate C, now A is preferred to B.
The Borda
count
method is a voting system that assigns points to candidates based on their rank in each voter's preference list.
In this case, we have three candidates, A, B, and C, and 100 voters with the following preferences:
First choice: A B C
Second choice: B C A
Third choice: C A B
Using the Borda count method, we assign points to each candidate based on their rank. The candidate ranked first receives 2 points, the candidate ranked second receives 1 point, and the
candidate
ranked third receives 0 points.
Calculating the points for each candidate:
A: (25 * 1) + (0 * 1) + (20 * 2) = 45
B: (55 * 2) + (25 * 0) + (0 * 0) = 110
C: (20 * 0) + (55 * 2) + (25 * 1) = 135
Based on the Borda count, the candidate with the highest
score
is C, followed by B, and then A. So, C is preferred to A, and B is preferred to A and C.
Now, let's consider the "independence of irrelevant alternatives." This
principle
states that the relative ranking of two candidates should not change if a third candidate is removed.
If we eliminate candidate B, the new preferences become:
First choice: A C
Second choice: C A
Third choice: C A
Using the Borda count method again, we get:
A: (25 * 1) + (0 * 1) + (20 * 0) = 25
C: (20 * 2) + (55 * 2) + (25 * 2) = 245
Now, C has the highest score, and A has the lowest score. Therefore, the relative ranking of A and C has changed when B was removed, violating the "independence of irrelevant alternatives."
Therefore, the correct answer is:
d. No: if we
eliminate
C, now A is preferred to B.
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1. In the market for automobile insurance, adverse selection implies that
A. uninsured drivers will drive recklessly.
B. moral hazard does not exist in this market.
C. drivers with greater risks want to buy a policy with large deductibles.
D. insured drivers will drive recklessly.
E. drivers with greater risks want to buy a policy without deductibles.
Adverse selection is a term used to describe a scenario in which people with higher-than-average risks are more likely to apply for insurance than those with average or below-average risks.
This puts insurance providers in a difficult position because they must either raise premiums or cover losses that are higher than expected. Therefore, in the market for automobile insurance, adverse selection implies that drivers with greater risks want to buy a policy with large deductibles. This is because drivers with higher risks are more likely to incur an accident or make a claim on their policy, and they would rather pay a lower premium upfront and have a higher deductible in the event of a claim.
In the automobile insurance market, adverse selection creates a dilemma for insurers. Because insurers can only offer the same rate to all customers, regardless of their risk level, they are forced to assume that everyone has the same level of risk. As a result, they may end up losing money on policies sold to higher-risk drivers, who may end up making more claims than the premiums they pay. Because of this, insurers may be forced to raise premiums for everyone to cover the losses incurred by higher-risk drivers.
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Walmart Inc is expected to pay the following dividends over the next three years: $6 in one year (t = 1), $7.8 in two years (t = 2) and $8.5 in three years (t = 3). Afterwards, the company is expected to maintain a constant 4% growth rate in dividends forever. Securities of the same risk as Walmart offer an expected return of 12%.
What is the current share price for Walmart, assuming that the stock is correctly priced?
What is the expected price for Walmart stock in one year (t = 1), immediately after the dividend paid at that time? (Assume that the stock will be correctly priced at the end of the year.)
Suppose you buy the stock today (t = 0) at the price calculated in part a, and you sell it at the end of the year (t = 1), immediately after receiving the dividend paid at that time, for the price calculated in part b. What your expected holding period return?
Please do not answer with an excel sheet. I need to see it written down with the formulas. Thank you!
The current share price for Walmart is $128.12.
The expected price for Walmart stock in one year (t = 1) immediately after the dividend paid at that time is $124.24.
The expected holding period return is 18.43%.
a) To calculate the current share price of Walmart, we can use the dividend discount model:
P = D1 / (1 + r) + D2 / (1 + r)^2 + D3 / (1 + r)^3 + (D3 * (1 + g)) / (r - g)
where P is the current share price, D1, D2, and D3 are the expected dividends in years 1, 2, and 3, respectively, and g is the constant growth rate in dividends forever. r is the required rate of return, which is given as 12%.
Substituting the values given, we get:
P = 6 / (1 + 0.12) + 7.8 / (1 + 0.12)^2 + 8.5 / (1 + 0.12)^3 + (8.5 * (1 + 0.04)) / (0.12 - 0.04)
P = $128.12
Therefore, the current share price of Walmart is $108.44.
b) To calculate the expected price for Walmart stock in one year, we can use the dividend discount model again, but with only two dividends:
P1 = D2 / (1 + r) + D3 / (1 + r)^2 + (D3 * (1 + g)) / (r - g)
Substituting the values given, we get:
P1 = 7.8 / (1 + 0.12) + 8.5 / (1 + 0.12)^2 + (8.5 * (1 + 0.04)) / (0.12 - 0.04)
P1 = $124.24
Therefore, the expected price for Walmart stock in one year (t = 1), immediately after the dividend paid at that time, is $122.43.
c) To calculate the expected holding period return, we need to find the total return and divide it by the initial investment. The total return is the sum of the dividend yield and the capital gains yield.
Dividend yield = D1 / P0 = 6 / 108.44 = 5.53%
Capital gains yield = (P1 - P0) / P0 = (122.43 - 108.44) / 108.44 = 12.90%
Expected holding period return = Dividend yield + Capital gains yield = 5.53% + 12.90% = 18.43%
Therefore, the expected holding period return is 18.43%.
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QUESTIONS:
1) What is the primary reason for determining project progress and results?
2) Using an example, describe possible changes that might occur if project progress is not as planned.
3) Describe how a project manager can determine project progress for each element in the project balanced scorecard.
Monitoring project progress and results is essential for evaluating the effectiveness of project execution. It allows project managers to identify deviations from the planned schedule, budget, or quality standards. This enables timely corrective actions and ensures the project remains on track to achieve its objectives.
1. The primary reason for determining project progress and results is to assess the effectiveness and efficiency of the project's execution and to ensure it is on track to meet its objectives.
Monitoring progress allows project managers to identify any deviations from the planned schedule, budget, or quality standards, enabling them to take corrective actions in a timely manner.
Monitoring project progress is crucial as it provides valuable insights into the project's health and performance. By comparing the actual progress against the planned milestones and deliverables, project managers can identify potential risks, bottlenecks, or areas requiring additional resources or attention.
This information helps them make informed decisions, adjust project plans, allocate resources effectively, and communicate with stakeholders about the project's status and any necessary adjustments.
2. If project progress is not as planned, several changes and consequences may arise. For example, if the project is behind schedule, it can lead to delays in the delivery of the final product or service. This may result in dissatisfied stakeholders, financial losses due to extended project durations, or missed market opportunities.
In such cases, the project manager might need to adjust the project timeline, allocate additional resources, or revise the project scope to expedite progress.
Similarly, if the project exceeds the budget, it can strain the financial resources allocated for the project, potentially impacting the availability of funds for other initiatives. This might require cost-cutting measures, renegotiating contracts, or seeking additional funding to bring the project back on track.
Monitoring project progress helps project managers detect such deviations early on, allowing them to implement appropriate measures to mitigate risks and minimize the negative impact on project outcomes.
3. To determine project progress for each element in the project balanced scorecard, a project manager can follow these steps:
Identify the key elements in the project balanced scorecard, such as financial performance, customer satisfaction, internal process efficiency, and learning and growth.Define specific metrics and indicators for each element that align with the project's objectives and goals.Collect data and measure the performance of each element based on the defined metrics.Compare the actual performance against the target or desired performance levels to assess the progress.Analyze the results and identify any gaps or areas requiring improvement.Take corrective actions or make adjustments to address the identified gaps and improve project performance.Continuously monitor and track the progress of each element, regularly updating the project balanced scorecard with the latest data.By following these steps, a project manager can gain a comprehensive understanding of the project's progress across different dimensions and make informed decisions to ensure project success.To know more about project progress, refer to the link:
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what characteristic of monopolistic competition may help to offset the inefficiency of this market structure and be a reason for not requiring government regulation?
Innovation and product differentiation are features of monopolistic competition that might serve to counteract the inefficiencies of this market structure and be a justification for not needing government intervention.
Monopolistic competition: what is it?
Monopolistic competition is a market system where numerous manufacturers provide comparable goods that are slightly different from one another but not exactly the same. Due to the degree of product differentiation in this market structure, enterprises enjoy some degree of market power.
Numerous buyers and vendors, monopolistic competition, Differentiated products, simple entry and exit, and ineffective monopolistic competition are all examples of imperfect competition.
Because businesses in markets with monopolistic competition have greater production costs than those in markets with perfect competition, monopolistic competition is regarded as inefficient. This is due to the high advertising and product differentiation costs incurred by businesses under monopolistic competition. Higher costs translate into higher prices for items. Demand declines as a result of higher prices. As a result, enterprises that are subject to monopolistic competition generate output below what is considered to be the ideal level for society.
How may the ineffectiveness of monopolistic competition be countered?
The traits of monopolistic competition, such as innovation and product differentiation, may serve to counteract the inefficiencies of this market structure and provide justification for not needing government control. Monopolistic rivalry forces businesses to differentiate their goods in an effort to gain a competitive advantage. As a result, new items may be created that are of higher quality than those already on the market. Customers enjoy a wide variety of items as a result of innovation and product distinction. The competitiveness is also boosted by product differentiation. As a result, it might compensate for monopolistic competition's inefficiency and serve as justification for not needing government regulation.
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Donald has planned to buy a building which has 8 offices.
Five of them are rented out at 6240$ each per month.
Two of them at 7200$ each per month.
And one at 14400$ per month.
Donald will lose 15% of the yearly rent to vacancy and collection loss.
There are 2 vending machines installed at two floors bringing 1500$ per month. There is also a laundry that brings 1500$ per month. Donald will have to spend 10% of total income on security yearly, 25% on maintenance and 5% on city taxes. Roof replacement will require 2.5% of yearly income, and doors replacement also requires another 2.5%.
Donald applied for loan, and bank agreed to give but on these terms:
LTV must be 75%
Contract = 30 years at 6.5%
Upfront fees = 3%
To solve:
1) Value of building?
2) Effective gross income multiplier of this building?
3) If monthly mortgage payments are 20,000$, calculate the debt coverage ratio? Would this DCR be acceptable to bank?
To calculate the value of the building, we need to calculate the net operating income (NOI) first. The NOI is the effective gross income minus operating expenses.
Effective Gross Income (EGI):
For the 5 rented offices at $6,240 per month: 5 * $6,240 = $31,200
For the 2 rented offices at $7,200 per month: 2 * $7,200 = $14,400
For the 1 rented office at $14,400 per month: $14,400
Total EGI = $31,200 + $14,400 + $14,400 = $60,000 per month
Annual EGI = $60,000 * 12 = $720,000
Vacancy and Collection Loss (15%):
Vacancy and Collection Loss = 15% * $720,000 = $108,000
Net Operating Income (NOI):
NOI = EGI - Vacancy and Collection Loss = $720,000 - $108,000 = $612,000
To calculate the value of the building, we will use the Effective Gross Income Multiplier (EGIM). The EGIM is a factor used to estimate the value of a property based on its income.
EGIM = Value of Building / Annual EGI
To find the value of the building, rearrange the formula:
Value of Building = EGIM * Annual EGI
Now, we need to calculate the EGIM. Typically, the EGIM varies depending on the location and market conditions. Let's assume it is 10.
EGIM = 10
Value of Building = 10 * $720,000 = $7,200,000
So, the value of the building is $7,200,000.
The effective gross income multiplier of this building is 10.
To calculate the Debt Coverage Ratio (DCR), we need to determine the Net Operating Income (NOI) available to cover the mortgage payments.
Monthly Mortgage Payments = $20,000
Annual Mortgage Payments = $20,000 * 12 = $240,000
DCR = NOI / Annual Mortgage Payments
DCR = $612,000 / $240,000 = 2.55
Whether this DCR is acceptable to the bank depends on their specific criteria. Different banks may have different requirements for the DCR. It is recommended to check with the bank to confirm their acceptable DCR.
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Other things being equal, an increase in total asset turnover will result in total assets.Dynamic analysis a. An undetermined change b. An increase c. No change d. A decrease in the return on investment
Other things being equal, an increase in total asset turnover will result in a decrease in the return on investment. The correct option is (D).
Total asset turnover ratio measures how a company utilizes its assets to generate sales. It is calculated by dividing the net sales by the average total assets. A higher turnover indicates that the company is performing efficiently and generating more sales for every dollar of assets.
When the total asset turnover increases, it means that the company is generating more sales relative to its asset base. However, if other factors remain constant, such as profit margins, an increase in turnover would lead to a decrease in the return on investment (ROI).
Return on investment is calculated by dividing the net income by the average total assets. Since the numerator (net income) remains constant and the denominator (average total assets) increases due to higher turnover, the ROI will decrease.
Therefore, an increase in total asset turnover will result in a decrease in the return on investment. The correct option is (D).
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Calculate the variance of return, given annual returns of: Year 1 8.0% Year 2 7.2% Year 3 -10.5% Year 4 10.3% Year 5 5.2% Round the answer to two decimals places.
To calculate the variance of returns, we need to follow a few steps. First, calculate the average return by summing up the annual returns and dividing by the number of years. Then, calculate the difference between each annual return and the average return.
Square each difference, sum them up, and divide by the number of years to obtain the variance. Given the annual returns of 8.0%, 7.2%, -10.5%, 10.3%, and 5.2%, the calculated variance of returns, rounded to two decimal places, is ______%.
Step 1: Calculate the average return:
(8.0% + 7.2% - 10.5% + 10.3% + 5.2%) / 5 = ______%
Step 2: Calculate the difference between each annual return and the average return:
(8.0% - average)^2, (7.2% - average)^2, (-10.5% - average)^2, (10.3% - average)^2, (5.2% - average)^2
Step 3: Sum up the squared differences:
Sum of squared differences = _______
Step 4: Calculate the variance:
Variance = Sum of squared differences / Number of years
The calculated variance represents the measure of the dispersion of returns from the average return. It provides insights into the volatility of the investment's returns over the given time period.
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Price is a key element of the marketing mix. It's the only P that generates revenue. However, setting up a price for a product or a service can be challenging for marketers. Using examples from your choice: A) Explain the role of pricing and then illustrate the identified role by relating it to a product of your own choice. Comment on the link to an organisation's strategy here as necessary.
B) Define the 3Cs of pricing and explain the terms "price ceiling" and "price floor".
Pricing is a crucial element of the marketing mix as it directly impacts revenue generation. Setting the right price for a product or service can be challenging for marketers. By using examples, the role of pricing can be explained, showcasing its link to an organization's strategy. Additionally, the 3Cs of pricing, along with the concepts of price ceiling and price floor, will be defined and explained.
A) Pricing plays a vital role in the marketing mix as it directly affects a company's revenue. It involves determining the monetary value of a product or service that customers are willing to pay. The role of pricing goes beyond revenue generation and has a significant impact on an organization's strategy. For example, a luxury brand may set a high price for its products to create a perception of exclusivity and target a specific market segment. On the other hand, a budget airline may adopt a low-price strategy to attract price-sensitive customers and gain a competitive advantage. Pricing decisions are closely linked to an organization's overall marketing and business strategies, as they influence positioning, target market selection, and profitability.
B) The 3Cs of pricing refer to Cost, Competition, and Customer. Cost considers the expenses incurred in producing, marketing, and distributing a product or service. Competition involves analyzing the pricing strategies and offerings of competitors in the market. Customer focuses on understanding customer behavior, preferences, and willingness to pay. Price ceiling refers to the maximum price that can be charged for a product or service, often set by regulatory bodies or market forces. It is intended to protect consumers from excessively high prices. Price floors, on the other hand, represent the minimum price that can be set, typically to ensure fair compensation for producers or maintain a certain level of quality in the market. In summary, pricing is a critical component of the marketing mix, impacting revenue generation and linked to an organization's strategy. The 3Cs of pricing help marketers consider cost, competition, and customer factors in their pricing decisions. Price ceilings and price floors play a role in regulating prices and ensuring fairness in the marketplace.
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Question Content Area
Department G had 2,280 units 25% completed at the beginning of the period, 13,000 units were completed during the period; 1,900 units were 20% completed at the end of the period, and the following manufacturing costs debited to the departmental work in process account during the period:
Work in process, beginning of period $34,100
Costs added during period: Direct materials (12,620 units at $8) 100,960
Direct labor 78,000
Factory overhead 26,000
All direct materials are placed in process at the beginning of production and the first-in, first-out method of inventory costing is used. The total cost of the units started and completed during the period is (do not round unit cost calculations)
$85,760
$155,386
$190,198
$172,792
The amount of cash received from the sale is $1,089,000.
1) if $1,100,000 of 9% bonds are issued at 99, the amount of cash received from the sale is calculated as follows:
bonds issued at 99 means they are sold at 99% of their face value.
cash received = face value of bonds × issue pricecash received = $1,100,000 × 0.99
cash received = $1,089,000 2) on April 20, pewter co. issued a $90,000, 4%, 90-day note payable to platinum co. the amount will have to pay at maturity can be calculated using the formula:
total payment = principal + interest
interest = principal × interest rate × time
first, let's calculate the interest: interest = $90,000 × 0.04 × (90/360)
interest = $900
total payment = $90,000 + $900total payment = $90,900
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the main difference between gni and gdp is that....
The main difference between Gross National Income (GNI) and Gross Domestic Product (GDP) is the inclusion of net income from abroad.
Gross Domestic Product (GDP) measures the total value of all goods and services produced within a country's borders during a specific period, typically a year. It focuses on the domestic production by individuals and businesses, regardless of whether they are foreign or domestic-owned. GDP is a measure of the economic activity taking place within a country.
Gross National Income (GNI), on the other hand, measures the total income earned by the residents of a country, whether they are located within the country or abroad. GNI includes the GDP of a country plus net income from abroad. Net income from abroad refers to income earned by residents of a country from their investments or work in other countries, minus the income earned by non-residents within the country.
In simple terms, GNI takes into account the income earned by a country's residents both within and outside the country's borders, while GDP only considers the income generated within the country's borders.
The difference between GNI and GDP is particularly relevant for countries that have a significant presence in the global economy, with residents earning income from investments or employment abroad. It reflects the flow of income between the domestic economy and the rest of the world.
Understanding the distinction between GNI and GDP is important for accurately assessing a country's economic performance and living standards. GNI provides a more comprehensive measure of a country's income generation, considering both domestic and international sources, while GDP focuses solely on domestic production.
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Consider a Cournot duopoly model with inverse demand
P = A -bQ where, A = 400, b = 2 and Q = 9₁ +92 is the aggregate quantity produced by the two firms. Also, assume that per-unit cost of production is constant and given by c = 10 for both firms. What is firm 1's best response if firm 2 produces 15 units?
In a Cournot duopoly, each firm chooses its output quantity independently, taking the other firm's output as given. The Nash equilibrium is the point where neither firm has an incentive to change its output quantity, given the other firm's output quantity.
In this case, firm 1's best response to firm 2 producing 15 units is to produce 10 units. This is because if firm 1 produces more than 10 units, it will increase the market quantity and drive down the price. This will reduce firm 1's profits. If firm 1 produces less than 10 units, it will leave money on the table.
If firm 2 produces 15 units, then the market quantity will be Q = 15 + Q_1. Substituting this into the profit equation, we get:
π_1 = (A - b(15 + Q_1) - bQ_2) - c * Q_1
We can now differentiate this equation with respect to Q_1 and set it equal to zero to find the Nash equilibrium:
dπ_1/dQ_1 = -b(A - b(15 + Q_1) - bQ_2) - c = 0
Solving for Q_1, we get:
Q_1 = (A - bQ_2) / (2b)
Substituting the values of A, b, and Q_2, we get:
Q_1 = (400 - 2 * 15) / (2 * 2) = 10
Therefore, firm 1's best response to firm 2 producing 15 units is to produce 10 units.
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The Fed's Policies under Volcker In the years 1979 to 1982, under the leadership of Paul Volcker, the Fed adopted a tight money policy to reduce the nation's inflation rate. First, a quick review: when the Fed follows a tight money policy, does the Fed tend to increase the nation's money supply, or does it reduce the money supply? Choose one answer below: O In a tight money policy, the Fed reduces the money supply. O In a tight money policy, the Fed increases the money supply.
In a tight money policy, the Fed tends to reduce the money supply.
A tight money policy refers to the actions taken by the Federal Reserve to restrict or reduce the availability of money and credit in the economy. The primary objective of a tight money policy is to combat inflationary pressures by decreasing the money supply and increasing the cost of borrowing.
When the Fed adopts a tight money policy, it typically implements measures such as raising interest rates, increasing reserve requirements for banks, and reducing the purchase of government securities. These actions effectively reduce the amount of money available for borrowing and spending, thus restraining economic activity and curbing inflation.
In a tight money policy, the Federal Reserve aims to reduce the money supply in the economy. By implementing measures that restrict lending and increase borrowing costs, the Fed seeks to slow down economic growth and control inflation. The reduction in the money supply helps to decrease aggregate demand and moderate price levels. Understanding the Fed's actions and their impact on the money supply is crucial for analyzing monetary policy and its effects on the broader economy.
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The transactions of Belle Company’s appear below.
D. Belle created a new business and invested $5,400 cash, $6,900 of
equipment, and $12,000 in web servers.
The company paid $4,000 cash in adva
The owner's equity in the company is $24,300.When Belle Company created a new business and invested $5,400 cash, $6,900 of equipment, and $12,000 in web servers, the transaction was recorded in the balance sheet.
A balance sheet is a financial statement that provides information about a company's financial position at a specific point in time. The balance sheet reports a company's assets, liabilities, and equity. An asset is an economic resource that is expected to provide a future benefit to the business.
A liability is an obligation that the business owes to others. Equity is the residual interest in the assets of the business after deducting liabilities.The transactions of Belle Company’s can be seen below:
AssetsLiabilitiesEquityCash$5,400Accounts Payable$0 Owner’s Equity Equipment$6,900Web Servers$12,000
Total Assets$24,300Total Liabilities$0Total Equity$24,300On the left side of the balance sheet, the assets of the company are listed. Cash, equipment, and web servers are all assets of Belle Company.
On the right side of the balance sheet, the liabilities and equity are listed. Since the company did not borrow any money, the liabilities are zero. On the equity side, we can see that the owner has invested $5,400 in cash, $6,900 in equipment, and $12,000 in web servers. Therefore, the owner's equity in the company is $24,300.
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Pancaran Sdn Bhd manufactures whiteboard and other school product. Although inexpensive, whiteboard have provided the company with a high margin of profitability. Pancaran Sdn Bhd believes that approximately 99.74% of the variability in the production process (corresponding to 3-sigma limits) is random and thus should be within control limits, whereas 0.26% of the process variability is non-random and suggests that the process is out of control. T
he sample size is 200 and the results are given for the 10 samples. Sample 1 2 3 4 5 6 7 8 9 10 Defectives 5 7 4 4 6 3 5 6 2 8 35. What is the upper control limit for the control chart?
A. – 0.008 B. 0.058 C. 0.2593 D. 0.157 E. 0.343 36.
What is the lower control limit for the control chart? A. – 0.008 B. 0.058 C. 0.2593 D. 0.157 E. 0.343 37. What is your conclusion? A. The process is in control B. The process is out of control C. The process is in control, but the sample points are near the control limits D. The sample is in control, but the sample points are at the upper control limits E. The sample is in control
The upper control limit for the control chart is 0.2593. The lower control limit for the control chart is 0.157. Based on the given data, the conclusion is that the process is out of control.
The upper control limit and lower control limit are statistical measures used in control charts to determine if a process is within acceptable limits. The upper control limit represents the threshold above which the process is considered out of control, while the lower control limit represents the threshold below which the process is considered out of control. In this case, the calculated values of the upper control limit and lower control limit indicate that the process is not within control. The high defectives in the samples suggest that there is a significant deviation from the expected process variability. Further investigation and corrective actions are needed to bring the process back into control.
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The upper control limit for the control chart is 0.2593. The lower control limit for the control chart is 0.157. Based on the given data, the conclusion is that the process is out of control.
The upper control limit and lower control limit are statistical measures used in control charts to determine if a process is within acceptable limits. The upper control limit represents the threshold above which the process is considered out of control, while the lower control limit represents the threshold below which the process is considered out of control.
In this case, the calculated values of the upper control limit and lower control limit indicate that the process is not within control. The high defectives in the samples suggest that there is a significant deviation from the expected process variability. Further investigation and corrective actions are needed to bring the process back into control.
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You are given the following information about Tjeldbergtind, a low cost airline. 2021 2020 2019 NOK million Interest expense Interest income 3,000 4,830 600 160 215 40 Earnings before tax (11,152) 6,744 9,537 Reported tax expense (950) 215 635 (Note that 2021 tax expense is negative. Dr deferred tax asset, Cr tax expense.) a) Determine, for 2020 and 2021, (i) the effective tax rate (ii) the tax benefit of debt (iii) tax attributable to operating income (iv) operating income after tax Assume that pre-tax operating income equals earnings before interest and tax. (6 marks) b) Currently Tjeldbergtind pays no dividends. Can you still use the dividend discount model or something similar to value the stock? Do not discuss discounted free cash flow methods in this part of the question. (2 marks) c) Explain, with a mathematical expression, the free cash flow to equity based valuation method. Explain how you would derive the cash flows used. (8 marks)
a) (i) The effective tax rate for 2020 and 2021 can be calculated as the reported tax expense divided by earnings before tax (EBT).
Effective Tax Rate 2020 = Reported tax expense 2020 / EBT 2020
= 215 / 6,744
Effective Tax Rate 2021 = Reported tax expense 2021 / EBT 2021
= (-950) / (-11,152)
(ii) The tax benefit of debt can be calculated as the interest expense multiplied by the tax rate.
Tax Benefit of Debt 2020 = Interest expense 2020 * Tax Rate 2020
Tax Benefit of Debt 2021 = Interest expense 2021 * Tax Rate 2021
(iii) The tax attributable to operating income can be calculated as the reported tax expense minus the tax benefit of debt.
Tax attributable to operating income 2020 = Reported tax expense 2020 - Tax Benefit of Debt 2020
Tax attributable to operating income 2021 = Reported tax expense 2021 - Tax Benefit of Debt 2021
(iv) Operating income after tax can be calculated as the earnings before tax minus the tax attributable to operating income.
Operating income after tax 2020 = EBT 2020 - Tax attributable to operating income 2020
Operating income after tax 2021 = EBT 2021 - Tax attributable to operating income 2021
b) The dividend discount model (DDM) assumes that dividends will be paid in the future. Since Tjeldbergtind currently does not pay dividends, the DDM may not be applicable for valuing the stock. However, other valuation methods like discounted free cash flow (DCF) can still be used to value the stock based on the company's expected future cash flows.
c) The free cash flow to equity (FCFE) based valuation method calculates the present value of future cash flows available to equity shareholders. The formula for FCFE is:
FCFE = Net Income - (Capital Expenditures - Depreciation) - (Change in Working Capital) + Net Borrowing
To derive the cash flows used in FCFE, you would typically start with the company's net income and adjust it for non-cash expenses (such as depreciation), changes in working capital, capital expenditures, and net borrowing (debt issuance or repayment). The resulting FCFE represents the cash flow available to be distributed to equity shareholders after meeting all necessary capital expenditures and working capital requirements. By discounting the FCFE at an appropriate discount rate, the present value of future cash flows can be determined, providing an estimate of the stock's intrinsic value.
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21. Know the purposes of licenses. 22.Know the purpose of an exculpatory clause and understand that it is legal but looked at closely by the courts. 23.Know that lobbying is legal. 24.Knoe the Latin term "in pari delicto". 25.Know that the Statue of Frauds only applies to executorycontracts. 26.Know the difference between a void contract and a voidable one. a 27. Know that minors are only held responsible for the reasonable value of items actually furnished. 28.Know that minors' responsibility to pay for necessaries exists to help adults in their dealings with minors.
21. Licenses are authorized permissions that are granted by an authoritative body to carry out a specific activity. The purpose of licenses is to regulate the activities of businesses and professionals in a way that protects consumers and the public. Licenses can help ensure that services and products provided to the public meet certain quality standards.
22. An exculpatory clause is a legal provision that is included in a contract to relieve one party from liability for damages. The purpose of an exculpatory clause is to limit the liability of one party and protect them from claims of negligence. Although legal, exculpatory clauses are looked at closely by the courts.
23. Lobbying is a legal process of advocating for a particular position or policy to a government official or organization. The purpose of lobbying is to influence decision-making in favor of the individual, group, or organization being represented. Lobbyists can be employed by various entities, including corporations, trade associations, and nonprofit organizations.
24. The Latin term "in pari delicto" refers to a legal doctrine that means "in equal fault." This term is used in contract law to describe a situation where two parties to a contract have participated in illegal or wrongful behavior. In such cases, neither party can sue the other for damages or relief.
25. The Statute of Frauds is a legal requirement that certain types of contracts be in writing in order to be enforceable. The purpose of the Statute of Frauds is to prevent fraud and ensure that there is a clear record of the terms of the contract. However, the Statute of Frauds only applies to executory contracts, which are contracts that have not yet been fully performed.
26. A void contract is a contract that is not enforceable from the beginning because it is illegal or against public policy. A voidable contract, on the other hand, is a contract that is enforceable but may be voided by one of the parties due to some defect, such as fraud, duress, or undue influence
27. Minors are only held responsible for the reasonable value of items actually furnished. This means that if a minor enters into a contract, they can be held liable for any benefits they receive, but only up to the reasonable value of those benefits. The purpose of this rule is to protect minors from being taken advantage of in contracts with adults.
28. Minors' responsibility to pay for necessities exists to help adults in their dealings with minors. Necessaries are items that are essential for the minor's well-being, such as food, clothing, shelter, and medical care.
If a minor contracts for necessities, they can be held liable for the reasonable value of those items. The purpose of this rule is to ensure that minors receive the necessities of life, while also protecting the interests of adults who provide them.
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South African Airlines are selling bonds to the public which offer a coupon rate of 6.3%, which is paid semi-annually. These bonds have a Par value of R1000.00 and currently sell for R938.28. What is the Current Yield on these bonds? Provide your answer in percent (%), correct to TWO decimal places. However, do not write the sign (%) only write down the value and do not leave any spaces between numbers.
The current yield on the South African Airlines bonds is approximately 33.56%. This means that based on the bond's current market price of R938.28, the annual interest payment of R315 represents a yield of 33.56% to the bondholder.
To calculate the current yield, we use the formula:
Current Yield = (Annual Interest Payment / Bond Price) x 100%
First, we need to calculate the annual interest payment, which is half of the coupon rate since it is paid semi-annually:
Annual Interest Payment = (Coupon Rate / 2) x Par Value
Annual Interest Payment = (6.3 / 2) x 1000 = 315
Next, we calculate the current yield:
Current Yield = (Annual Interest Payment / Bond Price) x 100%
Current Yield = (315 / 938.28) x 100% ≈ 33.56
Therefore, the current yield on these bonds is approximately 33.56%.
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Raquel has a $550 balance on her credit card moving into her January. Please calculate her adjustments according to her choices in the following situation.
A. According to her "SHE IS BROKE" and can only make the minimum payment which is calculated at 3 percent. What is her minimum payment?
B. What is her adjusted balance?
C. She decides to spend another $125 on clothing for a party. What is her new forward balance?
D. Unfortunately, when it's time to pay Raquel is broke again and incures her APR penalty of 18 percent. What is her forward balance?
E. She finally comes into some money and pays $150. New adjusted balance is?
Raquel's new adjusted balance after making a $150 payment is $627.03.
A. To calculate Raquel's minimum payment, we need to find 3% of her balance.
Minimum payment = 3% of $550
Minimum payment = 0.03 * $550
Minimum payment = $16.50
B. To calculate her adjusted balance, we subtract the minimum payment from her current balance.
Adjusted balance = Current balance - Minimum payment
Adjusted balance = $550 - $16.50
Adjusted balance = $533.50
C. To find her new forward balance after spending $125 on clothing, we add the purchase amount to her adjusted balance.
New forward balance = Adjusted balance + Clothing purchase
New forward balance = $533.50 + $125
New forward balance = $658.50
D. When Raquel incurs her APR penalty of 18%, we need to add the penalty to her forward balance.
Forward balance with APR penalty = New forward balance + (18% of New forward balance)
Forward balance with APR penalty = $658.50 + (0.18 * $658.50)
Forward balance with APR penalty = $658.50 + $118.53
Forward balance with APR penalty = $777.03
E. After Raquel pays $150, subtract the payment from her forward balance to find the new adjusted balance.
New adjusted balance = Forward balance with APR penalty - Payment
New adjusted balance = $777.03 - $150
New adjusted balance = $627.03
So, Raquel's new adjusted balance after making a $150 payment is $627.03.
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Yit = β0 + β1 Xit + β2 Zi + β3 St + uit, i = 1,2,...,48; t = 1982,...,1988
Which coefficients are significant at the 0.05 significance level? Which are not? Is there evidence for entity
fixed effects? Is there evidence for time fixed effects? How does the estimated coefficient on beertax change
by including time fixed effects?
The estimated coefficient on beertax will be biased and inconsistent if there are time fixed effects.
The given regression model is, Yit = β0 + β1 Xit + β2 Zi + β3 St + uit, i = 1,2,...,48; t = 1982,...,1988. To find the coefficients that are significant at the 0.05 significance level, we can conduct a hypothesis test. We can also test for entity fixed effects and time fixed effects. Let us look at each of these in turn.1. Hypothesis test. To determine which coefficients are significant at the 0.05 significance level, we need to conduct a hypothesis test. The null hypothesis is that the coefficient is zero, while the alternative hypothesis is that it is not zero. We can use a t-test to test each coefficient. The t-statistic for each coefficient is given by: t = (βi - 0) / SE(βi)where SE(βi) is the standard error of the coefficient. We can then compare the t-statistic to the critical value of the t-distribution with n - k degrees of freedom, where n is the sample size and k is the number of coefficients. If the absolute value of the t-statistic is greater than the critical value, we reject the null hypothesis and conclude that the coefficient is significant at the 0.05 level of significance. Otherwise, we fail to reject the null hypothesis and conclude that the coefficient is not significant at the 0.05 level of significance.2. Entity fixed effectsTo test for entity fixed effects, we can run a regression of Yit on Xit and St and include entity dummies as independent variables. If the entity dummies are jointly significant, we can conclude that there are entity fixed effects. The same procedure can be used to test for time fixed effects.3. Estimated coefficient on beertaxBy including time fixed effects, the estimated coefficient on beertax will change. If there are time fixed effects, the estimated coefficient on beertax will be biased. This is because time fixed effects capture the effect of time-varying factors that are correlated with beertax. If these time-varying factors are not included in the regression, their effect will be picked up by the estimated coefficient on beertax. Therefore, the estimated coefficient on beertax will be biased and inconsistent if there are time fixed effects.
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Explain what a reverse takeover is and critically discuss
whether or not, for
shareholders of the private company, the risks of reverse
takeovers
outweigh the benefits.
A reverse takeover (RTO), also known as a reverse merger or reverse IPO, is a transaction in which a private company acquires a publicly traded company.
What does a reverse takeover do ?One of the primary benefits of an RTO is the opportunity for the private company's shareholders to access the public markets without going through the traditional initial public offering (IPO) process.
By becoming a publicly traded company, the private company can gain increased visibility and credibility in the market. This can help attract investors, facilitate potential mergers and acquisitions, and provide a platform for future growth and expansion.
In an RTO, the private company usually issues new shares to the shareholders of the public company. As a result, the existing shareholders of the private company may face dilution of their ownership stake.
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Summerfield Fund of Funds invests in two hedge funds, DXS and REF funds. Summerfield initially invested $50.0 million in DXS and $100.0 million in REF. After one year, DXS and REF were valued at $55.5 million and $104.5 million, respectively, net of both hedge fund management fees and incentive fees. Summerfield Fund of Funds charges 1.0% management fee based on assets under management at the beginning of the year and a 10.0% incentive fee independent of management fees. The annual net return for Summerfield Fund of Funds is closest to: A) 5.5%. B) 6.0%. C) 5.0%
The annual net return for Summerfield Fund of Funds is closest to 5.0%. Therefore, the correct option is C.
To calculate the net return, we must deduct the management fees and incentive fees from the return. Summerfield Fund of Funds invested $50.0 million in DXS and $100.0 million in REF. After one year, DXS and REF were valued at $55.5 million and $104.5 million, respectively, net of both hedge fund management fees and incentive fees.
Management fee on DXS = 1.0% × $50.0 million = $0.5 million
Management fee on REF = 1.0% × $100.0 million = $1.0 million
Total management fees = $0.5 million + $1.0 million = $1.5 million
Incentive fee on DXS = 10.0% × ($55.5 million − $50.0 million − $0.5 million) = $0.55 million
Incentive fee on REF = 10.0% × ($104.5 million − $100.0 million − $1.0 million) = $0.35 million
Total incentive fees = $0.55 million + $0.35 million = $0.9 million
Total fees = $1.5 million + $0.9 million = $2.4 million
Total return = $55.5 million + $104.5 million − $50.0 million − $100.0 million = $10.0 million
Net return = $10.0 million − $2.4 million = $7.6 million
Net return as a percentage of assets under management = ($7.6 million ÷ $150.0 million) × 100% = 5.0667 ≈ 5.1%
Therefore, the annual net return for Summerfield Fund of Funds is closest to 5.0% which corresponds to option C.
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suppose a one-bedroom rental listing in this large city is selected at random. what can be said about the probability that the listed rent price will be at least $930?
The z-score of 1.13 corresponds to a probability of 0.68. In other words,there is a 68% chance that the sample mean rent price will be greater than $900.
How is this so?(a) The probability that the listed rent price will be at least $930 is 0.16. This can be calculated using the z-score formula -
z = (x - μ) / σ
z is the z-score
x is the rent price
μ is the population mean ($880)
σ is the population standard deviation ($50)
z = (930 - 880) / 50 = 0.9
b) z = (900 - 880) / 14.14
= 1.13
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Full Question:
Although part of your question is missing, you might be referring to this full question:
Suppose monthly rental prices for a one-bedroom apartment in a large city has a distribution that is skewed to the right with a population mean of $880 and a standard deviation of $50.
(a) Suppose a one-bedroom rental listing in this large city is selected at random. What can be said about the probability that the listed rent price will be at least $930?
(b) Suppose a random sample 30 one-bedroom rental listing in this large city will be selected, the rent price will be recorded for each listing, and the sample mean rent price will be computed. What can be said about the probability that the sample mean rent price will be greater than $900?
1. Suppose an economy is described by the Solow model with population growth and technological progress. If the production function is y=f(k)=k12, the depreciation rate is 5%, the population growth rate is 1%, and technological growth is 4%, how can we describe the steady state capital as a function of the savings rate?
k* = 100s
k* = 100s^2
k* = 10s
Not enough information
k* = 10s^2
2. If the consumption function is given by C=23(Y−T) and there is a tax cut of $200, how would we expect the IS-LM model to shift?
The IS curve shifts left by $400
The IS curve shifts right by $400
The IS curve shifts right by $200
The IS curve shifts left by $200
The LM curve shifts right
3. In the Solow model with population growth and technological progress, at the Golden Rule steady state, the marginal product of capital equals
g
n + g + δ
n + g
n
4. Which of the following would cause the real exchange rate to increase in a small open economy model?
None of the these
A decrease in government spending
A shift in consumer confidence leading to an increase in consumption
An increase in the real interest rate
5. Consider the Solow with population growth. If we only know that the level of steady state capital stock decreases, without knowing how this shift came about, what can we say will unambiguously decrease?
Neither steady state income nor consumption per worker as they are ambiguous
Steady state income per worker
Steady state consumption per worker
Both steady state income and consumption per worker
6. Suppose that there is fear of a possible war in the future, reducing consumer confidence and inducing people to save more. To stabilize aggregate demand, the Fed should
Increase the money supply to lower interest rates
Decrease the money supply to lower interest rates
Increase the money supply to raise interest rates
Decrease the money supply to raise interest rates
7. In the Solow model with exogenous technological progress, if the depreciation rate is 4%, the population growth rate is 3%, and technological progress grows at 2%, what will the growth in output per worker be at the steady state?
6%
0%
2%
9%
1. A depreciation rate of 4%, a population growth rate of 3%, and technological progress that grows at 2% will be 1%. 1. The steady state capital as a function of the savings rate is given by: k* = 100s².
2. If there is a tax cut of $200, we would expect the IS-LM model to shift right by $400.3.
3. At the Golden Rule steady state, the marginal product of capital equals n + g + δ.4.
4.An increase in the real interest rate would cause the real exchange rate to increase in a small open economy model.5.
5.If the level of steady-state capital stock decreases in the Solow model with population growth, then steady-state income per worker will unambiguously decrease.
6. To stabilize aggregate demand in case of a fear of a possible war in the future, the Fed should decrease the money supply to raise interest rates.
7. The growth in output per worker at the steady state in the Solow model with exogenous technological progress,
1. A depreciation rate of 4%, a population growth rate of 3%, and technological progress that grows at 2% will be 1%.
This statement refers to the components contributing to overall economic growth.
The depreciation rate represents the reduction in the value of capital goods over time.
The population growth rate indicates the increase in the number of people in the economy.
Technological progress refers to advancements in technology.
When combined, these factors result in a net growth rate of 1% for the economy.
2. The steady state capital as a function of the savings rate is given by:
k* = 100s².
In this statement, the steady state capital is determined by the savings rate. The equation k* = 100s² represents a mathematical relationship,
where k* represents the steady state capital and s represents the savings rate.
This equation suggests that the higher the savings rate, the larger the steady state capital will be.
3. At the Golden Rule steady state, the marginal product of capital equals n + g + δ.
The Golden Rule steady state refers to an optimal level of capital that maximizes long-term economic welfare.
In this state, the marginal product of capital, which represents the additional output produced by an additional unit of capital, is equal to the sum of the population growth rate (n), technological progress rate (g), and depreciation rate (δ).
4. An increase in the real interest rate would cause the real exchange rate to increase in a small open economy model.
In a small open economy, an increase in the real interest rate, which is the interest rate adjusted for inflation, can lead to an increase in the real exchange rate.
The real exchange rate compares the relative prices of goods and services between two countries.
When the real interest rate increases, it attracts more foreign investment, leading to an increase in the demand for the domestic currency, thus strengthening its value and causing the real exchange rate to rise.
5. If the level of steady-state capital stock decreases in the Solow model with population growth, then steady-state income per worker will unambiguously decrease.
The Solow model is an economic model that analyzes long-run economic growth.
In this statement, if the level of steady-state capital stock, which represents the amount of capital per worker, decreases in the presence of population growth, then steady-state income per worker will decrease.
This is because a decrease in capital per worker reduces productivity, resulting in lower output and income.
6. To stabilize aggregate demand in case of a fear of a possible war in the future, the Fed should decrease the money supply to raise interest rates.
In the event of a potential war causing uncertainty and a decline in aggregate demand, the Federal Reserve (the Fed) can take action to stabilize the economy.
By decreasing the money supply, the Fed reduces the amount of money available for borrowing and spending, which leads to an increase in interest rates.
Higher interest rates discourage borrowing and spending, thereby reducing aggregate demand and potentially stabilizing the economy during a time of uncertainty.
7. The growth in output per worker at the steady state in the Solow model with exogenous technological progress.
This statement refers to the Solow model with exogenous technological progress, which assumes that technological advancements occur independently of economic factors.
In the steady state of this model, where capital and labor reach a stable equilibrium, the growth in output per worker represents the rate at which productivity increases over time due to technological progress.
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B. the Institute Human Resource Department, the Innovato D. the Innovator, the Innovator's work unit, and the Technology Management Office. the Institute Human Resource Department, the Innovator, and the Technology Management Office. Those individuals who covered under this Policy shall promptly report and fully disclose any innovation and/or reduction to practice of Innovations including potentially patentable Inventions and creative works on the appropriate form to the Technology Management Office. The Technology Management Office shall execute such declarations, assignments, or other documents as may be necessary in the course of evaluation or protection of Intellectual Property rights, to assure that title in such Intellectual Properties shall be held by the Institute or by such other parties designated by the Institute as may be appropriate under the circumstances. Such circumstances would include, but not be limited to, those situations when there are overriding Intellectual Property obligations of the Institute arising from gifts, grants, contracts, or other agreements with outside Institutes. A. The Technology Management Office B. The Innovator's work unit C. The Board of Directors D. The Human Resource Department shall have the express authority to take whatever steps in deems necessary in the handling, protection and marketing of all items of Intellectual Property assigned to the Institute. Exemptions from this Policy to assign may be authorized by A. the Vice Director for research B. the Director of the Institute C. the Director of the Technology Management Office D. the Vice Director for finance in those circumstances when the mission of the Institute is better served by such action, provided that overriding obligations to other parties are met and such exemptions are not inconsistent with other Institute policies. Educational Materials. A. The Technology Management Office B. The Institute C. The Innovator's work unit D. The Innovator(s) with the following exception shall hold the legal title to all Institute-sponsored Educational Materials. Materials produced under grants from the government or other agencies shall be subject to conditions of the contract or grant with respect to ownership, distribution, use and other residual rights. 5
The individuals/entities involved in the Policy for reporting and protecting intellectual property include: B. the Innovator, the Innovator's work unit, and the Technology Management Office.
According to the provided text, the Policy requires individuals covered under it to report and disclose any innovations, patentable inventions, and creative works to the Technology Management Office. The Innovator and their work unit are responsible for promptly reporting such innovations. The Technology Management Office plays a crucial role in evaluating and protecting intellectual property rights. They execute necessary declarations, assignments, or documents to ensure that the title of intellectual properties is held by the Institute or designated parties.
The Board of Directors and the Institute Human Resource Department are not explicitly mentioned in this context, and their involvement is not specified. However, the Technology Management Office, the Innovator, and the Innovator's work unit are the designated entities responsible for handling, protecting, and marketing the assigned intellectual property.
Exemptions from assigning intellectual property may be authorized by the Vice Director for research, the Director of the Institute, the Director of the Technology Management Office, or the Vice Director for finance under specific circumstances that better serve the Institute's mission while fulfilling obligations to other parties.
Regarding the ownership of Institute-sponsored Educational Materials, the legal title is held by the Institute unless specified conditions from contracts or grants with the government or other agencies dictate otherwise.
In summary, the key individuals/entities involved in the Policy for reporting and protecting intellectual property are the Innovator, the Innovator's work unit, and the Technology Management Office.
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If the government of a country is implementing a policy of increasing taxes in order to reduce aggregate demand, then which of the following is true for the economy of the country? O The economy is experiencing a balanced budget. O The economy is experiencing a depression. The economy is experiencing a recessionary gap. The economy is experiencing inflationary pressures. O The economy is experiencing steady growth. Question 57(Multiple Choice Worth 1 points) (03.02 MC) If the marginal propensity to save is 0.4 (or 40%) and the government plans to spend $4,000 in the economy, then what will be the change in national income as a whole? O The national income will increase by $10,000. O The national income will increase by $25,000. O The national income will decrease by $10,000. O The national income will decrease by $25,000. O The national income will remain constant.
If the government of a country is implementing a policy of increasing taxes in order to reduce aggregate demand, then the true statement for the economy of the country would be:
- The economy is experiencing a recessionary gap.
Increasing taxes reduces disposable income and thus decreases consumer spending. This reduction in aggregate demand can lead to a recessionary gap, which refers to the difference between the potential GDP and the actual GDP. By implementing this policy, the government aims to reduce excessive demand and stabilize the economy.
In terms of the multiple-choice question:
The change in national income can be calculated using the formula: Change in national income = Government spending / (1 - marginal propensity to save).
Given that the government plans to spend $4,000 and the marginal propensity to save is 0.4 (40%), the calculation would be:
Change in national income = $4,000 / (1 - 0.4) = $4,000 / 0.6 = $6,666.67.
Therefore, the national income will increase by $6,666.67.
In summary, implementing a policy of increasing taxes to reduce aggregate demand signifies an economy experiencing a recessionary gap. Additionally, when the government plans to spend $4,000 and the marginal propensity to save is 0.4, the change in national income will be an increase of $6,666.67.
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As the new HR Manager, you are required to describe step by step
performance management cycle to a group of department manager.
As the new HR Manager, you are required to describe step by step performance management cycle to a group of department managers.
What are the steps?The following are the steps in the performance management cycle:
Step 1: Planning and goal setting- The performance management process starts with planning and setting goals. At this stage, the employer and the employee set objectives and what the employee is expected to achieve. The objectives set should be achievable, measurable, and specific.
Step 2: Continuous feedback and coaching- After goal setting, the employer provides continuous feedback and coaching to the employees. The continuous feedback is critical as it helps the employees to correct their mistakes and improve their performance.
Step 3: Performance evaluation- The next stage is performance evaluation. At this stage, the employer assesses the employee's performance by comparing the results against the objectives set. Evaluation is done by using various tools, such as self-evaluation, peer evaluation, or management evaluation. The performance evaluation process should be objective, fair, and transparent.
Step 4: Rewarding and recognition- The fourth step is rewarding and recognition. Employees who have achieved their objectives should be rewarded and recognized. Rewards can be in the form of monetary benefits or non-monetary benefits.
Step 5: Career development- After rewarding and recognition, the last step is career development. The employer should provide the employees with opportunities for career development, which include training, coaching, and job rotation. The career development process will help the employees to grow and improve their skills and knowledge.
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A stock just paid an annual dividend of $2. The dividend is expected to grow by 10% per year for the next 3 years. The growth rate of dividends will then fall steadily (linearly) from 10% after 3 years to 7% in year 6. The required rate of return is 12%. What is the stock price if the dividend growth rate will stay 0.07 (7%) forever after 6 years? In 6 years, the P/E ratio is expected to be 25 and the payout ratio to be 80%. What is the stock price when using the P/E ratio?
The stock price using the P/E ratio is $45.07.
To calculate the stock price using the dividend growth model, we need to find the present value of the dividends and the terminal value.
First, let's calculate the present value of the dividends for the first 6 years:
Year 1: Dividend = $2, Growth rate = 10%
Year 2: Dividend = $2 * (1 + 10%) = $2.20, Growth rate = 10%
Year 3: Dividend = $2.20 * (1 + 10%) = $2.42, Growth rate = 10%
Year 4: Dividend = $2.42 * (1 + 7%) = $2.59, Growth rate = 7%
Year 5: Dividend = $2.59 * (1 + 7%) = $2.77, Growth rate = 7%
Year 6: Dividend = $2.77 * (1 + 7%) = $2.97, Growth rate = 7%
Next, let's calculate the present value of the dividends for the first 6 years using the required rate of return of 12%:
PV = Dividend / (1 + r)^n
PV1 = $2 / (1 + 12%)^1 = $1.79
PV2 = $2.20 / (1 + 12%)^2 = $1.71
PV3 = $2.42 / (1 + 12%)^3 = $1.64
PV4 = $2.59 / (1 + 12%)^4 = $1.49
PV5 = $2.77 / (1 + 12%)^5 = $1.35
PV6 = $2.97 / (1 + 12%)^6 = $1.22
Now, let's calculate the terminal value using the constant growth rate of 7%:
Terminal Value = Dividend at year 7 / (r - g)
Dividend at year 7 = $2.97 * (1 + 7%) = $3.18
Terminal Value = $3.18 / (12% - 7%) = $63.60
To calculate the stock price, we sum up the present value of the dividends and the terminal value:
Stock Price = PV1 + PV2 + PV3 + PV4 + PV5 + PV6 + Terminal Value
Stock Price = $1.79 + $1.71 + $1.64 + $1.49 + $1.35 + $1.22 + $63.60
Stock Price = $72.80
Therefore, the stock price using the dividend growth model is $72.80.
Now let's calculate the stock price using the P/E ratio in 6 years.
Expected EPS in 6 years = Dividend at year 6 / Payout ratio = $2.97 / 80% = $3.71
Expected Stock Price in 6 years = P/E ratio * Expected EPS = 25 * $3.71 = $92.75
To find the present value of the stock price, we need to discount it back to the present using the required rate of return of 12% for 6 years:
PV of Stock Price = Expected Stock Price / (1 + r)^n
PV of Stock Price = $92.75 / (1 + 12%)^6 = $45.07
Therefore, the stock price using the P/E ratio is $45.07.
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Assume the current spot U.S. dollar-U.K. pound exchange rate is £ 1 = $ 1.2500 - A U.S. exporter has a contract to sell £ 4 million of goods at the end of the year that is, the exporter will receive a fixed amount of £ 4 million at the end of the year from selling the goods at that time. The exporter is concerned that the pound may depreciate against the dollar between now and then. (a) What should the exporter do now? (b) What is the outcome to the exporter if the exchange rate at the end of the year is £1 $ 1.5000 ?
(a) The exporter should enter into a forward contract to sell £ 4 million at the current exchange rate to hedge against the potential depreciation of the pound.
(b) If the exchange rate at the end of the year is £1 = $1.5000, the exporter will still receive £4 million as per the contract. However, since the pound has appreciated against the dollar, the exporter will receive a higher amount in dollars when they convert the pounds. The outcome to the exporter is favorable, as they will receive more dollars than anticipated.
a)A forward contract is an agreement between two parties to exchange a specified amount of currency at a predetermined future date and exchange rate. By entering into a forward contract now, the exporter locks in the current exchange rate, protecting themselves from any potential depreciation of the pound. This allows them to receive a fixed amount in dollars at the end of the year, regardless of the exchange rate at that time.
b)A higher exchange rate means that each pound will be worth more in dollars, resulting in a larger dollar amount for the exporter when they convert their £4 million. This is beneficial to the exporter as they receive a higher value for their goods in their home currency.
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Which of the following statements is true?
A. The relationship between price and quantity is unique in a monopoly market, but not in a competitive market.
B. A competitive firm's supply behavior depends on the shape of the market demand curve.
C. A monopoly's output decision depends on the shapes of its marginal cost curve and its demand curve.
D. The competitive firm's supply curve is its horizontal marginal cost curve
The statement that is true is option C: A monopoly's output decision depends on the shapes of its marginal cost curve and its demand curve.
In a monopoly market, there is a single seller who has control over the supply of a product or service. The monopoly's output decision is determined by the intersection of its marginal cost curve and its demand curve. The marginal cost curve represents the additional cost of producing one more unit of output, while the demand curve represents the quantity of the product or service that consumers are willing to purchase at various price levels. The monopoly will choose the level of output where its marginal cost equals the marginal revenue, which is the change in revenue from selling one additional unit. This output level allows the monopoly to maximize its profits. Therefore, the shapes of the marginal cost curve and the demand curve are crucial in determining the monopoly's output decision.
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Question 8
These are cash received in advance but not yet earned.
1 Point
Unearned revenues
(B) Prepayments
Prepaid Expenses
▸ Deferred Expenses
Question 9
1 Point
This method of recording cash received in advance but not yet earned recognizes a liability in its adjusting entry.
Expense method
B) Asset Method
(C) Income method
Liability method
Question 10
It is the difference between the Acquisition Cost and Salvage Value of a depreciable asset.
1 Point
A Depreciable Cost
℗ Depreciation Expense
Accumulated Depreciation
▸ Carrying Value
Question 11
1 Point
It is the systematic and rational allocation of the depreciable cost of an asset over its estimated useful life.
Depreciation
Allowance for Bad Debts
Adjusting Entry
▸ Salvage Value
Question 12
1 Point
Decide whether the error may or may not be revealed by drafting a trial balance: An equipment purchase for P 700,000 cash was recorded as debit to Supplies Expense and credit to Cash
A can be revealed
May not be revealed
Neither; unaccountable transaction
Question 13
1 Point
Statement : Equality of the debits and credits in the trial balance ensures that posting has been performed correctly.
Statement II: The sequence of the account titles in the trial balance depends upon the size of the account balances.
A Both Statements are TRUE
Both Statements are FALSE
Only Statement I is TRUE
Only Statement II is TRUE
Unearned revenuesExplanation:Cash received in advance is termed as revenue earned in advance and cash is received before the revenue is earned is known as Unearned revenue. Liability methodExplanation:When cash is received in advance before revenue is earned.
A liability is recognized in its adjusting entry. This method of recording cash is known as the liability method.Question 10Answer: Carrying ValueExplanation:The carrying value of an asset is the difference between the acquisition cost and salvage value of a depreciable asset.Question 11Answer: DepreciationExplanation:The systematic and rational allocation of the depreciable cost of an asset over its estimated useful life is known as depreciation.
Question 12Answer: Can be revealedExplanation:The error of recording equipment purchase for P 700,000 cash was recorded as a debit to Supplies Expense and credit to Cash may be revealed by drafting a trial balance.Question 13Answer: Only Statement I is TRUEExplanation:Equality of the debits and credits in the trial balance ensures that posting has been performed correctly, which is true. But the sequence of the account titles in the trial balance depends upon the size of the account balances is not true.
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