Arbitrage opportunity: Buy a three-month call option and sell a six-month call option with the same strike price, taking advantage of the longer-term option's potential for greater profit.
The options are priced equally, but the longer-term option provides more time for potential stock price appreciation. By exploiting this price discrepancy, you can profit from the difference in option maturities. This strategy allows you to lock in the same price for both options, while benefiting from the additional time available for the stock price to potentially increase.
Since the options have the same strike price, if the stock price rises above the strike price before the six-month option expires, you can exercise it and buy the stock at a lower price, subsequently selling it for a profit. This strategy is a form of riskless arbitrage as it takes advantage of pricing inefficiencies in the options market.
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Planner Corporation purchased 100 percent of Schedule Company's stock on January 1, 20X4, for $340,000 On that date, Schedule reported net assets with a historical cost of $300,000 and a fair value of $340,000. The difference was due to the increased value of buildings with a remaining life of 10 years. During 20x4 and 20x5, Schedule reported net income of $10,000 and $20,000 and paid dividends of $6,000 and $9,000, respectively, Required: (a) Assuming that Planner Corporation uses the equity method in accounting for its ownership of Schedule Company, Prepare the journal entries that Planner recorded in 2024 and 20%5. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) (b) Assuming that Planner Corporation uses the cost method in accounting for its ownership of Schedule Company. Prepare the journal entries that Planner recorded in 2024 and 20X5. (If no entry is required for a transaction/event, select "No journal entry required" In the first account field.) 1. Record the purchase of Schedule Company on January 1, 20X4. 2. Record the dividend from Schedule Company for 20X4. 3. Record the equity-method income/loss for 20X4. 4. Record the amortization of the differential value for 20X4. 5 Record the dividend from Schedule Company for 20X5. 6 Record the equity-method income/loss for 20X5. 7 Record the amortization of the differential value for 20X5.
(a) Assuming Planner Corporation uses the equity method, prepared journal entries that Planner recorded in 2024 and 2025 is briefly mentioned below (b) Assuming Planner Corporation uses the cost method, prepared journal entries that Planner recorded in 2024 and 2025 is briefly mentioned below.
(a) Assuming Planner Corporation uses the equity method
1. January 1, 20X4:
Investment in Schedule Company 340,000
Cash 340,000
2. December 31, 20X4:
Investment in Schedule Company 2,000
Equity in Earnings of Schedule Company 2,000
3. December 31, 20X4:
Equity in Earnings of Schedule Company 2,000
Investment in Schedule Company 2,000
4. December 31, 20X4:
Amortization Expense 4,000
Investment in Schedule Company 4,000
5. December 31, 20X5:
Investment in Schedule Company 3,000
Equity in Earnings of Schedule Company 3,000
6. December 31, 20X5:
Equity in Earnings of Schedule Company 3,000
Investment in Schedule Company 3,000
7. December 31, 20X5:
Amortization Expense 4,000
Investment in Schedule Company 4,000
(b) Assuming Planner Corporation uses the cost method:
1. January 1, 20X4:
Investment in Schedule Company 340,000
Cash 340,000
2. December 31, 20X4:
No journal entry required.
3. December 31, 20X4:
No journal entry required.
4. December 31, 20X4:
No journal entry required.
5. December 31, 20X5:
No journal entry required.
6. December 31, 20X5:
No journal entry required.
7. December 31, 20X5:
No journal entry required.
In the equity method, the initial purchase of Schedule Company's stock is recorded as an investment. The equity in earnings of Schedule Company is recorded as income, and the amortization of the differential value is recorded as an expense to adjust the investment account. Dividends received from Schedule Company reduce the investment account.
In the cost method, the initial purchase of Schedule Company's stock is recorded as an investment. However, no adjustments are made for earnings or dividends. The investment remains at its original cost.
The journal entries provided reflect the appropriate recording of transactions based on the chosen accounting method (equity or cost).
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Munson? Manufacturing, in? Gainesville, Florida, wants to arrange its four work centers so as to minimize interdepartmental parts handling costs. The flows and existing facility layout are shown in the figures below.
The current layout has a movement cost of 2,935 feet. To improve it, Upper C should be placed between A and D, forming the configuration A - C - D. The distance for this improved layout can be calculated based on the distances between A and C, and C and D.
a) For the existing layout, the cumulative "load times x distance" or "movement cost" equals 2,935 feet. This is calculated by summing up the product of the flow values and the respective distances between the work centers, as shown in Figure 1.
b) Based on the flows shown in the matrix, one should expect that the centers A and Upper C will be next to each other as they have the highest number of moves between each other (600 moves).
c) Based on the flows shown in the matrix, one should expect that the centers C and Upper A will be next to each other as they have the second highest number of moves between each other (450 moves).
d) To improve the layout and reduce the total movement cost, the work center that should be located between A and D is Upper C. This configuration would result in the following layout: A - C - D.
The cumulative distance based on the overall movement of parts between work centers for this layout would need to be calculated based on the distances between A and C, and C and D.
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Complete Question:
Munson Manufacturing, in Gainesville, Florida, wants to arrange its four work centers so as to minimize interdepartmental parts handling costs.
The flows and existing facility layout are shown in the table below.
Figure 1: Parts moved between work centers
Upper A Upper B Upper C Upper D
Upper A - 450 600 60
Upper B 325 - 200 0
Upper C 0 0 750
Upper D 0 0 0 -
Figure 2: Existing layout.
A B C D
30' 30' 30'
a) For the existing? layout, the cumulative "load times x distance" or "movement cost" equals _____ feet.
b) Based on the flows showns in the matrix, one should expect that the centers A and _____ will be next to each other as they have the highest number of moves between each other.
c) Based on the flows shown in the matrix, one should expect that the centers C and _____ will be next to each other as they have the second highest number of moves between each other.
d)The aim is to improve the layout so that the total "movement cost" can be reduced. Functional locations from A and D have been fixed. In the improved layout work center should be located between them is:
__ A __ D
30' 30' 30'
The cumulative distance based on the overall movement of parts on the overall movement of parts between work centers for this layout = _____ feet.
Louis Florence is the sole owner of Vision Management. He can sell or transfer his ownership to another person without affecting the operations of the business. What is the type of business organization of Vision Management?
Vision Management is an example of a Sole Proprietorship. If the owner dies or is incapacitated, the business will come to an end unless there is a plan in place to transfer the business ownership to someone else.
Louis Florence, the sole proprietor, is the sole owner of Vision Management. A sole proprietorship is a type of business entity that is owned and operated by a single person who has complete control over the company's activities. It is the most straightforward business organization in which the owner is in complete charge of the company's operations.Sole proprietorships are the simplest and most common type of business organization.
Louis Florence is the sole owner of Vision Management. Since Louis Florence is the sole owner of Vision Management and has complete control over the company's activities, it is classified as a sole proprietorship. A sole proprietorship is the simplest and most common form of business organization in which a single individual owns and operates the company. This type of business entity does not have a separate legal personality, which means that the owner is responsible for all aspects of the company.A sole proprietorship's owner is solely responsible for the business's financial and legal obligations. The primary benefit of a sole proprietorship is that the owner has complete control over the company's operations. The primary drawback of a sole proprietorship is that the owner is personally liable for the company's debts and obligations.
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You need a 30-year, fixed-rate mortgage to buy a new home for $290,000. Your mortgage bank will lend you the money at a 5.85% APR (semi-annual) for this 360-month loan. However, you can afford monthly
The monthly mortgage payment for a 30-year, fixed-rate mortgage of $290,000 with a 5.85% APR (semi-annual) would be approximately $1,721.69.
To calculate the monthly mortgage payment, the semi-annual APR of 5.85% is divided by 2 to get the monthly interest rate of 2.925%. Using the loan amount, interest rate, and loan term in months, the monthly payment is calculated using the formula for a fixed-rate mortgage. Plugging in the values, the monthly payment is estimated to be $1,721.69. The process of calculating the monthly mortgage payment for a 30-year, fixed-rate mortgage of $290,000 with a 5.85% APR (semi-annual). It highlights that the semi-annual APR is divided by 2 to obtain the monthly interest rate. The formula for a fixed-rate mortgage is then used, considering the loan amount, interest rate, and loan term in months. By plugging in the values, the estimated monthly payment of $1,721.69 is obtained.
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Which of the following is a potential limitation when an organization practises promotion from within? Select one: O a. increased employee turnover O b. increased cost-per-hire by using the firm's job posting system O c. reduced employee morale O d. "inbreeding"
When an organization practices promotion from within, "inbreeding" is a possible limitation. Organizations can turn to internal candidates for job openings in promotion from within.
It means that the individuals in the organization are groomed for higher-level positions. It helps to boost employee morale and reduce employee turnover rates. However, internal promotions can lead to the issue of inbreeding. Inbreeding refers to the fact that hiring a person from within can stifle diversity. It implies that an organization may not recruit new perspectives or strategies. It can lead to a narrow-minded and homogenous leadership group.The drawback of hiring from within is that the organization misses out on the opportunity to bring new concepts and innovative ideas from the external market. Therefore, organizations must use an equal mix of internal and external recruitment and development to maintain diversity and reduce inbreeding in its leadership.
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Problem 5.07 (Present and Future Values of a Cash Flow Stream) eBook Problem Walk-Through An investment will pay $150 at the end of each of the next 3 years, $250 at the end of Year 4, $350 at the end of Year 5, and $550 at the end of Year 6. If other investments of equal risk earn 8% annually, what is its present value? Its future value? Do not round intermediate calculations. Round your answers to the nearest cent. Present value: $ Future value: $
Present value: $816.13we need to discount each cash flow back to its present value using the 8% annual interest rate.
Future value: $1,335.87
To calculate the present value of the cash flow stream, we need to discount each cash flow back to its present value using the 8% annual interest rate. Then we sum up all the present values of the cash flows.
To calculate the future value of the cash flow stream, we need to compound each cash flow forward to the end of Year 6 using the 8% annual interest rate. Then we sum up all the future values of the cash flows.
- Present value: The present value is the current worth of a future cash flow stream, determined by discounting future cash flows to their equivalent value in today's dollars.
- Future value: The future value is the value that a cash flow stream will grow to at a future point in time, considering the effect of compounding or earning interest over time.
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The general ledger of Ryan Racing at January 1, 2024, includes the following account balances: Credits Debits $46,500 30,700 115,800 Land Accounts Cash Accounts Receivable Accounts Payable Notes Payable (due in 2 years) Common Stock Retained Earnings Totals $15,800 35,000 105,000 37,200 $193,000 $193,000 The following is a summary of the transactions for the year: 1. January 12 Provide services to customers on account, $67,400. 2. February 25 Provide services to customers for cash, $77,800. 3. March 19 Collect on accounts receivable, $46,200. 4. April 30 Issue shares of common stock in exchange for $35,000 cash. 5. June 16 Purchase supplies on account, $13,100. 6. July 7 Pay on accounts payable, $11,800. 7. September 30 Pay salaries for employee work in the current year, $69,200. 8. November 22 Pay advertising for the current year, $23,000. 9. December 30 Pay $3,400 cash dividends to stockholders. The following information is available for the adjusting entries Accrued interest on the notes payable at year-end amounted to $3,000 and will be paid January 1, 2025. Accrued salaries at year-end amounted to $2,000 and will be paid on January 5, 2025. Supplies remaining on hand at the end of the year equal $2,800. Required: 1.3.6. & 10. Post the transactions, adjusting entries and closing entries to the T-accounts. Be sure to include beginning balances. 2. Record each of the summary transactions listed above. 4. Prepare an unadjusted trial balance. 5. Record adjusting entries. Accrued interest on the notes payable at year-end amounted to $3,000 and will be paid January 1 2025. Accrued salaries at year-end amounted to $2,000 and will be paid on January 5, 2025. Supplies remaining on hand at the end of the year equal $2,800. 7. Prepare an adjusted trial balance. 8-a. Prepare the income statement for the year ended December 31, 2024. 8.b. Prepare the classified balance sheet for the year ended December 31, 2024. 9. Record closing entries. 11. Prepare a post-closing trial balance. RYAN RACING Unadjusted Trial Balance December 31, 2024 Debit Credit Accounts Cash Accounts Receivable Supplies Land Accounts Payable Salaries Payable Interest Payable Notes Payable Common Stock Retained Earnings Dividends Service Revenue Salaries Expense Advertising Expense Interest Expense Supplies Expense Totals
RYAN RACING Adjusted Trial Balance December 31, 2024
Debit Credit Accounts Cash $59,200 Accounts Receivable $59,600 Supplies $10,300 Land $115,800 Accounts Payable $18,400 Salaries Payable $2,000 Interest Payable $3,000 Notes Payable $30,000 Common Stock $70,000 Retained Earnings $169,200 Service Revenue $145,200 Salaries Expense $71,200 Advertising Expense $23,000 Interest Expense $3,000 Supplies Expense $7,500 Totals $429,200 $429,200
a. Income statement of Ryan Racing for the year ended December 31, 2024 Service Revenue $145,200 Less:
Salaries Expense $71,200 Advertising Expense $23,000 Interest Expense $3,000 Supplies Expense $7,500 Net Income $40,500
b. Classified balance sheet of Ryan Racing as of December 31, 2024 Assets Current Assets Cash $59,200 Accounts Receivable $59,600 Supplies $10,300 Total Current Assets $129,100 Long-term Assets Land $115,800 Total Assets $244,900 Liabilities Current Liabilities Accounts Payable $18,400 Salaries Payable $2,000 Interest Payable $3,000 Total Current Liabilities $23,400 Long-term Liabilities Notes Payable $30,000 Total Liabilities $53,400 Stockholders’ Equity Common Stock $70,000 Retained Earnings $169,200 Total Stockholders’ Equity $239,200 Total Liabilities and Stockholders’ Equity $292,600
c. Adjusting Entries December 31 Accrued interest on notes payable $3,000 Interest Payable $3,000 Accrued salaries payable $2,000 Salaries Payable $2,000 Supplies expense $7,500 Supplies $2,800d. Closing Entries December 31 Service Revenue $145,200 Income Summary $145,200
Income Summary $104,700 Salaries Expense $71,200 Advertising Expense $23,000 Interest Expense $3,000 Supplies Expense $7,500
Income Summary $104,700 Retained Earnings $40,500 Dividends $3,400 Retained Earnings $37,100e. Post-closing Trial Balance December 31, 2024 Debit Credit Accounts Cash $59,200 Accounts Receivable $59,600 Supplies $2,800 Land $115,800 Accounts Payable $18,400 Salaries Payable $2,000 Interest Payable $3,000 Notes Payable $30,000 Common Stock $70,000 Retained Earnings $37,100 Service Revenue $145,200 Salaries Expense $71,200 Advertising Expense $23,000 Interest Expense $3,000 Supplies Expense $7,500 Totals $324,500 $324,500
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at december 31 2021 take a break travel has an accounts receivalbe balance of 96,000. allowance for uncollectible accounts has a credit balance of 800 before year end adjusments service revenue all on account for 2021 was 500,000 take a break estimates that its uncollectibke expense for the year is 4% of service revenue what is rhe journal entry and record on the balance sheet
A journal entry of $20,000 will be made to debit Uncollectible Expense and credit Allowance for Uncollectible Accounts. The balance sheet will show Accounts Receivable as $96,000 and Allowance for Uncollectible Accounts as $20,000.
To record the estimated uncollectible expense for the year, Take a Break Travel needs to make an adjusting journal entry. First, we need to calculate the uncollectible expense:
Uncollectible Expense = Service Revenue * Uncollectible Percentage
Uncollectible Expense = $500,000 * 4% = $20,000
The journal entry will be as follows:
Debit: Uncollectible Expense ($20,000)
Credit: Allowance for Uncollectible Accounts ($20,000)
The Allowance for Uncollectible Accounts is increased by $20,000 to reflect the estimated uncollectible expense. The balance sheet will show the updated allowance for uncollectible accounts balance, which will now be $20,000.
Balance Sheet:
Accounts Receivable: $96,000
Allowance for Uncollectible Accounts: $20,000
The journal entry and balance sheet update reflect Take a Break Travel's recognition of the estimated uncollectible expense and the corresponding increase in the allowance for uncollectible accounts.
This adjustment allows the company to match the estimated expense with the revenue earned in the same period and presents a more accurate representation of the accounts receivable's net realizable value.
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5. Assume there are three potential outcomes in the market, high, normal, and low. The probabilities of these three outcomes are 0.30, 0.40, and 0.30, respectively. In the three outcomes stock X has returns of 48%, 22%, and -24%, respectively; stock Y has returns of 24%, 12%, and -5%, respectively. 3 pts a. Compute the expected return for stock Y b. Compute the standard deviation for stock X. 5. Assume there are three potential outcomes in the market, high, normal, and low. The probabilities of these three outcomes are 0.30, 0.40, and 0.30, respectively. In the three outcomes stock X has returns of 48%, 22%, and -24%, respectively; stock Y has returns of 24%, 12%, and -5%, respectively. 3 pts a. Compute the expected return for stock Y b. Compute the standard deviation for stock X.
Expected return is a measure of the average return an investment is expected to generate. It is calculated by multiplying each possible return by its corresponding probability and summing them up. Standard deviation, on the other hand, quantifies the volatility or risk associated with an investment.
a. The expected return for stock Y can be calculated by multiplying each return by its corresponding probability and summing them up. (0.30 * 24%) + (0.40 * 12%) + (0.30 * -5%) = 7.5%.
b. The standard deviation for stock X measures the volatility or dispersion of its returns. First, calculate the expected return for stock X using the same method as above. Then, calculate the squared difference between each return and the expected return, multiply it by its corresponding probability, sum them up, and take the square root of the result. The expected return for stock X is (0.30 * 48%) + (0.40 * 22%) + (0.30 * -24%) = 20.2%. The standard deviation is √[(0.30 * (48% - 20.2%)²) + (0.40 * (22% - 20.2%)²) + (0.30 * (-24% - 20.2%)²)] = 27.8%.
It measures how much the returns vary from the expected return. It is calculated by taking the square root of the weighted sum of the squared differences between each return and the expected return, where the weights are the probabilities of each outcome
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Mulligan Manufacturing (MM) stock is currently trading for $36 per share, there are 10 million shares outstanding and I own currently own 15% of the outstanding shares. MM is planning a $100 million SEO; 80% of the shares will be new or primary shares and the other 20% are secondary shares. MM expects the stock price to drop 3% upon announcing the SEO. Assuming that I did not buy or sell any shares in the SEO, then what percentage of MM will I own after the SEO?
Select one:
a. 10.0%
b. 11.1%
c. 12.2%
d. 15.0%
e. None of the above.
To calculate the percentage of MM that you will own after the SEO, we need to consider the number of shares outstanding after the SEO and the number of shares you currently own.
Given: Current stock price: $36 per share. Number of shares outstanding: 10 million. Percentage ownership before the SEO: 15%. SEO amount: $100 million. New/primary shares: 80% of SEO. Secondary shares: 20% of SEO. Stock price drop upon announcing the SEO: 3%. First, let's calculate the number of new/primary shares and secondary shares issued in the SEO: New/Primary shares = 80% of $100 million. New/Primary shares = $80 million. Secondary shares = 20% of $100 million. Secondary shares = $20 million. Next, let's calculate the number of shares outstanding after the SEO: New total shares = Number of shares outstanding + New/Primary shares. New total shares = 10 million + ($80 million / $36 per share) New total shares = 10 million + 2.222 million New total shares = 12.222 million. The percentage ownership after the SEO can be calculated as: Percentage ownership after SEO = (Shares owned / New total shares) * 100. Percentage ownership after SEO = (15% of 12.222 million) / 12.222 million * 100. Percentage ownership after SEO = 1.8333%. Therefore, after the SEO, you will own approximately 1.8333% of MM.
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what lingering questions or concerns do you have about ethical
challenges when you do your research project? How might you get
support to address those questions or concerns?
it is important to be aware of the ethical challenges that come with conducting research, and to obtain support from the appropriate authorities to address any ethical concerns.
As a researcher, there are many ethical concerns that one has to deal with during their research project. Some of the lingering questions or concerns regarding ethical challenges are as follows:1. Privacy of Participants- How do you guarantee the privacy of your participants, especially when collecting sensitive information?2. Informed Consent - Have the participants fully understood what they are consenting to and what implications the study may have?3. Bias- How do you ensure the research is not biased and that the results reflect the reality of the situation?4. Data Collection- How do you guarantee the data is collected ethically and that it is not obtained through coercion or manipulation?To address these questions, one can get support from the Institutional Review Board (IRB) or the ethics committee, which provides guidelines to ensure that research is conducted ethically. In addition, it is important to consult other researchers who have experience with similar studies and obtain feedback on how to manage ethical concerns.Furthermore, it is crucial to ensure that the research project has a code of ethics that outlines the procedures and guidelines to follow when dealing with ethical issues. This will provide a framework to address any ethical concerns that may arise during the research project.In conclusion, it is important to be aware of the ethical challenges that come with conducting research, and to obtain support from the appropriate authorities to address any ethical concerns.
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last year, big w company reported earnings per share of $3.10 when its stock was selling for $62.00. if its earnings this year increase by 10 percent and the p/e ratio remains constant, what will be the price of its stock? (do not round intermediate calculations. round your final answer to 2 decimal places.)
The price of the stock will be $68.20.
To find the price of the stock this year, we can use the P/E ratio formula:
P/E ratio = Stock price / Earnings per share
Earnings per share last year = $3.10
Stock price last year = $62.00
Earnings growth rate = 10%
First, we calculate the earnings per share for this year:
Earnings per share this year = Earnings per share last year * (1 + Earnings growth rate)
Earnings per share this year = $3.10 * (1 + 0.10)
Earnings per share this year = $3.41
Next, we can use the P/E ratio formula to find the stock price this year:
P/E ratio = Stock price this year / Earnings per share this year
Since the problem states that the P/E ratio remains constant, we can rearrange the formula to solve for the stock price this year:
Stock price this year = P/E ratio * Earnings per share this year
Given that the P/E ratio remains constant, we can use the P/E ratio from last year:
P/E ratio = Stock price last year / Earnings per share last year
Substituting the values:
P/E ratio = $62.00 / $3.10
P/E ratio = 20.00
Now we can calculate the stock price this year:
Stock price this year = P/E ratio * Earnings per share this year
Stock price this year = 20.00 * $3.41
Stock price this year = $68.20
If the earnings of Big W Company increase by 10% and the P/E ratio remains constant, the price of its stock will be $68.20.
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PART A:
PART B:
I need help with Part B. Please indicate
your full solution and regarding "Reporting and Analyzing
Inventory" in Accounting.
Blossom Company purchased equipment on March 31, 2021, at a cost of $272,000. Management is considering the merits of using the diminishing-balance or units-of-production method of depreciation instea
The depreciation schedule using the straight-line method is given as:
Year Units Produced Depreciation Expense Accumulated Depreciation Book Value
1 15,000 $76,000 $76,000 $236,000
2 20,600 $76,000 $152,000 $160,000
3 19,400 $76,000 $228,000 $84,000
4 20,000 $76,000 $304,000 $8,000
5 5,000 $76,000 $380,000 ($70,000)
Straight-line method of depreciation is used to allocate the cost of a fixed asset over its useful life in a systematic and rational manner. In this method, the depreciation expense is the same amount for every year. The formula to calculate straight-line depreciation is:
Depreciation expense = (cost of asset - salvage value) / useful life of asset.
Book Value = Cost - Accumulated Depreciation.
Depreciation schedule using the straight-line method:
Year Units Produced Depreciation Expense Accumulated Depreciation Book Value
1 15,000 ($312,000 - $8,000) / 4 = $76,000 $76,000 $236,000
2 20,600 ($312,000 - $8,000) / 4 = $76,000 $152,000 $160,000
3 19,400 ($312,000 - $8,000) / 4 = $76,000 $228,000 $84,000
4 20,000 ($312,000 - $8,000) / 4 = $76,000 $304,000 $8,000
5 5,000 ($312,000 - $8,000) / 4 = $76,000 $380,000 ($70,000)
Note: The question is incomplete. The complete question probably is: Blossom Company purchased equipment on March 31, 2021, at a cost of $312,000. The new equipment has an estimated residual value of $8,000 and an estimated useful life of either four years or 80,000 units. Demand for the products produced by the equipment is sporadic so the equipment will be used more in some years than in others. Assume the equipment produces the following number of units each year: 15,000 units in 2021; 20,600 units in 2022; 19,400 units in 2023; 20,000 units in 2024; and 5,000 units in 2025. Blossom has a December 31 year end. Prepare separate depreciation schedules for the life of the equipment using Straight-line method.
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The stock of Microsoft Corp. traded for $280.35 with current dividend of $2.19 per share, growth rate of 5%, and P/E of 30.76. The stock beta is 0.91, the risk-free rate is 1.7% and the S&P500 index return is 6.5%.
REQUIRED
a. Calculate the required return for the stock according to CAPM.
b. Use the dividend discount model to value the stock. What is the purpose of stock valuation?
c. Calculate the implied expected return. What does this imply for stock valuation?
d. Due to sharp competition in the computer industry, the market revised the estimate of the growth rate to 4%. What should be the effect on the stock price?
a. the required return for the stock according to CAPM is 6.068%
b.The purpose of stock valuation using the dividend discount model (DDM) is to estimate the intrinsic value of a stock based on its future dividend payments.
c. the implied expected return. What does this imply for stock valuation is 5.78%.
d. since the specific time frame for the expected dividends is not provided, we cannot determine the exact impact on the stock price without more information.
a. To calculate the required return for the stock according to the Capital Asset Pricing Model (CAPM), we use the formula:
Required Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)
Given:
Risk-Free Rate = 1.7%
Beta = 0.91
Market Return (S&P500 index return) = 6.5%
Required Return = 1.7% + 0.91 * (6.5% - 1.7%)
Required Return = 1.7% + 0.91 * 4.8%
Required Return = 1.7% + 4.368%
Required Return = 6.068%
Therefore, the required return for the stock according to CAPM is 6.068%.
b. The purpose of stock valuation using the dividend discount model (DDM) is to estimate the intrinsic value of a stock based on its future dividend payments. The DDM assumes that the value of a stock is the present value of all its expected future dividends. By discounting the expected dividends back to the present using an appropriate discount rate, the DDM provides an estimate of the fair value of a stock.
c. To calculate the implied expected return using the dividend discount model (DDM), we use the formula:
Implied Expected Return = Dividend / Stock Price + Growth Rate
Given:
Dividend = $2.19 per share
Stock Price = $280.35
Growth Rate = 5%
Implied Expected Return = $2.19 / $280.35 + 5%
Implied Expected Return = 0.0078 + 0.05
Implied Expected Return = 0.0578 or 5.78%
The implied expected return for the stock is 5.78%. This implies that, based on the current stock price and dividend, investors would expect an annual return of 5.78% from holding the stock.
d. If the market revises the estimate of the growth rate to 4%, it would affect the stock price. In the dividend discount model (DDM), the stock price is directly influenced by the growth rate. A higher growth rate generally leads to a higher stock price, assuming all other factors remain constant.
In this case, if the growth rate is revised down to 4%, it would imply a lower expected future dividend growth for Microsoft. As a result, the stock price would likely decrease since the DDM values future dividends less when the growth rate is lower.
To calculate the new stock price, we need to recalculate the present value of expected future dividends using the revised growth rate. However, since the specific time frame for the expected dividends is not provided, we cannot determine the exact impact on the stock price without more information.
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A balance sheet represents the assets, liabilities, and owner's equity of a company at a given point in time. True/False
True. A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time, typically at the end of an accounting period.
It presents the company's assets, liabilities, and owner's equity. Assets represent the resources owned by the company, such as cash, inventory, property, and equipment. Liabilities are the company's obligations or debts, including loans, accounts payable, and accrued expenses.
Owner's equity, also known as shareholders' equity or net worth, represents the residual interest in the company's assets after deducting liabilities. It reflects the owner's investment and retained earnings. By presenting the assets, liabilities, and owner's equity, the balance sheet provides a snapshot of the company's financial health and the relationship between its resources and obligations.
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Imagine we can only form the portfolios of risky stocks (correlation of one stock to any other stock is less than 1) and cannot include risk-free assets. Which of the following will be true?
a. Number of available efficient portfolios will depend on the covariance among the risky stocks.
b. There will be infinite efficient portfolios.
c. Number of available efficient portfolios will depend on the correlations among the risky stocks.
d. There will be no efficient portfolio.
e. There will be only one efficient portfolio
The true statement is: There will be no efficient portfolio. An efficient portfolio is a portfolio that provides the highest possible expected return with the lowest possible risk. Efficient portfolios have the highest returns for their level of risk or the lowest possible risk for their level of returns. The correct option is d.
Correlation refers to the relationship between two or more variables and how they move in relation to each other. The correlation between the two variables can range from -1 to 1. If the correlation between two variables is 1, then they move perfectly in sync with each other. If the correlation is -1, then they move perfectly opposite to each other and if the correlation is 0, then they do not move in relation to each other. It is a statistical measure that is used to measure the degree of association between two variables.
Covariance is a measure of the degree to which two variables vary together. Covariance is a statistical measure that is used to measure the degree of association between two variables. In this case, since the correlation of one stock to any other stock is less than 1, there will be no efficient portfolio available. This is because efficient portfolios are formed by combining risk-free assets and risky assets that have a positive correlation.
Therefore, in the absence of a risk-free asset and the presence of a correlation of less than 1, an efficient portfolio cannot be formed. The correct answer is d. There will be no efficient portfolio.
The correct option is d.
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a 6.4 percent corporate coupon bond is callable in five years for a call premium of one year of coupon payments. assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond?
Amount paid to a bondholder in the event that the issuer calls the bond is $1060.
Call Premium:Call premium is the amount paid in excess of the par value when the bond is recalled by the company. This premium is usually expressed in percent of the par value. For example, a call premium of 10% results in a call price that is 110% of the par.
We have the information from the question is:
Principal value = $1000
call premium = 6 years
We have to find the price paid to the bondholder if the issuer calls the bond.
Now, According to the question is:
The price paid to the bondholder = Principal Value + call premium
Price paid to bondholder = $1000+ 6%
= $1060
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Which law prohibits harmful practices in the production of beef meant for human consumption?
A. Fair Packaging and Labeling Act
B. Child Protection and Toy Safety Act
C. Federal Trade Commission Act
D. Food and Drug Act
E. Prescription Drug Marketing Act
The law that specifically prohibits harmful practices in the production of beef meant for human consumption is the Food and Drug Act.
The law that prohibits harmful practices in the production of beef meant for human consumption is the Food and Drug Act.
The Food and Drug Act is a federal law in the United States that regulates the safety and labeling of food, drugs, cosmetics, and medical devices. It is enforced by the Food and Drug Administration (FDA) and sets standards for the production, handling, and distribution of food products to ensure their safety for human consumption.
While the other options mentioned have their own significance in consumer protection and regulation, they are not specifically related to the production of beef meant for human consumption:
A. Fair Packaging and Labeling Act: This law requires proper labeling and packaging of consumer products to provide accurate information to consumers.
B. Child Protection and Toy Safety Act: This law focuses on the safety standards and regulations for children's products and toys.
C. Federal Trade Commission Act: This law establishes the Federal Trade Commission (FTC) and addresses unfair and deceptive trade practices in commerce.
E. Prescription Drug Marketing Act: This law regulates the distribution and marketing of prescription drugs to ensure their safety and prevent counterfeit or illegal distribution.
This law sets standards and regulations to ensure the safety and labeling of food products, including beef, in the United States.
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given the information below, what is the gross profit? sales revenue $ 340,000 accounts receivable 54,000 ending inventory 112,000 cost of goods sold 239,000 sales returns 27,000
The Gross profit from the listed information is $101,000. Gross profit refers to the difference between revenue and the direct costs associated with producing or delivering a product or service.
Gross profit is the profit that a company generates from its core business operations before deducting any operating expenses. It represents the amount of money left after subtracting the cost of goods sold (COGS) from the sales revenue.
Gross profit is the profit that a business makes after deducting the cost of goods sold from its sales revenue. The following information can be used to calculate the gross profit:
Sales revenue = $340,000
Cost of goods sold = $239,000
Sales returns = $27,000
Ending inventory = $112,000
Accounts receivable = $54,000
The calculation of gross profit is given as follows:
Gross profit = Sales revenue - Cost of goods sold
Gross profit = $340,000 - $239,000
Gross profit = $101,000
Therefore, the gross profit of the given information is $101,000.
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sales revenue is $250,000, fixed costs are $90,000, profit is $50,000, and sales price per unit is $25.00. variable cost per unit is:
The variable cost per unit is $13.00.
To calculate the variable cost per unit, we can use the formula:
Variable Cost Per Unit = (Sales Price Per Unit - Profit) / (1 + (Fixed Costs / Sales Revenue))
First, let's calculate the contribution margin, which is the amount that sales revenue contributes towards covering the fixed costs and generating a profit.
Contribution Margin = Sales Price Per Unit - Variable Cost Per Unit
Contribution Margin = $25.00 - Variable Cost Per Unit
Now, we can calculate the contribution margin ratio, which is the percentage of each dollar of sales revenue that is available to cover the fixed costs and generate a profit.
Contribution Margin Ratio = Contribution Margin / Sales Price Per Unit
Contribution Margin Ratio = (25.00 - Variable Cost Per Unit) / $25.00
Now, we can use the contribution margin ratio to calculate the break-even sales volume.
Break-Even Sales Volume = Fixed Costs / Contribution Margin Ratio
Break-Even Sales Volume = $90,000 / ((25.00 - Variable Cost Per Unit) / $25.00)
Now, we can use the break-even sales volume to calculate the break-even sales revenue.
Break-Even Sales Revenue = Break-Even Sales Volume * Sales Price Per Unit
Break-Even Sales Revenue = Break-Even Sales Volume * $25.00
Finally, we can use the break-even sales revenue to calculate the variable cost per unit.
Variable Cost Per Unit = (Sales Price Per Unit - Profit) / (1 + (Fixed Costs / Sales Revenue))
Variable Cost Per Unit = ($25.00 - $50,000) / (1 + ($90,000 / $250,000))
Variable Cost Per Unit = $13.00
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Sandy's uncompensated demand for candy is given by the equation Q = 15/p, where Q is the quantity of candy and p is the price. When the price of candy rises from $1 to $4, the change in consumer surplus is (in absolute value)
The change in consumer surplus (in absolute value) is $22.50 is the answer.
Consumer Surplus is the difference between what a customer is willing to pay and what they actually pay for a good. It is the benefit that consumers receive when they purchase goods at a price lower than what they were willing to pay. In this case, we will calculate the change in consumer surplus when the price of candy rises from $1 to $4. We will use the given demand equation Q = 15/p, where Q is the quantity of candy and p is the price.
At a price of $1, Sandy's demand for candy is Q = 15/1 = 15.
Consumer Surplus = (1/2) x (Price difference) x (Quantity)
Consumer Surplus at $1 = (1/2) x (4-1) x (15) = $22.50
At a price of $4, Sandy's demand for candy is Q = 15/4 = 3.75.
Consumer Surplus = (1/2) x (Price difference) x (Quantity)
Consumer Surplus at $4 = (1/2) x (4-4) x (3.75) = $0
Thus, the absolute change in Consumer Surplus = |$22.50 - $0| = $22.50.
Therefore, the change in consumer surplus (in absolute value) is $22.50.
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Discuss the key components of a quality management system to be
considered at a project launch meeting to be held by a main
contractor.
At a project launch meeting, a main contractor should consider the key components of a quality management system to ensure the successful implementation of the project.
Quality Policy: Establish a clear and concise quality policy that outlines the organization's commitment to delivering a high standard of quality in all project activities. The policy should align with the project's objectives and reflect the contractor's commitment to meeting client requirements. Quality Objectives: Define measurable quality objectives that support the overall project goals. These objectives should be specific, achievable, and aligned with the project's scope, schedule, and budget.
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Question 17:) The dean of the University of Scranton, PA of Business must plan the school's course offerings for the fall semester. Student demands make it necessary to offer at least 30 undergraduate and 25 graduate courses in the term. Faculty contracts also dictate that at least 60 courses be offered in total. Each undergraduate course taught costs the college an average of $2,500 in faculty wages, and each graduate course costs $3,000. (Hint: 3 constraints) a) State problem mathematically (Formulate) and identify constraints. b) How many undergraduate and graduate courses should be taught in the fall so that total faculty salaries are kept to a minimum? c) Explain dual meaning for undergraduate, Graduate students and total
a. The problem can be formulated with mathematical expression as Minimize:2500x+3000y.
Subject to:
x + y ≥ 60 (total number of courses)
x ≥ 30 (minimum number of undergraduate courses)
y ≥ 25 (minimum number of graduate courses)
b.30 undergraduate courses and 30 graduate courses to keep total faculty salaries to a minimum.
c. The terms "undergraduate" and "graduate" refer to the levels of education that students have attained. Undergraduate students are those who are pursuing their first degree, graduate students are those who pursuing a higher degree (e.g., a master's or doctoral degree).The term "total" refers to the combined number of undergraduate and graduate courses offered.
b) To find the minimum total faculty salaries, we need to solve the above optimization problem. Using the constraints, we can rewrite the problem as:
Minimize: 2500x + 3000y
Subject to:
y ≥ 60 - x
x ≥ 30
Graphing the feasible region, we find that the minimum occurs at the intersection of the two lines x = 30 and y = 30, where x = 30 and y = 30. Therefore, the dean should offer 30 undergraduate courses and 30 graduate courses to keep total faculty salaries to a minimum.
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We have formulated the problem mathematically with the objective and constraints stated. The objective is to minimize the cost of faculty wages while satisfying the constraints of student demand, faculty contracts, and the total course requirement.
To formulate the problem mathematically, let's define the variables:
U = Number of undergraduate courses offered in the fall semester.
G = Number of graduate courses offered in the fall semester.
Now, let's state the objective and constraints:
Objective: The objective is to minimize the cost of faculty wages for the courses offered in the fall semester.
Constraints:
Student Demand Constraint: At least 30 undergraduate courses and 25 graduate courses must be offered.
U ≥ 30 (Minimum undergraduate course requirement)
G ≥ 25 (Minimum graduate course requirement)
Faculty Contract Constraint: At least 60 courses in total must be offered.
U + G ≥ 60 (Total course requirement)
Cost Constraint: The total cost of faculty wages should be minimized.
Cost = (Number of undergraduate courses * Cost per undergraduate course) + (Number of graduate courses * Cost per graduate course)
Cost = (U * $2,500) + (G * $3,000)
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You are planning to retire in 30 years and are planning a 20 year retirement. Prior to retirement, you will save $1,200 at the end of each year. If your investment can earn 8% per year over the entire time, how much can you withdraw at the end of each year during retirement?
At the end of the year, he can earn $20,000 during retirement .
Solution: Use the formula of the future value of an annuity: FVA = C × [((1 + r)n - 1) / r]
Where
FVA = future value of the annuity
C = contribution amount per period
r = interest rate
n = number of periods
Now, we have to find the future value of your contributions to use that amount to determine how much you can withdraw at the end of each year during retirement.FVA = 1,200 × [((1 + 0.08)30 - 1) / 0.08]= 1,200 × [(19.1342) / 0.08]= 1,200 × 239.1765= 287,011.8
Now, we have to calculate the amount that you can withdraw each year during your retirement of 20 years. We will be using the formula of the present value of an annuity for that: PVA = C × [(1 - (1 / (1 + r)n)) / r]Where
PVA = present value of the annuity
C = contribution amount per period
r = interest rate
n = number of periods
Now, we can substitute the values:
PVA = C × [(1 - (1 / (1 + r)n)) / r]= C × [(1 - (1 / (1 + r)n)) / r]= C × [(1 - (1 / (1 + 0.08)20)) / 0.08]= C × [(1 - (1 / 4.66)) / 0.08]= C × [(1 - 0.2146) / 0.08]= C × 12.2079=PVA
The value we have is for the entire retirement period. Since we need to calculate the amount that you can withdraw at the end of each year during retirement, we need to divide this amount by 20 years
.PVA / 20 = C × 12.2079 / 20=C × 0.6104
Now, we can substitute the value of PVA in the equation above to calculate C (contribution per year) that you would need in order to be able to withdraw $20,000 every year:
C × 0.6104 = 287,011.8
C = 287,011.8 / 0.6104
C = 470,712.96
So, if you invest your money and earn an 8% return on your investment every year for the next 30 years and save $470,712.96 at the end of each year, then you would be able to withdraw $20,000 at the end of each year during the 20-year retirement period.
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QUESTION 6 Geneva Re, company has an ROE of 36%, an equity multiplier of 1.2 and a total asset turnover of 0.54. Using the following information calculate the company's profit margin.
O a. 55.56%
O b. 23.12%
O c. 8.90%
O d. 72.38%
The profit margin for Geneva Re, given an ROE of 36%, an equity multiplier of 1.2, and a total asset turnover of 0.54, is 8.90%.
The profit margin is a financial ratio that indicates the percentage of each dollar of revenue that results in profit. It is calculated by dividing the net income by the net sales (revenue).
To calculate the profit margin, we can use the DuPont formula, which decomposes the return on equity (ROE) into its components: profit margin, total asset turnover, and equity multiplier.
The formula for ROE is ROE = Profit Margin x Total Asset Turnover x Equity Multiplier.
Given that the ROE is 36% and the equity multiplier is 1.2, we can rearrange the formula to solve for the profit margin.
Profit Margin = ROE / (Total Asset Turnover x Equity Multiplier).
Substituting the given values, we have Profit Margin = 36% / (0.54 x 1.2).
Calculating this, we find that the profit margin is approximately 8.90%, which corresponds to option c. Therefore, Geneva Re's profit margin is 8.90%.
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Personal accounting is a system to identify, measure and communicate all the financial activities of an individual. Select one: O True O False Example of expenses in your personal life include: Select one: a. Rent, Food, and Insurance expense b. Rent, House, and Food c. Rent, Food, and Automobile d. Automobile, House, and Insurance expense
True. Personal accounting is indeed a system that helps individuals identify, measure, and communicate their financial activities. It involves managing personal income, expenses, assets, and liabilities to achieve financial goals and maintain financial well-being.
Expenses in personal life can vary depending on individual circumstances, but an example of common expenses typically includes rent, food, and insurance expense. Rent refers to the cost of housing, whether it's an apartment, house, or other living arrangement. Food expenses encompass groceries and dining out. Insurance expense covers the cost of various types of insurance, such as health insurance, auto insurance, or homeowner's insurance. These expenses are essential for maintaining a comfortable and secure lifestyle.
While other options like a, b, and d may include some valid expenses, option a (Rent, Food, and Insurance expense) is the most comprehensive and accurate representation of typical expenses in personal life. It covers the basic necessities of shelter and sustenance, along with the important aspect of protecting oneself through insurance coverage.
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Question 6 (8 marks) ABC Corporation, which is an Australian firm, consists of two business sectors, food and casino, and the information of them is tabulated below: Business Levered Beta Average D/E ratio Market Value ($ million) Revenue ($ million) Food 150 120 0.7 40% Casino 80 25 1.1 30% The firm plans to sell 50% of Casino business and use the proceeds to invest in a new business, Steel, which has an unlevered beta of 1.2. The D/E ratio is stable at 0.25, and tax rate is 40%. a) What is the levered beta for ABC Corporation after the investment. (5 marks) b) What type of beta is estimated in question a)? Specify its advantages compared with the historical beta. (3 marks)
a) The levered beta for ABC Corporation after the investment is 1.025.
b) The beta estimated in question a) is the levered beta.
a)Levered beta is a measure of systematic risk that takes into account the capital structure of a company. To calculate the levered beta after the investment, we need to consider the existing levered betas, D/E ratios, and market values of the business sectors.
For the food sector, the levered beta is 150, and the D/E ratio is 0.7. The market value weight for the food sector is 40%.
For the casino sector, which is being sold, the levered beta is 80, and the D/E ratio is 1.1. The market value weight for the casino sector is 30%.
For the new business, Steel, the unlevered beta is 1.2, and the D/E ratio is 0.25. The market value weight for Steel is 50%.
To calculate the levered beta for ABC Corporation after the investment, we use the weighted average formula:
Levered Beta = (Weight of Food * Levered Beta of Food) + (Weight of Casino * Levered Beta of Casino) + (Weight of Steel * Unlevered Beta of Steel * (1 + (1 - Tax Rate) * D/E ratio of Steel))
b)The levered beta takes into account the capital structure of a company, including its debt level. It measures the sensitivity of a company's stock price to changes in the overall market. The advantage of using the levered beta compared to the historical beta is that it reflects the specific risk associated with a company's capital structure. By incorporating the D/E ratios and the tax rate, the levered beta provides a more accurate measure of the systematic risk faced by investors. This is particularly useful when evaluating investments or analyzing the impact of capital structure changes on the overall risk profile of a company.
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Marigold Cole Inc. acquired the following assets in January of 2018.
Equipment, estimated service life, 5 years; salvage value, $15,400 $568,900
Building, estimated service life, 30 years; no salvage value $639,000
The equipment has been depreciated using the sum-of-the-years’-digits method for the first 3 years for financial reporting purposes. In 2021, the company decided to change the method of computing depreciation to the straight-line method for the equipment, but no change was made in the estimated service life or salvage value. It was also decided to change the total estimated service life of the building from 30 years to 40 years, with no change in the estimated salvage value. The building is depreciated on the straight-line method.
(a) Prepare the general journal entry to record depreciation expense for the equipment in 2021.
(b) Prepare the journal entry to record depreciation expense for the building in 2021.
Answer: (a) The journal entry to record the depreciation expense for equipment in 2021 is as follows:
2021 Depreciation Expense $110,300
Accumulated Depreciation - Equipment $110,300
(b) The journal entry to record the depreciation expense for building in 2021 is as follows:
2021 Depreciation Expense $15,975
Accumulated Depreciation - Building $15,975
(a) Journal Entry: Prepare the general journal entry to record depreciation expense for the equipment in 2021:As given, the equipment was depreciated using the sum-of-the-years’-digits method for the first 3 years for financial reporting purposes. In 2021, the company decided to change the method of computing depreciation to the straight-line method for the equipment, but no change was made in the estimated service life or salvage value.
The straight-line method of depreciation is calculated as follows:
Depreciation expense = (Asset cost – Salvage value) / Service life
Depreciation expense = ($568,900 – $15,400) / 5= $110,300
The depreciation expense in 2021, calculated using the straight-line method, is $110,300. This amount is to be recognized in the books of accounts as depreciation expense in the current year.
Journal entry for recording the depreciation expense:
Date
Accounts
Titles and Explanation
Debit Credit
2021 Dec 31 Depreciation Expense 110,300
Accumulated Depreciation—Equipment 110,300
(To record the depreciation expense on the equipment)
(b) Journal Entry: Prepare the journal entry to record depreciation expense for the building in 2021.
As given, the building's total estimated service life was changed from 30 years to 40 years, with no change in the estimated salvage value. The building is depreciated on the straight-line method.
The straight-line method of depreciation is calculated as follows:
Depreciation expense = (Asset cost – Salvage value) / Service life
Depreciation expense = ($639,000 – $0) / 40= $15,975
The depreciation expense in 2021, calculated using the straight-line method, is $15,975. This amount is to be recognized in the books of accounts as depreciation expense in the current year.
Journal entry for recording the depreciation expense:
Date
Accounts
Titles and Explanation
Debit
Credit
2021 Dec 31 Depreciation Expense 15,975
Accumulated Depreciation—Building 15,975
(To record the depreciation expense on the building)
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The sooner the better, please help
Contract liability, deferred revenue and unearned revenue are all ways to describe a liability that the seller recognizes for unsatisfied performance obligations for which the seller has already been
Contract liability, deferred revenue, and unearned revenue are all ways to describe a liability that the seller recognizes for unsatisfied performance obligations for which the seller has already been paid.
The terms Contract liability, deferred revenue, and unearned revenue all describe a liability that the seller recognizes for unsatisfied performance obligations for which the seller has already been paid. These three terms refer to the same concept in accounting: the liability that arises from an obligation to provide goods or services that have been paid for in advance but haven't yet been delivered or performed.
The amount received is recorded as a liability and is reduced only when the performance obligation is met. So, all these terms are interrelated with each other to describe a liability that the seller recognizes for unsatisfied performance obligations.
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Perpetuity. Monsters University is considering starting an endowment that would help fund one of its colleges. If it can earn a 10% return on its investments and wants to withdraw $10,000 a year, how large does the endowment need to be?
If it can earn a 10% return on its investments and wants to withdraw $10,000 a year, the large the endowment need to be would be $100,000.
Explanation: A perpetuity is a type of financial instrument in which a fixed payment is made at regular intervals, with no predetermined end date. It is also known as a perpetuity bond or an annuity. For example, if you invest $100,000 in a perpetuity that pays 5% per year, you would receive $5,000 per year for as long as the perpetuity exists. Perpetuities are commonly used in finance to value stocks, bonds, and other financial instruments. Monsters University is considering starting an endowment that would help fund one of its colleges.
If it can earn a 10% return on its investments and wants to withdraw $10,000 a year, how large does the endowment need to be?The formula for calculating the value of a perpetuity is:PV = PMT / rWhere,PV is the present value of the perpetuityPMT is the payment made at regular intervalsr is the interest rateGiven,Payment made at regular intervals = $10,000Interest rate = 10%The present value of a perpetuity with a payment of $10,000 per year and an interest rate of 10% is:PV = PMT / r= $10,000 / 10%= $100,000Therefore, the Monsters University would need an endowment of $100,000 to withdraw $10,000 per year indefinitely.
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