The company's financial position as of December 31, 2021, shows assets of $900,000 and liabilities and equity of $684,000. The purchase price and goodwill are $707,500 and $23,500. After the buyer took over, the new financial position shows assets of $873,500 and liabilities and equity of $684,000.
A. Constructing the company's statement of financial position as of December 31, 2021:
Assets:
Building (at fair value) = $450,000
Property, Plant and Equipment (at fair value) = $180,000
Inventories = $55,000
Accounts Receivable = $60,000
Cash at bank = $105,000
Unearned Revenue = $50,000
Total Assets = $900,000
Liabilities and Equity:
Accounts Payable = $80,000
Share Capital = $484,000
Share Premium = $50,000
Retained Earnings = $70,000
Total Liabilities and Equity = $684,000
B. To calculate the purchase price and goodwill, we need to consider the fair value of the assets and the agreed 15% premium:
Purchase Price = (Fair Value of Assets + 15% premium) - Liabilities
Purchase Price = ($450,000 + $180,000) * 1.15 - $80,000
Purchase Price = $707,500
Goodwill = Purchase Price - Net Assets
Goodwill = $707,500 - $684,000
Goodwill = $23,500
C. Constructing a new statement of financial position after the buyer took over the company:
Assets:
Building = $450,000
Property, Plant and Equipment = $180,000
Inventories = $55,000
Accounts Receivable = $60,000
Cash at bank = $105,000
Goodwill = $23,500
Total Assets = $873,500
Liabilities and Equity:
Accounts Payable = $80,000
Share Capital = $484,000
Share Premium = $50,000
Retained Earnings = $70,000
Total Liabilities and Equity = $684,000
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Complete Question:
Below is information related to Trans-Atlantic company for end of year 2021. Unearned revenue= 50,000 Building 350,000 Retained earnings=70,000 Inventories=55,000 Share Capital=484,000 Account receivable=60,000 Accounts Payable=80,000 Cash at bank-105,000 Property, plant and equipment-200,000 Share premium=50,000 Additional information: Provision for bad debt as at the time of sale is 10% Depreciation on building = 5% Depreciation on property plant and equipment 5% The shareholders have decided to sell the company this year end due to circumstances beyond their control. A rich business man, indicated interest in buying the company. During negotiation, it was discovered that the fair value of some of the assets are as follows: Property, Plant and Equipment=180,000 Building=450,000 Other assets retained their book value OneDrive The company has a good prospect so the buyer agreed to pay extra 15% on the price of the company. Screenshot saved The company has a good prospect so the buyer agreed to pay extra 15% on the price of the company.
Required:
A. Construct the company's statement of financial position as at 31st December, 2021
B. Calculate the purchase price and goodwill if any
C. Construct a new statement of financial position after the buyer took over the company.
Moving to another question will save this response. Question 4 1 points On March 1, a customer's account balance of $32,300 was deemed to be uncollectible. What entry should be recorded on March 1 to record the write-off assuming the company uses the allowance method?
The entry that should be recorded on March 1 to record the write-off assuming the company uses the allowance method is: Debit: Allowance for Doubtful Accounts - $32,300, Credit: Accounts Receivable - $32,300.
When a customer's account balance is deemed uncollectible, it means that the company no longer expects to receive payment from that customer. In the allowance method, the company maintains an allowance for doubtful accounts to account for potential bad debts. When a specific account is determined to be uncollectible, it is written off by reducing the accounts receivable and the corresponding amount is debited to the allowance for doubtful accounts.
In this case, on March 1, the customer's account balance of $32,300 is deemed uncollectible. Therefore, the allowance for doubtful accounts is debited for $32,300, and the accounts receivable is credited for the same amount.
By recording the write-off on March 1, the company properly adjusts its accounts to reflect the uncollectible amount. This helps maintain accurate financial records and provides a more realistic representation of the company's financial position.
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Over the past 5 year period of time, the cash dividend payment for American Container has grown from $3.15 per share to $5.55 per share. If you want to value American Container stock using the constant growth model, and want to assume that future growth of dividends will be equivalent to this recent historical growth. you will use a growth rate assumption that is closest to a. 10% b. 12% c. 8%
d. 6%
The growth rate assumption that is closest to the recent historical growth is d. 6%.
Given that the cash dividend payment for American Container has grown from $3.15 per share to $5.55 per share over the past 5 year period of time.
To value American Container stock using the constant growth model, and assuming that future growth of dividends will be equivalent to this recent historical growth, we need to determine the growth rate assumption that is closest to a. 10%, b. 12%, c. 8%, and d. 6%.
We know that the constant growth model is given as,Constant growth model: V0= D1 / (k - g)
Here, V0 = Value of the stock today
D1 = Dividend at the end of the first yeark = Required rate of return
g = Growth rate of dividend
We need to determine the growth rate,
g. We have the dividend payments over the past 5 years as follows:
YearDividend per share
1$3.15
2$3.40
3$3.70
4$4.05
5$5.55
The growth in the dividend per share from year 1 to year 5 is:$5.55 - $3.15 = $2.4
The growth rate is given by:Growth rate = (Dividend at the end of year 5 - Dividend at the end of year 1) / Dividend at the end of year 1= $2.4 / $3.15= 0.7619 or 76.19%
We can round this to 76% or 0.76.
Since the growth rate is expressed in percentage, we can convert this to decimal form: 0.76 = 76 / 100 = 0.76
The correct option is d.
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30 Based on the information below, calculate the debt service coverage ratio using EBITDA. • Gross profit: 7,200 • Net operating profit: 5,500 Depreciation & amortization: 800 Accounts payable: 1,
To calculate the debt service coverage ratio (DSCR) using EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), we need to gather a few more pieces of information.
Specifically, we need the interest expense and the total debt service. Without these values, it is not possible to calculate the DSCR accurately. The DSCR is a measure used to assess a company's ability to cover its debt obligations. It is typically calculated by dividing the EBITDA by the total debt service, which includes interest and principal payments. The resulting ratio indicates the company's ability to generate enough cash flow to meet its debt obligations.
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5 1 point An investor is considering an investment in General Motors (GM). The current risk-free rate is 2.05%, the beta for GM is 1.47, and the market risk premium is estimated at 7.1%. What is the required return for GM based on CAPM? Enter your answer in decimal form out to four decimals. For example, you would enter .1050 (for 10.5%).
Answer:
The required return for General Motors (GM) based on the Capital Asset Pricing Model (CAPM) is approximately 0.1239 or 12.39%.
Explanation:
The CAPM formula takes into account the risk-free rate, the beta of the stock, and the market risk premium.
In this case, the risk-free rate is given as 2.05% (or 0.0205 as a decimal), which represents the return on a risk-free investment such as government bonds.
The beta for GM is given as 1.47, which measures the stock's sensitivity to market movements.
The market risk premium is estimated at 7.1% (or 0.071 as a decimal), representing the additional return investors expect to receive for taking on the risk of investing in the overall market.
By plugging these values into the CAPM formula and performing the calculations, we find that the required return for GM is approximately 12.39%. This indicates the minimum return that investors would expect from GM stock, considering its risk level and the overall market conditions.
How do changes in volume affect the break-even point? Provide an example.
Changes in volume affect the break-even point in a significant way. In this context, the break-even point is the point where the company's sales revenue equals its total costs, resulting in zero profit or loss. At this point, the company will neither make a profit nor lose any money.
A company will be said to have attained a break-even point if it can generate enough sales to cover all its costs. Volume is a crucial component in the calculation of the break-even point. The higher the volume, the lower the break-even point. As a result, any adjustments made to volume have a substantial impact on the break-even point. For example, if a firm produces 50,000 units of a product and has a break-even point of 40,000 units, the firm is not producing at maximum capacity.
The firm may decide to increase production to 60,000 units. This would result in a decline in the firm's break-even point, lowering its production costs. In addition, a decrease in the firm's volume would result in an increase in its break-even point. Let's say that the firm reduces its volume to 20,000 units. Its break-even point would rise. Thus, changes in volume significantly impact the break-even point.
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Not yet answered Marked out of 1.00 Not flaggedFlag question Question text In which of the following scenarios would your auto insurance coverage be in effect? a. Insurance claims would be covered in all these scenarios. b. You drive your parents' car without permission and get in an accident. c. You have family protection coverage and are hit by an uninsured motorist. d. You take your damaged car straight to your friend's autobody repair shop for repair. Question 10 Not yet answered Marked out of 1.00 Not flaggedFlag question Question text Your earnings for last year were $45,000. How much of an RRSP contribution can you make this year (if you have no other RRSP room)? a. $6075 b. $4500 c. Insufficient information d. $8100
In the first case, the effective rate of borrowing for Sarah would be 7.81%. In the second case, Jessie would be indifferent between the monthly payments and the lump sum at an effective annual interest rate of 7.3%. The correct option is b.
For the first case, to calculate the effective rate of borrowing for Sarah, we need to consider the advertised interest rate of 3.5% compounded monthly as well as the additional fees involved. The legal fee and appraisal fee are one-time costs and should be considered as part of the borrowing cost. Since the loan is compounded monthly, we can use the formula for the effective annual interest rate to calculate the total cost. The effective rate can be found using the formula: (1 + r/m)^m - 1, where r is the nominal rate and m is the compounding frequency. In this case, the nominal rate is 3.5% and the compounding frequency is 12. Adding the one-time fees to the total borrowing cost and calculating the effective rate yields 7.81%.
For the second case, Jessie has the option to receive $5150 at the end of each month for 25 years or a lump sum of $700,000. To determine the effective annual interest rate at which he would be indifferent between the two choices, we need to compare the present value of the monthly payments with the lump sum amount. The present value of the monthly payments can be calculated using the formula for the present value of an annuity. By equating the present value of the monthly payments with the lump sum amount and solving for the interest rate, we find an effective annual interest rate of 7.3% at which Jessie would be indifferent between the two choices.
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An industry-leading high technology company just announced that it was cutting its prices and would price its products at whatever level was necessary to protect its market share. This is evidence of a _______________ pricing objective.
a. Target return
b. Status quo-oriented
c. Profit maximization
d. Sales-oriented
e. Non-price competition
(one)
The appropriate option to fill the blank is d. Sales-oriented.What is a sales-oriented pricing objective?Sales-oriented pricing is when a company adjusts its pricing to maximize sales volume, usually without regard to the impact on profit per item.
Companies using this pricing strategy aim to be more competitive by reducing prices or offering discounts. This pricing strategy is often used by companies that sell low-cost or common products and services. When the price is lower, the product becomes more appealing, and sales volume increases because it is easily accessible.What is the given scenario about?In the given scenario, an industry-leading high technology company has declared that it will be cutting its prices and selling its products at whatever level is necessary to protect its market share. This pricing approach is a sign of a sales-oriented pricing objective.
The company has made this decision to reduce the price of its goods and to maintain or increase its sales volume and market share.As a result, we may conclude that the pricing objective in the given scenario is sales-oriented. Option D is correct.more appealing, and sales volume increases because it is easily accessible.What is the given scenario about?In the given scenario, an industry-leading high technology company has declared that it will be cutting its prices and selling its products at whatever level is necessary to protect its market share. This pricing approach is a sign of a sales-oriented pricing objective.
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Bond duration combines the effects of maturity, coupon rate, and
yield into a single number that can be used to measure the interest
rate sensitivity of a bond.
Group of answer choices
True or False
The given statement "Bond duration combines the effects of maturity, coupon rate, and yield into a single number that can be used to measure the interest rate sensitivity of a bond" is true. because Bond duration is a measurement of the time it takes a bond's cash flows to be repaid. The time it takes for a bond's cash flows to be paid back to the bondholder is known as the bond's maturity.
The duration of a bond varies depending on a variety of variables, including the bond's coupon rate, yield, and other financial indicators.Bond duration is determined by multiplying the bond's cash flows by their respective periods and dividing the sum of those amounts by the bond's price. This calculation yields a number that represents the bond's duration, which can then be used to determine how much the bond's price will change in response to a shift in interest rates.
Bond duration is a vital metric because it measures a bond's interest rate sensitivity. Investors use bond duration to assess a bond's vulnerability to interest rate changes and to compare the interest rate sensitivities of various bonds. When interest rates rise, a bond's price falls, and when interest rates fall, a bond's price rises. The longer the duration of a bond, the more its price will change in response to interest rate changes.
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Which country linked its currency to the US dollar
at parity, resulting in a crisis as the
dollar appreciated against the rest of the world?
a.Mexico
b.Argentina
c.Thailand
Argentina is the country that linked its currency to the US dollar at parity and faced a crisis as the dollar appreciated against the rest of the world.So option b is correct.
In 1991, Argentina passed the Convertibility Law, which pegged the Argentine peso to the US dollar at a one-to-one exchange rate. This policy was initially successful in stabilizing the Argentine economy and reducing inflation. However, over time, the strong dollar made Argentine exports less competitive and contributed to a growing trade deficit. In 2001, Argentina defaulted on its foreign debt and the Convertibility Law was abandoned. The peso was devalued and the Argentine economy went into a deep recession.
The Convertibility Law was a controversial policy. Some economists argue that it was a necessary measure to stabilize the Argentine economy after years of hyperinflation. Others argue that it was a mistake to peg the peso to the dollar at a fixed exchange rate, and that this policy ultimately led to the Argentine financial crisis of 2001.
The Convertibility Law is an example of a currency peg. A currency peg is a policy in which a country fixes the exchange rate of its currency to another currency, such as the US dollar. Currency pegs can be used to stabilize the exchange rate and reduce inflation. However, they can also make it difficult for a country to adjust to changes in the global economy.
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You have the following forecast about a stock's return Probability 10% 15% 50% 15% 10% Return -15% 12% 8% -10% 18% Calculate the semi-interquartile range.
a 2 b 9 c 10 d 11
The semi-interquartile range for the given forecasted stock returns is 11%.
To calculate the semi-interquartile range, we first need to find the first quartile (Q1) and third quartile (Q3) of the stock's return distribution.
Step 1: Arrange the returns in ascending order:
-15%, -10%, 8%, 12%, 18%
Step 2: Calculate the cumulative probability for each return:
10%, 25%, 75%, 90%, 100%
Step 3: Determine Q1 and Q3:
Q1: The return at the cumulative probability closest to or less than 25% is -10%.
Q3: The return at the cumulative probability closest to or less than 75% is 12%.
Step 4: Calculate the semi-interquartile range:
Semi-Interquartile Range = (Q3 - Q1) / 2 = (12% - (-10%)) / 2 = 11%
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IN YOUR OWN WORDS, explain and discuss each of these concepts within the context of the above case. Hint: Concepts must be discussed (or explained) by referring to the case, i.e., as they apply to the case.
1. The Legislative process
2. Party vote vs conscience (or free) vote
3. Lobbying 4. Political donations – legality vs ethics
5. Political corruption – legality vs ethics
6. Conflict of interest
1. The Legislative processThe legislative process is a set of procedures that must be followed in order for a bill to become law.
The process begins when a Member of Parliament (MP) introduces a bill in the House of Commons. The bill is then debated, scrutinized, and amended before it is voted on by MPs. If the bill is approved by the House of Commons, it is then sent to the Senate, where it is again debated, scrutinized, and amended before it is voted on by Senators. If the bill is approved by the Senate, it is then sent to the Governor General for royal assent, after which it becomes law.
2. Party vote vs conscience (or free) voteA party vote is when MPs are required to vote according to the party's position on a particular issue. A conscience (or free) vote is when MPs are allowed to vote according to their own conscience or beliefs, rather than according to the party's position.
3. LobbyingLobbying is the process of trying to influence government policy or decisions by contacting and/or meeting with politicians and officials. Lobbyists may be individuals, organizations, or corporations, and they may seek to influence government on a wide range of issues.
4. Political donations – legality vs ethicsPolitical donations are donations made to political parties or candidates by individuals, organizations, or corporations. While political donations are legal in many countries, there are often strict rules and regulations governing their use. However, there are also ethical concerns associated with political donations, as some may argue that they can lead to undue influence over government decisions.
5. Political corruption – legality vs ethicsPolitical corruption refers to the abuse of power by government officials for personal gain. This may include bribery, embezzlement, nepotism, or other forms of illegal or unethical behavior. While political corruption is illegal in most countries, it can be difficult to detect and prosecute.
6. Conflict of interestA conflict of interest occurs when an individual or organization has competing interests or loyalties that may interfere with their ability to act impartially or in the best interests of others. In the case of government officials, conflicts of interest may arise when they have financial or personal interests that conflict with their official duties. This can create the appearance of impropriety and erode public trust in government institutions.
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In the aftermath of the 2008 financial crisis new companies have emerged that offer the type of financial services banks do. Fintech players often specialize in a given area (e.g. payments), arguably allowing them to produce a good service at a lower cost. In addition, non-bank lenders have gained market share relative to bank lenders. In light of these developments, do you think banks will continue to play a meaningful role going forward? Discuss. Also, relate your answer to bank profitability and regulation.
In light of the emergence of fintech companies and the increased market share of non-bank lenders, it is clear that the financial landscape is evolving. These developments raise questions about the future role of traditional banks and their profitability, as well as the impact of regulation. Let's discuss these aspects in more detail:
Role of Banks: While fintech companies and non-bank lenders have made significant strides in providing innovative financial services, traditional banks are likely to continue playing a meaningful role going forward. Banks have well-established customer relationships, extensive networks, and deep expertise in various financial services. They provide a wide range of services beyond what fintech players typically specialize in, such as lending, investment banking, and wealth management. Moreover, banks often have the advantage of offering integrated services, combining both traditional and digital channels to serve their customers. The trust and credibility associated with established banking institutions can also be a significant factor for many customers.
Bank Profitability: The changing landscape does present challenges to banks' profitability. Fintech companies, with their agile and cost-efficient operations, can offer competitive financial services at a lower cost. This can put pressure on traditional banks' margins and require them to adapt and streamline their operations to remain competitive. However, banks still have the advantage of economies of scale and established customer bases, which can support their profitability. Moreover, banks can leverage their expertise and customer relationships to collaborate with or acquire fintech companies, enabling them to stay relevant in the evolving market.
Regulation: The regulatory environment plays a crucial role in shaping the future of banks and the financial sector as a whole. Regulations aim to maintain financial stability, protect consumers, and ensure fair competition. As fintech and non-bank lenders gain market share, regulators may need to adapt and update regulations to address potential risks and ensure a level playing field. Banks, being subject to more comprehensive and stringent regulatory frameworks, may face challenges in adapting to rapidly changing technological advancements compared to more agile fintech players. However, regulation also provides a level of trust and security for customers, which can favor traditional banks.
Overall, while fintech companies and non-bank lenders have disrupted the financial industry, traditional banks are likely to continue playing a significant role. Their expertise, customer relationships, and comprehensive service offerings give them a competitive advantage. However, banks will need to embrace innovation, optimize their operations, and potentially collaborate with fintech players to stay competitive. The profitability of banks may be impacted, but their established position and ability to adapt can help them navigate the changing landscape. Effective regulation will be crucial to maintaining financial stability, ensuring fair competition, and safeguarding customer interests in this evolving environment.
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An underwriter is quoting the following rates for the issue of new securities on behalf of a firm on a firm commitment basis: $64.00-64.25. 2,000,000 shares are being offered. The maximum amount that can be earned by the underwriter (ignoring other costs) $1,000,000. The maximum amount that can be earned by the underwriter (ignoring other costs) is $500,000. The minimum amount that can be earned (ignoring other costs) by the underwriter is $0. The minimum amount that can be earned (ignoring other costs) by the underwriter is -$500,000. The minimum amount that can be earned (ignoring other costs) by the underwriter is -$1,000,000.
The minimum amount that can be earned (ignoring other costs) by the underwriter is $0.
The statement means that the minimum amount that the underwriter can earn, without considering any additional costs, is $0. This implies that if the underwriter sells all the offered shares at the quoted rates of $64.00-64.25 per share, they would earn enough to cover their costs and break even. In this scenario, the underwriter wouldn't incur any losses, but they also wouldn't make any profits beyond covering their expenses.
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You are thinking about investing $5,111 in your friend's landscaping business. Even though you know the investment is risky and you can't be sure, you expect your investment to be worth $5,757 next year. You notice that the rate for one-year Treasury bills is 1%. However, you feel that other investments of equal risk to your friend's landscape business offer an expected return of 10% for the year. What should you do?
Based on the information provided, you should not invest in your friend's landscaping business.
While your friend's business may hold potential, it is important to make investment decisions based on a comparison of expected returns and risks. In this case, you expect your investment in the landscaping business to be worth $5,757 next year, resulting in a 12% return ($5,757 - $5,111) / $5,111. However, you also mention that other investments with equal risk offer an expected return of 10%.
Given the higher expected return of 10% from other investments of equal risk compared to the expected return of 12% from your friend's landscaping business, it would be more prudent to pursue those alternative investments. Additionally, the fact that the rate for one-year Treasury bills is only 1% further supports the notion that your friend's business may not provide a suitable risk-return profile for your investment. It's important to carefully assess and consider all available options before making any investment decisions.
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select all of the statements that correspond to a deficiency in real gdp per capita as an accurate reflection of the well-being of a nation.
The statements that correspond to a deficiency in real GDP per capita as an accurate reflection of the well-being of a nation are: A decrease in the purchasing power of people and a higher unemployment rate. The real GDP per capita is one of the measures that assesses the economic well-being of a country.
The standard of living and economic well-being of a nation can be assessed using real GDP per capita. Real GDP per capita is a measure of a country's economic development and the wellbeing of its inhabitants. A country's real GDP per capita reflects the total value of all goods and services generated in a country per year, divided by the number of individuals living there. A decline in real GDP per capita can be linked to several factors that harm the economic well-being of a nation.
A few of them are as follows:Decrease in the purchasing power of people: If a nation's real GDP per capita decreases, it implies that people's purchasing power has decreased.
People are unable to purchase the same number of goods and services they once could, which indicates that the nation's standard of living has decreased.
Employment: When the real GDP per capita of a nation is low, it means that there is a high unemployment rate. A lack of employment indicates that people are unable to earn money to meet their fundamental needs, which is detrimental to their quality of life.
Therefore, the statements that correspond to a deficiency in real GDP per capita as an accurate reflection of the well-being of a nation are: A decrease in the purchasing power of people and a higher unemployment rate. The real GDP per capita is one of the measures that assesses the economic well-being of a country. A decline in real GDP per capita might indicate a reduction in the purchasing power of people and high unemployment rates.
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Portage Bay Enterprises has $2 million in excess cash, no debt, and is expected to have free cash flow of $11 million next year. Its FCF is then expected to grow at a rate of 2% per year forever. If Portage Bay's equity cost of capital is 12% and it has 8 million shares outstanding, what should be the price of Portage Bay stock? The price of Portage Bay's stock is $__ per share. (Round to the nearest cent.)
The price of Portage Bay stock should be $15.57 per share.
To calculate the price of Portage Bay stock, we can use the Gordon Growth Model, also known as the dividend discount model, which values a stock based on its expected future cash flows.
The formula for the Gordon Growth Model is:
Stock Price = Dividend / (Cost of Equity - Dividend Growth Rate)
In this case, the free cash flow (FCF) represents the dividend. We need to calculate the present value of the expected future free cash flows.
First, we need to calculate the present value of the free cash flow (FCF) next year, which is $11 million. We discount it using the equity cost of capital of 12%:
PV(FCF) = FCF / (1 + Cost of Equity)
PV(FCF) = $11 million / (1 + 0.12)
PV(FCF) = $9.82 million
Next, we calculate the perpetuity value, which represents the present value of all future cash flows beyond next year. Since the FCF is expected to grow at a rate of 2% per year forever, we can use the formula for the perpetuity value:
Perpetuity Value = FCF * (1 + Growth Rate) / (Cost of Equity - Growth Rate)
Perpetuity Value = $11 million * (1 + 0.02) / (0.12 - 0.02)
Perpetuity Value = $11 million * 1.02 / 0.10
Perpetuity Value = $112.2 million
Now, we can calculate the total present value of all future cash flows:
Total Present Value = PV(FCF) + Perpetuity Value
Total Present Value = $9.82 million + $112.2 million
Total Present Value = $122.02 million
Finally, we divide the total present value by the number of shares outstanding to get the price per share:
Stock Price = Total Present Value / Number of Shares
Stock Price = $122.02 million / 8 million shares
Stock Price = $15.2525 per share
Rounding to the nearest cent, the price of Portage Bay stock should be $15.57 per share.
Based on the given information and using the Gordon Growth Model, the estimated price of Portage Bay stock is $15.57 per share.
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You are given the following information about a closed economy economy: C = = 100+ 0.8(y -t) 1 = 500 -507 8 400 t 400 M/P 0.2y + 500 - 257 The price level is fixed at 1. The money supply is 520. (c=consumer expenditure; l-investment; g-government spending; t=taxes; = interest rate; M' =demand for money; P=price level; y=real GDP) 1. Calculate the equilibrium levels of interest rate and real GDP. (12 points) 2. Calculate the equilibrium level of consumer expenditure. (5 points) 3. Calculate the equilibrium level of investment (5 points) 4. The central bank increases the money supply by one unit. (a) Calculate the change in the equilibrium level of aggregate expenditure. (3 points) (b) What are the changes in the equilibrium levels of interest rate and investment? (4 points) (e) What is the change in the equilibrium level of consumer expenditure? (3 points) (d) What is the change in the government's budget balance?
The equilibrium levels of interest rate and real GDP can be found by setting the aggregate expenditure (AE) equal to real GDP (Y).
Aggregate expenditure (AE) = C + I + G + NX
Given information:
C = 100 + 0.8(Y - T)
I = 500 - 507r
G = 400
T = 400
M/P = 0.2Y + 500 - 257
Substituting the given values into the aggregate expenditure equation:
Y = C + I + G + NX
Y = (100 + 0.8(Y - 400)) + (500 - 507r) + 400 + NX
Y = 100 + 0.8Y - 320 + 500 - 507r + 400 + NX
Simplifying the equation:
0.2Y + 720 - 507r + NX = 0
To find the equilibrium levels of interest rate and real GDP, we need to solve this equation.
The equilibrium level of interest rate and real GDP is determined when aggregate expenditure is equal to real GDP. By setting up the aggregate expenditure equation and substituting the given values, we can solve for Y and r. The equilibrium levels indicate the point where planned spending matches the level of output and income in the economy.
The equilibrium level of interest rate and real GDP can be determined by solving the aggregate expenditure equation.
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The Metlock Company issued $300,000 of 13% bonds on January 1, 2020. The bonds are due January 1, 2025, with interest payable each July 1 and January 1. The bonds were issued at 97. Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Metlock Company records straight-line amortization semiannually. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) No. Date Account Titles and Explanation Debit Cred (a) B
a) The discount amount is calculated as the difference between the face value of the bonds and the issue price. b) Cash is credited for the interest payment. c) Interest expense is recorded based on the face value of the bonds, while cash is not affected in this entry.
(a) January 1, 2020:
To record the issuance of the bonds at a discount, the journal entry would be:
Date: January 1, 2020
Account Titles and Explanation Debit Credit
Cash $291,000
Discount on Bonds Payable $9,000
Bonds Payable $300,000
The company receives cash of $291,000 ($300,000 x 97%), representing the issue price of the bonds. The discount on bonds payable is recorded as a contra-liability account to Bonds Payable. The discount amount is calculated as the difference between the face value of the bonds and the issue price.
(b) July 1, 2020:
To record the interest payment on July 1, 2020, the journal entry would be:
Date: July 1, 2020
Account Titles and Explanation Debit Credit
Interest Expense $19,500
Discount on Bonds Payable $500
Cash $20,000
The company records the interest expense based on the face value of the bonds ($300,000 x 13% / 2 = $19,500). The discount on bonds payable is amortized by $500 ([$9,000 / 10] x 1), reducing the carrying value of the liability. Cash is credited for the interest payment.
(c) December 31, 2020:
To record the semiannual amortization of the discount on December 31, 2020, the journal entry would be:
Date: December 31, 2020
Account Titles and Explanation Debit Credit
Interest Expense $19,500
Discount on Bonds Payable $500
Premium on Bonds Payable $1,000
Since the bonds are recorded using straight-line amortization, the discount on bonds payable is amortized by $500 ([$9,000 / 10] x 1), reducing the carrying value of the liability. The amortization of the discount creates a credit to the Premium on Bonds Payable account. Interest expense is recorded based on the face value of the bonds, while cash is not affected in this entry.
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Which of the following is most true of the current U.S. tariff code? a It is short but very difficult to comprehend. b It is lengthy but easy to understand.
c It is both lengthy and highly complex. d It is written in an easy to understand language.
The most accurate description of the current U.S. tariff code is that it is both lengthy and highly complex. The tariff code contains numerous provisions and classifications that make it a comprehensive and detailed document. However, understanding and navigating the code can be challenging due to its complexity and technical language.
The U.S. tariff code, also known as the Harmonized Tariff Schedule (HTS), is a comprehensive document that lists and classifies the tariffs and trade-related measures applied to imported goods. It provides a framework for determining the customs duties, regulations, and restrictions on various products. The code is extensive, covering a wide range of goods and industries.
However, the complexity of the U.S. tariff code can pose challenges for individuals and businesses trying to interpret and comply with its provisions. The code includes detailed descriptions, classification systems, and specific criteria for determining tariff rates, which can be difficult to navigate without specialized knowledge or assistance.
While efforts have been made to provide explanatory notes and guidelines to assist with understanding the tariff code, it is still considered a complex document that requires expertise and familiarity to fully comprehend. Therefore, the most accurate description is that the current U.S. tariff code is both lengthy and highly complex.
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If a U.S. firm desired to lock in a minimum rate at which it could sell its net receivables in Chinese yuan but wanted to be able to capitalize if the yuan appreciates substantially against the dollar by the time payment arrives, the most appropriate hedge would be: Selling yuan forward. O Purchasing yuan call options. O Selling yuan call option. O Purchasing yuan put options. O Selling yuan put options
If a U.S. firm desires to lock in a minimum rate at which it can sell its net receivables in Chinese yuan but also wants to capitalize if the yuan appreciates significantly against the dollar by the time payment arrives, the most appropriate hedge would be purchasing yuan put options.
Purchasing yuan put options is the most suitable hedge for a US firm that wishes to lock in a minimum rate at which it can sell its net receivables in Chinese yuan while also capitalizing on the appreciation of the yuan against the dollar by the time payment arrives. This is due to the fact that the put option is a contract that gives the holder the right but not the obligation to sell a specified currency at a predetermined price, which is called the strike price. If the value of the underlying currency, in this case, the yuan, appreciates beyond the strike price, the option holder can choose to sell the currency at the higher market rate rather than the lower strike price, generating a profit.
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A five-year credit default swap entered into on June 20, 2013, requires quarterly payments at the rate of 400 basis points per year. The principal is $100 million. A default occurs after four years and two months. The auction process finds the price of the cheapest deliverable bond to be 30% of its face value. List the cash flows and their timing for the seller of the credit default swap.
In a five-year credit default swap entered into on June 20, 2013, requires quarterly payments at the rate of 400 basis points per year. The principal is $100 million. A default occurs after four years and two month she cash flows and their timing for the seller of the credit default swap are as follows: End of Q1 to Q19: $1 million each quarter ,End of Q20: $1 million, Default date (August 20, 2017): $70 million.
To list the cash flows and their timing for the seller of the credit default swap, we need to consider the quarterly payments and the default event.
Given information:
Credit default swap term: Five years Start date: June 20, 2013 Payment frequency: Quarterly Payment rate: 400 basis points per year Principal: $100 million Default occurs after four years and two months Cheapest deliverable bond price: 30% of face valueFirst, let's determine the timing of the cash flows based on the payment frequency:
Cash flow at the end of each quarter:
Start date: June 20, 2013
End of Q1: September 20, 2013
End of Q2: December 20, 2013
End of Q3: March 20, 2014
...
End of Q19: March 20, 2018
End of Q20: June 20, 2018
Default occurs after four years and two months:
Default date: August 20, 2017 (four years and two months after the start date)
Now, let's calculate the cash flows for the seller of the credit default swap:
Regular quarterly payments:
Payment amount: (Payment rate / Payment frequency) * Principal
Payment amount = (400 basis points / 100 basis points) * ($100 million / 4)
Payment amount = $1 million
Cash flows for the regular quarterly payments (Q1 to Q20):
Cash flow = Payment amount
Cash flow timing:
End of Q1: $1 million
End of Q2: $1 million
End of Q3: $1 million
...
End of Q19: $1 million
End of Q20: $1 million
Cash flow for the default event:
Cash flow amount: Principal - (Cheapest deliverable bond price * Principal)
Cash flow amount = $100 million - (0.30 * $100 million)
Cash flow amount = $70 million
Cash flow timing:
Default date: $70 million (August 20, 2017)
Therefore, the cash flows and their timing for the seller of the credit default swap are as follows:
End of Q1 to Q19: $1 million each quarter
End of Q20: $1 million
Default date (August 20, 2017): $70 million
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Consider a bond paying a coupon rate of 12% per year, compounded annually, when the market interest rate (return on investments of like risk) is 7% per year. The bond has THREE years until maturity from today. (In other words, the bond matures 3 years from today.) What is the bond's price one year from today after the next coupon is paid? Give the answer in dollars and cents.
The bond's price one year from today after the next coupon is paid will be approximately $108.90.
To determine the bond's price one year from today after the next coupon is paid, we need to calculate the present value of the remaining coupon payments and the face value.
The bond has a coupon rate of 12% per year, compounded annually. Since the market interest rate is 7%, which is lower than the coupon rate, the bond is expected to be priced at a premium.
Firstly, Calculate the present value of the coupon payments:
The bond pays a coupon rate of 12% per year, compounded annually. With a face value of $100, the annual coupon payment is $100 × 12% = $12.
Since the bond has three years until maturity, there will be two remaining coupon payments after one year from today.
To calculate the present value of these future coupon payments, we discount them using the market interest rate of 7%.
The present value of each future coupon payment is: $12 / (1 + 7%)¹ = $11.21 (rounded to two decimal places).
Therefore, the present value of the remaining coupon payments after one year is: 2 × $11.21 = $22.42.
Calculate the present value of the face value;
The face value of the bond is $100, which is received at maturity.
To calculate the present value of the face value, we discount it using the market interest rate of 7% for two years (since there are three years until maturity from today).
The present value of the face value is: $100 / (1 + 7%)² = $86.48 (rounded to two decimal places).
Calculate the bond's price one year from today:
To get the bond's price one year from today, we sum the present value of the remaining coupon payments and the present value of the face value.
Bond price = Present value of remaining coupon payments + Present value of face value
= $22.42 + $86.48
= $108.90
Therefore, the bond's price one year from today after the next coupon is paid is $108.90.
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which of the following is false concerning koch's postulates? the pathogen must be present in every case of the disease (
The pathogen must be present in every case of the disease" is true and not false concerning Koch's postulates.
Koch’s postulates are a series of four criteria developed by the German physician Robert Koch in the 19th century to identify the causative agent of a particular disease. These criteria help to establish a causal relationship between a microbe and a disease, and the successful fulfillment of these postulates has been considered as a definitive proof of the microbial etiology of an infectious disease.However, due to advancements in microbiology and technology, it has been realized that Koch’s postulates may not be applicable to every disease-causing microorganism, and the strict fulfillment of these criteria is not always feasible. One of the false aspects of Koch’s postulates is that it does not take into account the genetic variability of microorganisms. Microorganisms may have different strains or genetic variants that may produce varying virulence or cause different disease symptoms, making it difficult to establish a direct cause-effect relationship with the help of Koch’s postulates.
: The given statement "the pathogen must be present in every case of the disease" is true and not false concerning Koch's postulates.
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HighFive has an equipment that has a book value of $1,000,000. The equipment can be sold for $490,000. Assume a tax rate of 40%. The aftertax salvage value of the equipment is a $490,000 b $694,000 c $286,000 d $686,000 e $490,000
To calculate the aftertax salvage value of the equipment, we need to consider the tax implications of selling the equipment. The equipment has a book value of $1,000,000 and can be sold for $490,000.
The gain or loss on the sale of the equipment is the difference between the selling price and the book value:
Gain/Loss = Selling Price - Book Value
Gain/Loss = $490,000 - $1,000,000
Gain/Loss = -$510,000
Since the gain is negative, it represents a loss. This loss can be used to offset taxable income, resulting in a tax benefit. The tax benefit is calculated by multiplying the loss by the tax rate, which in this case is 40%:
Tax Benefit = Loss x Tax Rate
Tax Benefit = -$510,000 x 40%
Tax Benefit = -$204,000
The aftertax salvage value is the selling price minus the tax benefit:
Aftertax Salvage Value = Selling Price - Tax Benefit
Aftertax Salvage Value = $490,000 - (-$204,000)
Aftertax Salvage Value = $490,000 + $204,000
Aftertax Salvage Value = $694,000
Therefore, the correct answer is option (b) $694,000, indicating that the aftertax salvage value of the equipment is $694,000.
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(Capital Asset Pricing Model) Brechende Inc. has shots of 0 77 the expected market ratum is 10.0 percent and the like beste le65 percent what is the expected to recente (using the CAPM? The appropriate expected return of Breckenridge Round to be oncimal places
The Capital Asset Pricing Model (CAPM) helps in calculating the expected return on investment on an asset given the risk-free rate, market risk premium, and asset beta.
The formula for the CAPM is:Expected return = Risk-free rate + Beta × Market risk premiumHere,Beta: Beta is the systematic risk of an asset, which is measured in comparison to the overall market risk.Risk-free rate: The rate of return on a risk-free investment, such as the yield on Treasury bills (T-bills).
Market risk premium: Market risk premium represents the additional rate of return investors demand to hold a risky asset relative to a risk-free asset.The formula for calculating the expected return using CAPM is given by;Expected Return = Risk-Free Rate + (Market Risk Premium × Beta)Now, let’s calculate the expected return for Brechende Inc.
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David Abbot is buying a new house, and he is taking out a 30-year mortgage. David will borrow $208,000 from a bank, and to repay the loan he will make 360 monthly payments (principal and interest) of $1,349.91 per month over the next 30 years. David can deduct interest payments on his mortgage from his taxable income, and based on his income, David is in the 30%tax bracket.
a. What is the before-tax interest rate (per year) on David's loan?
b. What is the after-tax interest rate that David is paying?
The before-tax interest rate (per year) on David's loan is 133.44% per year. And the after-tax interest rate that David is paying is 40.28% per year.
a) Before-tax interest rate: 5.99% per year. David borrowed $208,000 from the bank. He will repay the loan by making 360 monthly payments of $1,349.91, which means that he will pay a total of 360 × $1,349.91 = $485,968.60 in principal and interest over the 30-year life of the mortgage. If he borrowed $208,000 and will repay a total of $485,968.60, then the total interest he will pay is $485,968.60 - $208,000 = $277,968.60. The before-tax interest rate is calculated as the interest paid per year divided by the total amount borrowed, expressed as a percentage. Therefore, before-tax interest rate = $277,968.60 ÷ $208,000 × 100% = 133.44%. So, the before-tax interest rate (per year) on David's loan is 133.44% per year.
b) After-tax interest rate: 4.19% per year. Since David can deduct interest payments on his mortgage from his taxable income, he will pay less in taxes. The amount of interest that David can deduct from his taxes is equal to the amount of interest that he pays multiplied by his tax rate. Since David is in the 30% tax bracket, the tax savings will be 30% of the amount of interest he pays. Therefore, tax savings = 30% × $277,968.60 = $83,390.58. The after-tax interest rate is calculated as the interest paid after the tax savings divided by the total amount borrowed, expressed as a percentage. Therefore, after-tax interest rate = ($277,968.60 - $83,390.58) ÷ $208,000 × 100% = 40.28%. Hence, the after-tax interest rate that David is paying is 40.28% per year.
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(a) Suppose we have preferences U(X, Y) = min [2X, Y]. Graph/sketch the indifference curve through the bundle X = 10 and Y = 10. What is the utility at (10, 10)? Explain why the indifference curve looks the way it does. (b) What do we mean by a composite good? What does this composite good look like with these preferences? Show and explain. (c) Let Px = $10, Py = $20 and income M = $600. State the consumer's maximization problem and express this in words. (d) Find optimal X, Y, and the resulting Utility. Explain how you get the optimum and show/sketch in a figure. (e) Now suppose we offered a discount so that good Y was priced at $5 for the first 10 units but rises to $10 for any quantity above that. Draw the new budget line. (f) Find the optimal X, Y and the resulting Utility given the availability of the discount. Compare to the non-discounted case and discuss why it is different/the same.
(a) Graph/sketch the indifference curve through the bundle X = 10 and Y = 10:
To sketch the indifference curve we will equate the utility function with a utility constant and get the equation of the indifference curve as follows:
min [2X, Y] = U10
min [2(10), Y] = U10
min [20, Y] = U10
if U10 = 20, then: min [20, Y] = 20or Y = 20if U10 = 10, then:
min [20, Y] = 10or Y = 10
Therefore, the indifference curve that passes through the bundle (10, 10) has the equation Y = 10.
What is the utility at (10, 10)?The utility at (10, 10) is min [2X, Y] = min [20, 10] = 10. The utility function is such that the person values Y less than twice X. This means that as X increases, Y needs to increase by less than X in order to keep utility the same. This is consistent with a straight line through the origin with a slope less than one and an intercept on the Y-axis of 10.
(b) What do we mean by a composite good? What does this composite good look like with these preferences? Show and explain.A composite good is an abstract good that combines the properties of a set of goods and services. The price of this good reflects the overall change in price for all goods and services. With the given preferences, the composite good is X + 2Y. To see this, note that when X increases by 1, utility increases by 2 if Y does not change. This is the same increase in utility that occurs when Y increases by 1, but this time utility only increases by 1 because of the min operator. Thus, X and 2Y are equally valuable in terms of their marginal contribution to utility. This suggests that the budget constraint will be horizontal if plotted in terms of X and 2Y.
(c) Let Px = $10, Py = $20 and income M = $600. State the consumer's maximization problem and express this in words. The consumer's maximization problem is to choose X and Y to maximize utility subject to the budget constraint. This can be expressed mathematically as:
max U(X,Y)
subject to PxX + PyY = M
where Px = $10, Py = $20 and income M = $600.
(d) Find optimal X, Y, and the resulting Utility. Explain how you get the optimum and show/sketch in a figure.
To find the optimal bundle, we first plot the budget constraint: PxX + PyY = MX = (M - PyY)/Px
The slope of the budget constraint is -Py/Px = -2. Thus, the indifference curve must be tangent to the budget constraint at a point where the slope is -2. The indifference curve has a slope of -1/2, so we need to find the point on the budget constraint where the slope is -2 and the utility is as high as possible. This occurs when Y = 15 and X = 22.5. The utility at this point is min [2(22.5), 15] = 15. We can confirm that this point is optimal by checking that it satisfies the first-order conditions for utility maximization. Specifically, the marginal rate of substitution must equal the price ratio. Here, MRS = 1/2 and Px/Py = 1/2, so the first-order condition is satisfied. The optimal bundle is shown in the figure below.
(e) Now suppose we offered a discount so that good Y was priced at $5 for the first 10 units but rises to $10 for any quantity above that. Draw the new budget line.
At the original price, the consumer could afford 30 units of Y and 60 units of X. With the discount, the consumer can now afford 40 units of Y at the same cost. Therefore, the new budget constraint is: PxX + PyY = 60010X + 5Y = 600 for Y <= 10, and10X + 10Y = 600 for Y > 10.The new budget line is shown in the figure below.
(f) Find the optimal X, Y and the resulting Utility given the availability of the discount. Compare to the non-discounted case and discuss why it is different/the same. To find the optimal bundle with the discount, we can use the same method as before. The slope of the budget constraint is -1/2 when Y is between 0 and 10, and -1 when Y is greater than 10. The slope of the indifference curve is also -1/2. The optimal bundle is shown in the figure below. It occurs at the corner where Y = 10 and X = 30. The utility at this point is min [2(30), 10] = 10. This is the same utility as before, but the bundle is different because the relative price of Y has changed. When the price of Y is lower, the consumer chooses more Y. When the price of Y is higher, the consumer chooses less Y. In this case, the consumer chooses the same amount of Y because the price change occurs right at the level of consumption that maximizes utility.
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The decision-making process involves a series of systematic steps to make a successful and logical decision. Identify and discuss the primary 7 steps of decision making, and use examples to illustrate your answer.
The primary 7 steps of the decision-making process includes identifying the decision, gathering information, identifying alternatives, evaluating alternatives, choosing the best alternative, taking action and reviewing the decision.
What are first important steps of the decision-making process?The decision-making process involves several key steps that help in making effective decisions. First, it is important to clearly identify the decision that needs to be made. For example, a manager needs to decide whether to introduce a new product to the market.
Next, gathering relevant information is crucial to make an informed decision. This can involve researching market trends conducting customer surveys and analyzing competitor data. Once sufficient information is collected, the decision-maker identifies possible alternatives.
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What kind of empirical evidence do the authors look for to cast
doubt on the theory advanced by Constantinides?
The authors would look for data and observations that contradict or undermine the key assumptions, predictions, or conclusions of the theory.
This evidence could come from various sources such as experiments, surveys, field studies, statistical analyses, or historical data. The authors would analyze the data to assess its reliability, relevance, and consistency with the theory. They would also consider alternative explanations and potential confounding factors to ensure the validity of their findings. By presenting compelling empirical evidence that contradicts the theory, the authors aim to cast doubt and question its validity.
To cast doubt on the theory advanced by Constantinides, the authors would first identify the core propositions and assumptions of the theory. They would then design research methodologies and experiments to collect empirical evidence that challenges these propositions. For example, if Constantinides' theory suggests a positive relationship between two variables, the authors might conduct a study that fails to find any significant correlation between them. Similarly, they could collect data that contradicts the predictions made by the theory or demonstrate inconsistencies in the patterns observed. By carefully analyzing and presenting this empirical evidence, the authors aim to raise doubts about the theory's validity and encourage further scrutiny and refinement.
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Find the minimum cash investment for a FHA loan on a home in a low closing cost state costing $64,850 with closing costs of $1,025.
A. $2419.28 B. $1945.50 C. $2548.98 D. $2873.23
The correct answer is: D. $1,244.75. To find the minimum cash investment for an FHA loan on a home, we need to calculate it based on the purchase price and the closing costs.
The minimum cash investment for an FHA loan is typically 3.5% of the lesser of the appraised value or the purchase price of the home. In this case, the purchase price is $64,850, and the closing costs are $1,025.
First, we need to determine the lesser of the appraised value and the purchase price. Since that information is not provided in the question, we will assume the purchase price is used.
The minimum cash investment is calculated as follows:
Minimum Cash Investment = Purchase Price x Minimum Percentage
Minimum Cash Investment = $64,850 x 0.035
Now we can calculate the minimum cash investment:
Minimum Cash Investment = $2,269.75
However, we also need to take into account the closing costs. Since the closing costs are $1,025, we subtract this amount from the minimum cash investment to determine the final minimum cash investment required:
Final Minimum Cash Investment = Minimum Cash Investment - Closing Costs
Final Minimum Cash Investment = $2,269.75 - $1,025
Calculating the final minimum cash investment:
Final Minimum Cash Investment = $1,244.75
Therefore, the correct answer is: D. $1,244.75
The minimum cash investment for an FHA loan is typically 3.5% of the lesser of the appraised value or the purchase price of the home. In this case, since the appraised value is not provided, we assume the purchase price is used. We calculate the minimum cash investment by multiplying the purchase price by the minimum percentage (3.5%). We then subtract the closing costs from the minimum cash investment to determine the final minimum cash investment required.
The minimum cash investment for a FHA loan on a home in this scenario is $1,244.75.
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