The internal rate of return (IRR) rule can lead to bad decisions when cash flows are uneven or when projects are mutually exclusive. The IRR rule is an investment appraisal method that determines the discount rate at which the net present value (NPV) of an investment is equal to zero.
It is an indicator of the profitability, efficiency, and potential of a project or investment opportunity. However, the IRR rule can lead to bad decisions when cash flows are uneven, as it assumes that all cash flows are reinvested at the IRR and that the timing and amount of cash flows are irrelevant.
This can result in inaccurate or misleading information and lead to suboptimal decisions. Furthermore, the IRR rule can lead to bad decisions when projects are mutually exclusive, as it cannot compare the profitability of different projects or investments.
In this case, the NPV rule is a better method, as it compares the present value of the cash inflows and outflows of different projects at a common discount rate and selects the one with the highest NPV.
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A flexible budget is prepared before the master budget. True / False
The statement A flexible budget is prepared before the master budget is False statement.
A flexible budget is not prepared before the master budget. In fact, the flexible budget is prepared after the master budget. The master budget is typically prepared at the beginning of the budgeting period and outlines the company's overall financial plan, including the projected sales, expenses, and profit targets. It sets the initial framework for the budgeting process.
Once the master budget is established, a flexible budget can be created to adjust the original budgeted amounts based on the actual level of activity or production achieved during the budget period. The flexible budget allows for flexibility in adjusting the budgeted figures to reflect the actual performance and helps in evaluating the company's performance against the original budget.
The correct statement is that a flexible budget is prepared after the master budget.
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Two firms produce close substitute products. They face interdependent demand curves,
q₁ =10-2p₁+p, for firm 1, and
q2= 10-2p₂ + P₁ for firm 2
The firms have identical cost functions, c(q) = 4q1+ F and c(q₂) = 4q, -F. Derive equilibrium prices and quantities under Bertrand price competition.
The equilibrium prices and quantities under Bertrand price competition in this scenario are p₁ = p₂ = 4 and q₁ = q₂ = 3.
In Bertrand price competition, firms simultaneously set prices for their products and compete to capture the market share. The equilibrium is reached when both firms set prices equal to their marginal costs.
To find the equilibrium prices and quantities, we start by differentiating the cost functions with respect to their respective quantities:
For firm 1:
MC₁ = ∂c(q₁)/∂q₁ = 4
For firm 2:
MC₂ = ∂c(q₂)/∂q₂ = 4
Setting the marginal costs equal to prices (MC₁ = p₁ and MC₂ = p₂), we have:
p₁ = 4
p₂ = 4
Substituting these price values into the demand functions, we can solve for the equilibrium quantities:
q₁ = 10 - 2p₁ + p₂
q₁ = 10 - 2(4) + 4
q₁ = 3
q₂ = 10 - 2p₂ + p₁
q₂ = 10 - 2(4) + 4
q₂ = 3
Therefore, the equilibrium prices are p₁ = p₂ = 4, and the equilibrium quantities are q₁ = q₂ = 3.
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A work breakdown structure can BEST be thought of as an effective aid for __________ communication.
A. Teaching the project
B. My instructor
C. Goods
D. Stakeholder
A work breakdown structure can BEST be thought of as an effective aid for D) Stakeholder communication.
A work breakdown structure (WBS) is a project management tool that breaks down a large project into manageable smaller components or parts called work packages. Work packages are easier to plan, organize, execute, track and report than large projects. Stakeholders who are involved in a project may include employees, customers, sponsors, suppliers, and regulatory bodies.
Stakeholder communication is a project management function that involves developing, managing, and disseminating project information to the stakeholders throughout the project life cycle. This is accomplished by developing a communication plan, which outlines the type, frequency, format, and content of the project information to be shared with stakeholders
The following are the benefits of using WBS as an aid for stakeholder communication: WBS makes it easy for stakeholders to understand the project scope, objectives, and deliverables.WBS provides a common language for stakeholders, which facilitates effective communication among them.WBS helps stakeholders to know the progress of the project, the project status, and the milestones achieved. This helps stakeholders to identify issues early, take corrective action, and avoid project delays.
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For a hypotetical conditions, indicate whether the policymaker would have a preference for fiscal policy or monetrary policy. Explain your answers. d. The demand for money is relatively responsive to changes in interest rate, and investment is relatively unresponsive to changes in interest rate. e. Ä°nvestment is completevly crowded out when taxes are cut or goverment spendind is increased.
Fiscal policy seems to have a stronger impact over time than monetary policy, while there will always be a lag in its impacts, and monetary policy has shown some short-term success.
The more effective monetary policy is at controlling an economy, and the less effective fiscal policy is, the lower the interest elasticity of money demand. Conversely, monetary policy is less successful and fiscal policy is more effective the higher the interest elasticity of money demand.
The main goals of monetary policy are to promote economic development, price stability, and full employment. Because policy lacks an application, it is simple to undermine and has the power to control the money supply.
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Nash Company purchased, on January 1, 2020, as an available-for-sale security, $72,000 of the 7%, 5-year bonds of Chester Corporation for $66,399, which provides an 9% return.
Prepare Nash’s journal entries for (a) the purchase of the investment, (b) the receipt of annual interest and discount amortization, and (c) the year-end fair value adjustment.
1. On January 1, 2020, Nash Company purchased $72,000 of Chester Corporation bonds for $66,399, recording it as an available-for-sale security.
2. On December 31, 2020, Nash Company received annual interest and discount amortization for the bonds, recording the cash received and recognizing interest income.
3. At year-end, a fair value adjustment is made to reflect the market value of the available-for-sale securities, recording any unrealized gain or loss.
How to prepare journal entries for Nash Company's available-for-sale securities?(a) The journal entry for the purchase of the investment would be as follows:
Date: January 1, 2020
Debit: Available-for-Sale Securities (Investment) - $66,399
Credit: Cash - $66,399
Explanation: Nash Company debits the available-for-sale securities account to record the cost of purchasing the bonds of Chester Corporation. Cash is credited as it is the method of payment for the investment.
(b) The journal entry for the receipt of annual interest and discount amortization would be as follows:
Date: December 31, 2020 (assuming interest is paid annually)
Debit: Cash (Interest Received) - [Amount of Interest Received]
Debit: Discount on Bonds Payable - [Amount of Discount Amortization]
Credit: Interest Income - [Amount of Interest Received]
Explanation: The company recognizes interest income on the available-for-sale security and also amortizes the discount on the bonds payable. Cash is debited for the amount of interest received, and interest income is credited for the same amount. The discount on bonds payable account is debited to reflect the amortization of the discount.
(c) The journal entry for the year-end fair value adjustment would be as follows:
Date: December 31, 2020
Debit: Unrealized Gain/Loss on Available-for-Sale Securities - [Fair Value Adjustment]
Credit: Fair Value Adjustment - Available-for-Sale Securities - [Fair Value Adjustment]
Explanation: At the end of the year, the fair value of the available-for-sale securities is adjusted to reflect the market value. The difference between the fair value and the carrying value (cost) of the investment is recorded as an unrealized gain or loss. The unrealized gain/loss account is debited or credited, depending on whether there is a gain or loss, and the fair value adjustment account is credited or debited accordingly.
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Compare and evaluate how the companies described in this case study dealt with the challenges of BYOD.
Company C, which implemented a mobile device management (MDM) system for secure access to company resources on personal devices, appears to have the most effective approach to the challenges of BYOD.
Comparison and Evaluation: The companies described in this case study approached the challenges of BYOD in different ways. Company A limited device usage to personal email and contacts, prioritizing data security but potentially impacting employee satisfaction. Company B provided approved devices for work purposes, ensuring compatibility and security but potentially incurring high costs. Company C implemented an MDM system, allowing secure access to company resources on personal devices, striking a balance between employee satisfaction and data security. Company C's approach appears to be the most effective, but the cost of implementing an MDM system may be a barrier for smaller companies. The optimal approach depends on the company's size and requirements.In conclusion, the companies described in this case study employed different strategies to address the challenges of BYOD, with Company C's implementation of a mobile device management system standing out as the most effective approach for ensuring secure access to company resources on personal devices.
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Which of the following is NOT considered a cash management concern for an entrepreneur? A. Meeting Payroll B. Collecting Accounts Receivable C. Investing High Return Funds D. Tracking Cash Flow Accurately If an entrepreneur were to start a small coffee cart business, which of the following would be the primary issue preventing him from expanding by purchasing a second coffee cart in the third month of operations? A. Lack of profitability B. Lack of working capital C. Excessive retained earnings D. Excessive pro forma liquidity Which of the following is NOT a benefit of an international joint venture? A. Improved Efficiency B. Access to Knowledge C. Mitigating Political Factors D. Total Managerial Control Which of the following is a benefit of a wholly-owned subsidiary? A. Total Managerial Control B. Local Partner with Market Knowledge C. Quick Entry into New Market D. Low Cost Relative to Other Options
Cash management is a critical aspect of managing a successful company. An entrepreneur needs to ensure that he has enough cash to pay his bills while still investing in his business.
The following is not considered a cash management concern for an entrepreneur: Investing High Return Funds. An entrepreneur, who starts a small coffee cart business, will face various challenges.
The primary issue preventing him from expanding by purchasing a second coffee cart in the third month of operations is Lack of working capital. Working capital is a company's current assets minus its current liabilities. It represents the cash a business has on hand to pay its bills.
Inadequate working capital will stifle a company's growth. A wholly-owned subsidiary has several advantages, including total managerial control. Therefore, the benefit of a wholly-owned subsidiary is Total Managerial Control.
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The amount by which overhead incurred during a period exceeds the overhead applied to jobs is: Multiple Choice O Predetermined overhead. O Actual overhead. O Overapplied overhead. O Underapplied overh
The amount by which overhead incurred during a period exceeds the overhead applied to jobs is Overapplied overhead.
The correct answer is Overapplied overhead.
Underapplied overhead occurs when the actual overhead incurred during a period is greater than the overhead applied to jobs. In other words, it represents a situation where the amount of overhead allocated or assigned to jobs is less than the actual overhead expenses.
Overhead refers to indirect costs incurred by a company that are not directly attributable to specific jobs or products but are necessary for the overall operation of the business. Examples of overhead costs include rent, utilities, depreciation, and indirect labor.
To allocate overhead costs to jobs, companies typically use predetermined overhead rates based on estimates and cost allocation methods. However, the actual overhead expenses incurred may differ from the estimated or applied overhead.
When the actual overhead exceeds the applied overhead, it results in underapplied overhead. This indicates that the company has not allocated enough overhead costs to its products or jobs. Underapplied overhead can arise due to various factors such as higher-than-expected indirect costs, inefficient cost control, changes in production levels, or inaccurate cost estimates.
Underapplied overhead is usually recorded as a debit balance in the overhead control account. It is considered unfavorable because it means that the company has underestimated the actual overhead expenses and, therefore, may have underpriced its products or jobs.
To adjust for underapplied overhead, the amount is typically allocated or allocated to the appropriate cost of goods sold (COGS) or inventory accounts. This adjustment helps ensure that the overhead costs are properly reflected in the financial statements and that the company's products or jobs are appropriately priced to cover the actual costs incurred.
In summary, underapplied overhead occurs when actual overhead expenses exceed the overhead allocated to jobs, indicating that the company has underestimated its indirect costs.
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You have been asked to come in and train a group of employees
in an actual classroom environment with a training focus of
one of the following broad
topics: safety on the factory floor
customer se
As a trainer, your primary responsibility is to ensure that your trainees receive the maximum benefit from the training. This is achieved through effective classroom training that is both engaging and informative.
If you have been asked to train a group of employees on safety on the factory floor or customer service, here are some tips that can help you deliver the training effectively:
1. Set Clear Goals and Objectives
Before you begin the training session, it is essential to establish clear goals and objectives that you would like to achieve. This will ensure that you cover all the necessary topics and that your trainees understand the purpose of the training.
2. Engage the Trainees
Training is most effective when trainees are engaged and actively participating. This can be achieved by asking questions, encouraging discussions, and providing hands-on training wherever possible. Use real-life examples to illustrate key points and emphasize the importance of safety and good customer service practices.
3. Provide Clear Instructions
It is essential to provide clear instructions on how to perform tasks safely and effectively. This can include demonstrating how to use safety equipment or providing step-by-step instructions on how to handle customer complaints. Make sure that your instructions are clear and concise and that your trainees understand them.
4. Assess Learning
As a trainer, you need to assess your trainees' understanding of the material covered. This can be done through quizzes, assessments, or even role-playing exercises. Feedback is also essential as it provides an opportunity to reinforce key points and address any areas of concern.
In conclusion, classroom training is an excellent way to deliver training on safety on the factory floor or customer service. By setting clear goals and objectives, engaging trainees, providing clear instructions, and assessing learning, you can ensure that your trainees receive the maximum benefit from the training.
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The following are primary purchasers of preferred stock except:
a. Corporate investors,
b. Insurance companies,
c. Pension funds,
d. Individual investors.
The primary purchasers of preferred stock include corporate investors, insurance companies, pension funds, and individual investors. Therefore, none of the options mentioned in the question are excluded as primary purchasers of preferred stock. Option(d)
Preferred stock is a type of equity security that represents ownership in a company, but typically has preferential rights and privileges over common stock. It often pays a fixed dividend and has a higher claim on company assets compared to common stock. Corporate investors, insurance companies, pension funds, and individual investors are all potential buyers of preferred stock. Each of these entities may have different investment strategies and preferences based on their specific needs and objectives. Therefore, there are no exclusions among the options provided; all of them can be primary purchasers of preferred stock.
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Minstrel Manufacturing uses a job order costing system. During one month, Minstrel purchased $203,000 of raw materials on credit; issued materials to production of $200,000 of which $25,000 were indirect. Minstrel incurred a factory payroll of $155,000, of which $35,000 was indirect labor. Minstrel uses a predetermined overhead rate of 150% of direct labor cost. The total manufacturing costs added during the period are: Multiple Choice
$475,000.
$527,500
$500,000.
$562,500
$587,500
To calculate the total manufacturing costs added during the period, we need to determine the direct labor cost and the overhead cost.
Direct labor cost:
Direct labor cost is the portion of the factory payroll that can be directly attributed to the production of goods. In this case, the direct labor cost is $155,000 - $35,000 (indirect labor) = $120,000.
Overhead cost:
The predetermined overhead rate is 150% of direct labor cost. Therefore, the overhead cost is 150% of $120,000 = $180,000.
Total manufacturing costs added during the period:
The total manufacturing costs added during the period is the sum of raw materials issued to production, direct labor cost, and overhead cost.
Total manufacturing costs = Raw materials issued + Direct labor cost + Overhead cost
Total manufacturing costs = $200,000 (raw materials issued) + $120,000 (direct labor cost) + $180,000 (overhead cost)
Total manufacturing costs = $500,000
Therefore, the correct answer is option c. $500,000.
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If the quantity demanded of Good B decreases by 1% in response to a 2% increase in Good A's price, what is the cross-price elasticity of demand? Be sure to include a negative sign in your answer, if necessary Provide your answer below:
Cross value flexibility of interest (XED)(XED)left bracket, X, E, D, right bracket estimates the how an adjustment of the cost of one kindness influence the amount requested of another benefit.
In economics, the term "elasticity" refers to the degree of receptivity of one economic component to changes in another. For instance, the connection between alterations in supply or demand and alterations in price or alterations in demand and alterations in income.
The atomic lattice changes in size and shape when metals are subjected to forces—energy is added to the system. The cross section gets back to its underlying lower energy state after the utilization of powers. Polymer chains stretch when forces are applied, giving rubber and other polymers their elasticity.
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Respond to ONE of the following prompts:
1. In Rita Williams-Garcia's One Crazy Summer the narrator, Delphine goes through a period of emotional growth. In three separate paragraphs discuss three moments where Delphine learns something about herself or learns something about life. Tell WHY and HOW she grows at each moment. Be specific about which other characters encourage her emotional growth and WHY. Organize your ideas into paragraphs.
OR
2. In Rita Williams-Garcia's One Crazy Summer the sisters nteract with the Black Panthers community. Why does Delphine hesitate to engage with this community? What is the girls' experience with this community? What do they learn from the Black Panthers? How and why is the Black Panthers community important for the sisters? Organize your ideas into paragraphs.
OR
3. Rita Williams-Garcia's One Crazy Summer includes many different themes. Choose ONE theme and tell how and why this theme is important. Organize your ideas into paragraphs.
Prompt 2:
The community was formed to fight against the systematic oppression faced by African Americans in America. The Black Panthers are a political organization that advocates for the right of Black people in the United States. Delphine, the eldest sister, is hesitant to engage with this community because of the negative image that the group has been portrayed in the media.
She does not understand the purpose of the Black Panthers and fears their involvement with their family.The girls' experience with this community is both educational and life-changing. Through the Black Panthers, they learn about their cultural heritage, the struggles that their people have gone through, and the importance of fighting for what is right.
The Black Panthers teach the girls to stand up for their rights and to be proud of who they are. They also learn that there is a bigger purpose for their lives beyond themselves.The Black Panthers community is important for the sisters because they give them a sense of belonging and purpose.
The girls learn that they are not alone and that there are other people out there who have gone through the same struggles as they have. They learn that they are part of a larger community, and they have a responsibility to contribute to that community.
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Question 2 a. 3 3 Auto Scroll Read Mode Background" Screen Grab Find and As a young graduate, you have plan to buy your dream car in three years time. You believe that the car will cost RM50,000 at that time. You have two sources of money to reach your goal of RM50,000. First, you will save money for the next three years in a money market fund that will give return of 8% annually. You plan to invest RM5,000 annually to this fund. You will make yearly investments at the BEGINNING of the year. The second source of money will be getting a car loan on the day you buy the car. You anticipate the car dealer to charge you 6% per annum for the loan with monthly compounding for a term of 60 months. To buy your dream car, what monthly car payment will you anticipate? Assume the first payment will be made one month after the car is purchased. [6 marks] Activate Wir MD148% - b. C. Auto Scroll Read Mode Background" Screen Grab Find and [b marks] In five years time, you plan to pursue your further study on DBA. You know that graduate studies can be expensive and you estimate that it will cost RM50,000 per year for tuition fee and other expenses. These payments will be made at the BEGINNING of the year. To have enough money to attend graduate school, you have decided to start saving TODAY by investing in a money market fund that pays 4% per annum with monthly compounding. You will make monthly deposits into the account starting TODAY for the next five years. How much will you need to deposit each month to have enough money for graduate school? (Assume that money that is not withdrawn remains in the account during graduate school and the DBA will take three years to complete) HB 00 [6 marks] Activate Win If you can earn 5% (compounded annually) on an investment, how long does it take for your money to triple? Go to Settings fo 回访口 148% + PDF to Word PDF to Picture C. d. 0 Annotate DOD00 Rotate 0 00- H Auto Scroll Read Mode Background" Screen Grab Find and [6 marks] If you can earn 5% (compounded annually) on an investment, how long does it take for your money to triple? [4 marks] You are offered a security that will pay you RM2,500 at the end of the year forever. If your discount rate is 8%, what is the most you are willing to pay for this security? [4 marks] [TOTAL: 20 MARKS]
To buy the dream car, the anticipated monthly car payment will be RM861.45.
Calculate the future value of savings in the money market fund.
Annual investment = RM5,000
Number of years = 3
Interest rate = 8% compounded annually
Using the future value formula: FV = P(1 + r)^n
FV = RM5,000 * (1 + 0.08)^3 = RM6,120
Determine the loan amount needed to reach the goal.
Dream car cost = RM50,000
Savings in the money market fund = RM6,120
Loan amount needed = RM50,000 - RM6,120 = RM43,880
Calculate the monthly car payment.
Loan term = 60 months
Interest rate = 6% per annum with monthly compounding
Using the loan repayment formula: PMT = (r * PV) / (1 - (1 + r)^-n)
Where PMT is the monthly payment, r is the monthly interest rate, PV is the loan amount, and n is the number of months.
Monthly interest rate = 6% / 12 = 0.005
PMT = (0.005 * RM43,880) / (1 - (1 + 0.005)^-60) ≈ RM861.45
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An institutional breakdown in U.S. financial markets would tend to cause ____
a. short-run aggregate supply to increase. b. long-run aggregate supply to increase. c. aggregate demand to decrease. d. aggregate demand to increase.
e. long-run aggregate supply to decrease.
An institutional breakdown in U.S. financial markets would tend to cause C) aggregate demand to decrease.
Institutional breakdown - Institutional breakdown happens when an economic or political institution is unable to fulfill its responsibilities and obligations. This term is utilized to describe a variety of circumstances in which the institution is seen to be malfunctioning. It could be an institution that is not able to carry out its assigned duties or duties or that has failed to develop in accordance with changing circumstances.
For example, a breakdown in an educational institution might refer to a lack of funding or staff that has resulted in lower-quality education and lower student achievement rates.Aggregate demand is the total amount of goods and services that customers are willing and able to purchase at a given price level, according to economics.
Changes in aggregate demand might have a major impact on the economy, resulting in inflation or recession. When aggregate demand decreases, it reduces the amount of goods and services that are produced.
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6. Given below are three lists of industries, costing methods, and cost unit. Mention the method of costing and cost units applicable against each of the industries :- Industry Method Cost unit (i) Ad
Here is the classification of the industries, costing methods, and cost units:
(i) Advertising
Method: Job
Cost unit: Piece
(ii) Biscuit
Method: Process
Cost unit: Kilogram
(iii) Cycle
Method: Multiple
Cost unit: Each
(iv) Hospital
Method: Operating
Cost unit: Bed-week
(v) Road transport
Method: Contract
Cost unit: Tonne - kilometre
(vi) Cigarettes
Method: Output
Cost unit: Each
(vii) Car engine
Method: Job
Cost unit: Each contract
(viii) Coal
Method: Multiple
Cost unit: Tonne-kilogram
Please note that the cost units and methods of costing can vary depending on the specific context and practices of each industry.
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Complete question is given below :
Given below are three lists or industries, costing methods, and cost unit. Mention the method of costing and cost units applicable against each of the industries :-
Industry :
(i) Advertising, (ii) Building, (iii) Biscuit, (iv) Cycle, (v) Hospital, (vi) Road transport, (vii) Cigarettes, (viii) Car engine, (ix) Coal
Method :
A. Job, B. Process, C. Operating, D. Multiple, E. Contract, F. Output
Cost Units :
a) Piece, b) Kilogram, c) Ton, d) Tonne - kilometre, e) Bed-week, f) Each Job, g) Each contract
Big Oil, Inc. has a preferred stock outstanding that pays a $8 annual dividend. If investors required rate of return is 10 percent, what is the market value of the shares?
The market value of the shares of Big Oil, Inc.'s preferred stock outstanding is $80 if investors require a rate of return of 10 percent.
The market value of the shares of the preferred stock issued by Big Oil, Inc. can be calculated using the dividend discount model, which is used to value the stocks of companies that pay dividends. The formula for the dividend discount model is:PV = D / RWhere:PV = Present Value of the stockD = Dividend per share
R = Required rate of returnIn this case, the dividend per share is $8 and the required rate of return is 10 percent or 0.10.
Therefore, the market value of the preferred stock can be calculated as:PV = $8 / 0.10 = $80
Therefore, the market value of the shares of Big Oil, Inc.'s preferred stock outstanding is $80 if investors require a rate of return of 10 percent.
The company can issue new shares of preferred stock in the market to raise capital at this price.
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Year Nominal GDP Real GDP GDP Deflator
2016 200 200 100
2017 400 400 100
2018 800 400 200
A. Compute the percentage change in nominal GDP, real GDP, and GDP deflator in 2017 and 2018 from the preceding year.
B. For each year, identify the variable that does not change. Explain why your answer makes sense.
Percentage change = (New value - Old value) / Old value × 100
For 2017:
Percentage change in nominal GDP = (400 - 200) / 200 × 100 = 100%
Percentage change in real GDP = (400 - 200) / 200 × 100 = 100%
Percentage change in GDP deflator = (100 - 100) / 100 × 100 = 0%
For 2018:
Percentage change in nominal GDP = (800 - 400) / 400 × 100 = 100%
Percentage change in real GDP = (400 - 400) / 400 × 100 = 0%
Percentage change in GDP deflator = (200 - 100) / 100 × 100 = 100%
For each year, the variable that does not change is GDP deflator.
The GDP deflator is calculated as the ratio of nominal GDP to real GDP multiplied by 100. it remains constant at 100 in 2016 and 2017. In 2018, the GDP deflator increases to 200, indicating an increase in the overall price level in the economy.
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If an increase in the price of pineapple juice of 20% results in an increase in the demand for grape juice of 4%, the cross-price elasticity of demand between pineapple juice and grape juice is: -5. 0.20 -0.20 5.
The given cross-price elasticity of demand between pineapple juice and grape juice is -5. The correct option is a.
The cross-price elasticity of demand between pineapple juice and grape juice can be defined as the percentage change in the quantity demanded of grape juice divided by the percentage change in the price of pineapple juice. It is measured in percentage or absolute terms.
The formula for the cross-price elasticity of demand is:
The cross-price elasticity of demand = % change in quantity demanded of grape juice / % change in the price of pineapple juice
Substituting the given values, We get, the % change in the price of pineapple juice = 20% (increase) and % change in the quantity demanded of grape juice = 4% (increase)
Now, substituting the values in the formula, we have:-5 = 4 / 20% × 100%
The cross-price elasticity of demand between pineapple juice and grape juice is -5.
An increase in the price of pineapple juice by 20% leads to a decrease in the quantity demanded of grape juice by 4%. This means that grape juice is a substitute for pineapple juice, where an increase in the price of pineapple juice has resulted in people moving towards grape juice.
The correct option is a.
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3 Olongapo Sports Corporation distributes two premium golf balls—Flight Dynamic and Sure Shot. Monthly sales and the contribution margin ratios for the two products follow: 2.14 points Product Flight Sure Dynamic Shot $ 680,000 $ 320,000 61% 75% 8 00:39:48 Sales CM ratio Total $ 1,000,000 ? Fixed expenses total $556,500 per month. eBook Required: 1. Prepare a contribution format income statement for the company as a whole. 2. What is the company's break-even point in dollar sales based on the current sales mix? 3. If sales increase by $47,000 a month, by how much would you expect the monthly net operating income to increase? Hint Complete this question by entering your answers in the tabs below. Print Required 1 Required 2 References Required 3 Prepare a contribution format income statement for the company as a whole. (Round your percentage answers to 2 decimal places (i.e. 0.1234 should be entered as 12.34).) Flight Dynamic Sure Shot Total Company Amount % Amount % Amount % % % % % % % % Required 1 Required 2 > m. Olongapo Sports Corporation distributes two premium golf balls—Flight Dynamic and Sure Shot. Monthly sales and the contribution margin ratios for the two products follow: 2.14 points Product Flight Sure Dynamic Shot $ 680,000 $ 320,000 61% 75% 8 00:39:31 Sales CM ratio Total $ 1,000,000 ? Fixed expenses total $556,500 per month. eBook Required: 1. Prepare a contribution format income statement for the company as a whole. 2. What is the company's break-even point in dollar sales based on the current sales mix? 3. If sales increase by $47,000 a month, by how much would you expect the monthly net operating income to increase? Hint Complete this question by entering your answers in the tabs below. Print Required 1 Required 2 Required 3 References What is the company's break-even point in dollar sales based on the current sales mix? (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) Break-even point in dollar sales < Required 1 Required 3 > 3 Olongapo Sports Corporation distributes two premium golf balls—Flight Dynamic and Sure Shot. Monthly sales and the contribution margin ratios for the two products follow: 2.14 points Product Flight Sure Dynamic Shot $ 680,000 $ 320,000 61% 75% Sales CM ratio Total $ 1,000,000 00:39:17 Fixed expenses total $556,500 per month. eBook Required: 1. Prepare a contribution format income statement for the company as a whole. 2. What is the company's break-even point in dollar sales based on the current sales mix? 3. If sales increase by $47,000 a month, by how much would you expect the monthly net operating income to increase? Hint Complete this question by entering your answers in the tabs below. Print Required 1 References Required 2 Required 3 If sales increase by $47,000 a month, by how much would you expect the monthly net operating income to increase? (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) Net operating income increases by < Required 2 Required 3 >
2) Break-even Point is $1,612,415. 3) if sales increase by $47,000 a month, the monthly net operating income is expected to increase by approximately $16,218.
Answers to the questions1. Contribution Format Income Statement:
Olongapo Sports Corporation
Contribution Format Income Statement
For the Month Ended [Date]
Sales:
Flight Dynamic: $680,000
Sure Shot: $320,000
Total Sales: $1,000,000
Variable Expenses:
Flight Dynamic (61% of sales): $414,800
Sure Shot (75% of sales): $240,000
Total Variable Expenses: $654,800
Contribution Margin:
Flight Dynamic: $265,200
Sure Shot: $80,000
Total Contribution Margin: $345,200
Fixed Expenses: $556,500
Net Operating Income: $345,200 - $556,500 = -$211,300
2. Break-even point in dollar sales based on the current sales mix:
Contribution Margin Ratio = Total Contribution Margin / Total Sales
Contribution Margin Ratio = $345,200 / $1,000,000
Contribution Margin Ratio = 34.52%
Break-even Point = Fixed Expenses / Contribution Margin Ratio
Break-even Point = $556,500 / 0.3452
Break-even Point ≈ $1,612,415
Therefore, the company's break-even point in dollar sales based on the current sales mix is approximately $1,612,415.
3. If sales increase by $47,000 a month, the expected increase in monthly net operating income can be calculated by multiplying the increase in sales by the overall contribution margin ratio.
Increase in Sales = $47,000
Overall Contribution Margin Ratio = Total Contribution Margin / Total Sales = $345,200 / $1,000,000 = 34.52%
Expected Increase in Net Operating Income = Increase in Sales * Overall Contribution Margin Ratio
Expected Increase in Net Operating Income = $47,000 * 0.3452 ≈ $16,218
Therefore, if sales increase by $47,000 a month, the monthly net operating income is expected to increase by approximately $16,218.
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Abraham, Inc., a New Jersey corporation, operates 57 bakeries throughout the northeastern section of the United States. In the past, its founder, James Abraham, owned all the company’s outstanding common stock. However, during the early part of this year, the corporation suffered a severe cash flow problem brought on by rapid expansion. To avoid bankruptcy, Abraham sought additional investment capital from a friend, Dennis Bostitch, who owns Highland Laboratories. Subsequently, Highland paid $700,000 cash to Abraham, Inc., to acquire enough newly issued shares of common stock for a one-third ownership interest. At the end of this year, the accountants for Highland Laboratories are discussing the proper method of reporting this investment. One argues for maintaining the asset at its original cost: "This purchase is no more than a loan to bail out the bakeries. Mr. Abraham will continue to run the organization with little or no attention paid to us. After all, what does anyone in our company know about baking bread? I would be surprised if Abraham does not reacquire these shares as soon as the bakery business is profitable again." One of the other accountants disagrees, stating that the equity method is appropriate. "I realize that our company is not capable of running a bakery. However, the official rules state that we must have only the ability to exert significant influence. With one-third of the common stock in our possession, we certainly have that ability. Whether we use it or not, this ability means that we are required to apply the equity method."
Question • How should Highland Laboratories account for its investment in Abraham, Inc.?
Highland Laboratories should account for its investment in Abraham, Inc. using the equity method due to its one-third ownership interest and the ability to exert significant influence over the company's operations.
Highland Laboratories should apply the equity method to account for its investment in Abraham, Inc. The equity method is appropriate when an investor has significant influence over the investee, which is the case here as Highland owns one-third of the common stock. Despite not having expertise in the bakery business, the ability to exert influence through ownership justifies the application of the equity method.
This method requires recognizing the investment on the balance sheet and recording a proportionate share of Abraham, Inc.'s profits or losses on Highland's income statement. It reflects the economic substance of the investment and provides relevant information to users of Highland's financial statements.
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P13–21 AGENCY COSTS AND CAPITAL STRUCTURE Galaxy Enterprises has earnings before interest and taxes of $9 million and $90 million of debt outstanding with a required rate of return of 7.3%. The required rate of return on assets in the industry is 12%. The corporate tax rate is 21%, but there are no personal taxes. The present value of Galaxy’s bankruptcy costs is $18 million. Compute Galaxy’s firm value.
Galaxy Enterprises' firm value is approximately $41.25 million.
To compute Galaxy Enterprises' firm value, we can use the formula for the firm's value:
Firm value = EBIT * (1 - Tax rate) / Required rate of return on assets
Given information:
EBIT (Earnings Before Interest and Taxes) = $9 million
Debt outstanding = $90 million
Required rate of return = 7.3%
Required rate of return on assets in the industry = 12%
Corporate tax rate = 21%
Present value of bankruptcy costs = $18 million
First, let's calculate the after-tax earnings by subtracting the taxes from EBIT:
After-tax earnings = EBIT * (1 - Tax rate)
After-tax earnings = $9 million * (1 - 0.21)
After-tax earnings = $9 million * 0.79
After-tax earnings = $7.11 million
Next, let's calculate the firm value using the formula mentioned above:
Firm value = After-tax earnings / Required rate of return on assets
Firm value = $7.11 million / 0.12
Firm value = $59.25 million
However, we also need to consider the effect of debt on the firm value. The present value of bankruptcy costs needs to be subtracted from the firm value:
Adjusted firm value = Firm value - Present value of bankruptcy costs
Adjusted firm value = $59.25 million - $18 million
Adjusted firm value = $41.25 million
Therefore, Galaxy Enterprises' firm value is approximately $41.25 million.
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which of the following statements is true of a monopolist? a. a monopoly faces the same pressures to cut costs as a competitive firm does. b. a monopoly is protected from competition by barriers to entry. c. a monopoly faces the same pressures to innovate as a competitive firm does. d. a monopoly must use the most efficient technology or firms that do will drive it out of business.
The correct statement about a monopolist is- a monopoly is protected from competition by barriers to entry. The correct answer is option b.
A monopoly refers to a market structure where there is a single seller or producer of a good or service, and there are no close substitutes available.
In such a situation, the monopolist has the power to control the market, set prices, and restrict competition. Barriers to entry play a crucial role in maintaining a monopoly.
These barriers can include legal restrictions, high start-up costs, control over key resources, network effects, patents, or exclusive rights.
By creating obstacles for potential competitors to enter the market, a monopoly can maintain its dominant position and prevent the entry of new firms that could potentially challenge its market power.
The correct answer is option b.
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Exercise 7-15 Dishonoring a note LO P4 Following are transactions for Ridge Company. Mar. 21 Accepted a $12,400, 180-day, 7% note from Tamara Jackson in granting a time extension on her past-due account receivable. Sept. 17 Jackson dishonored her note. Dec. 31 After trying several times to collect, Ridge Company wrote off Jackson's account against the Allowance for Doubtful Accounts. Complete the table to calculate the interest amounts at September 17 and use the calculated value to prepare your journal entries. (Do not round intermediate calculations. Round your final answers to nearest whole dollar. Use 360 days a year.) Complete this question by entering your answers in the tabs below. Interest Amounts General Journal Complete the table to calculate the interest amounts at September 17. Total Through Maturity Principal Rate (%) Time Total interest Journal entry worksheet < 1 2 3 Accepted a $12,400, 180-day, 7% note from Tamara Jackson in granting a time extension on her past-due account receivable. Note: Enter debits before credits. Date Mar 21 General Journal Debit Credit > Journal entry worksheet < 1 2 3 Jackson dishonored her note. Date Sept 17 Note: Enter debits before credits. General Journal Debit Credit Journal entry worksheet < 1 2 3 After trying several times to collect, Ridge Company wrote off Jackson's account against the Allowance for Doubtful Accounts. Note: Enter debits before credits. Date Dec 31 General Journal Debit Credit
Ridge Company incurred interest expenses due to the dishonoring of a note by Tamara Jackson. The interest amounts need to be calculated for the specific dates involved in the transactions.
What are the interest amounts incurred by Ridge Company for the dishonored note?To calculate the interest amounts at September 17, we need to determine the time from March 21 to September 17, which is 180 days.
Ridge Company accepted a $12,400, 180-day, 7% note from Tamara Jackson on March 21, granting a time extension for her past-due account receivable.
Using the formula: Interest = Principal × Rate × Time, the interest amount at September 17 would be $12,400 × 0.07 × (180/360) = $434.
In the journal entry for September 17, the dishonoring of the note would be recorded as a debit to Accounts Receivable and a credit to Notes Receivable.
Note: The given question mentions a table, but without the specific information provided in the table, it's not possible to provide a detailed breakdown of the calculations for each step.
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Jarett Motors is trying to decide whether it should keep its existing car washing machine or purchase a new one that has technological advantages (which translate into cost savings) over the existing machine. Information on each machine follows: Old machine New machine Original cost $9,000 $20,000 Accumulated depreciation 5,000 0 Annual cash operating costs 9,000 4,000 Current salvage value of old machine 2,000 Salvage value in 10 years 500 1,000 Remaining life 10 yrs Refer to Jarett Motors. The incremental cost to purchase the new machine is Select one: a. $11,000 b. $20,000 c. $13,000 d. $18,000
The incremental cost to purchase the new machine will be approximately $20,000. Option B is correct.
To calculate the incremental cost of purchasing the new machine, we need to consider the following factors;
Original cost; The old machine's original cost is $9,000, and the new machine's original cost is $20,000.
Accumulated depreciation; The old machine has accumulated depreciation of $5,000, while the new machine has no accumulated depreciation since it is brand new.
Annual cash operating costs; The old machine has annual cash operating costs of $9,000, whereas the new machine has lower annual cash operating costs of $4,000.
Current salvage value of the old machine; The old machine currently has a salvage value of $2,000.
Remaining life; Both machines have a remaining life of 10 years.
To calculate the incremental cost, we need to consider the difference between the cost of the new machine and the net proceeds from the sale of the old machine.
Net proceeds from the sale of the old machine = Current salvage value of old machine - Accumulated depreciation
Net proceeds = $2,000 - $5,000 = -$3,000
Since the net proceeds from the sale of the old machine are negative, it means that the old machine is not worth selling, and its salvage value is irrelevant in this decision.
Therefore, the incremental cost to purchase the new machine is simply the original cost of the new machine;
Incremental cost = Original cost of the new machine = $20,000
Therefore, the incremental cost to purchase the new machine is $20,000.
Hence, B is the correct option.
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Shannon Company segments its income statement into its North and South Divisions. The company’s overall sales, contribution margin ratio, and net operating income are $760,000, 60%, and $45,600, respectively. The North Division’s contribution margin and contribution margin ratio are $240,000 and 75%, respectively. The South Division’s segment margin is $66,000. The company has $91,200 of common fixed expenses that cannot be traced to either division. Required: Prepare an income statement for Shannon Company that uses the contribution format and is segmented by divisions. (Do not round your intermediate percentage answers and round your final percentage answers to 1 decimal place (i.e. .1234 should be entered as 12.3).) Divisions Total Company North South Amount % Amount % Amount % Sales $ 760,000 $ 320,000 $ 440,000 Variable expenses 304,000 80,000 224,000 Contribution margin 456,000 0.0 240,000 0.0 216,000 0.0 Traceable fixed expenses 319,200 169,200 150,000 Territorial segment margin 136,800 0.0 $ 70,800 0.0 $ 66,000 0.0 Common fixed expenses 91,200 Net operating income $ 45,600 0.0 sheet is drawn here
The solution is as follows: Shanon Company Income statementSegments Total Company North Division South Division Sales $760,000 $320,000 $440,000 Variable expenses 304,000 80,000 224,000 Contribution margin $456,000 $240,000 $216,000 Contribution Margin Ratio 60% 75% 49.09% Fixed expenses.
Traceable fixed expenses 319,200 169,200 150,000 Segment Margin $136,800 $70,800 $66,000 Segment Margin Ratio 18% 22.13% 15% Common fixed expenses 91,200 Net operating income $45,600From the given data, we can calculate the contribution margin of the North Division by using the contribution margin ratio.
North Division contribution margin
= Contribution Margin Ratio × North Division sales$240,000
= 75% × North Division salesNorth Division sales
= $320,000Similarly, we can calculate the total contribution margin of the company by subtracting the variable expenses from sales.
Therefore, the correct answer is: Total Company North Division South Division Sales $760,000 $320,000 $440,000 Variable expenses 304,000 80,000 224,000 Contribution margin $456,000 $240,000 $216,000 Contribution Margin Ratio 60% 75% 49.09% Fixed expenses: Traceable fixed expenses 319,200 169,200 150,000 Segment Margin $136,800 $70,800 $66,000 Segment Margin Ratio 18% 22.13% 15% Common fixed expenses 91,200 Net operating income $45,600
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A project proposal requiring P840,000 initial investment will result to annual cash return of: Required: Year 1 P65,000; year 2 P150,250; year 3 P275,750; year 4 P350,600; year 5 P245,600; and, year 6 P120,400. a. If the current cost of funds is 12% and the decision criteria are the net present value and discounted payback, should the project be implemented ? (10 pts.) b. What is the project's payback period?
The discounted payback period is between Year 4 and Year 5. Therefore, the project's discounted payback period is approximately 4 years.
To determine whether the project should be implemented based on the net present value (NPV) and discounted payback criteria, we need to calculate the NPV and discounted payback period using the given cash flows and the current cost of funds of 12%.
a. Net Present Value (NPV) Calculation:
The NPV is calculated by discounting each cash flow to its present value and summing them up. If the NPV is positive, the project is considered financially viable.
Year 1: P65,000 / (1 + 0.12)^1 = P58,035.71
Year 2: P150,250 / (1 + 0.12)^2 = P117,903.61
Year 3: P275,750 / (1 + 0.12)^3 = P191,986.36
Year 4: P350,600 / (1 + 0.12)^4 = P219,162.95
Year 5: P245,600 / (1 + 0.12)^5 = P140,874.33
Year 6: P120,400 / (1 + 0.12)^6 = P59,409.55
NPV = Sum of present values of cash flows - Initial investment
= P58,035.71 + P117,903.61 + P191,986.36 + P219,162.95 + P140,874.33 + P59,409.55 - P840,000
= P827,372.51 - P840,000
= -P12,627.49 (negative)
Since the NPV is negative, the project does not meet the NPV criterion and would not be considered financially viable at a 12% cost of funds.
b. Discounted Payback Period:
The discounted payback period measures the time required for the discounted cash flows to recover the initial investment. We need to calculate the cumulative discounted cash flows until they cover the initial investment.
Year 1: P58,035.71 / P840,000 = 0.0691 (approximately)
Year 2: (P58,035.71 + P117,903.61) / P840,000 = 0.2264 (approximately)
Year 3: (P58,035.71 + P117,903.61 + P191,986.36) / P840,000 = 0.5365 (approximately)
Year 4: (P58,035.71 + P117,903.61 + P191,986.36 + P219,162.95) / P840,000 = 0.8338 (approximately)
Year 5: (P58,035.71 + P117,903.61 + P191,986.36 + P219,162.95 + P140,874.33) / P840,000 = 0.9983 (approximately)
Based on the NPV and discounted payback criteria, the project should not be implemented.
As it has a negative NPV and does not meet the discounted payback period requirement of 4 years.
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Explain how the operations department of Samsung would rely on purchasing and supply management.
For the efficient and effective procurement of the materials, components, and services required for the production and operation of their products, Samsung's operations department relies on purchasing and supply management.
The timely availability of the raw materials, components, and services required for manufacturing is ensured by purchasing and supply management. It forges connections with dependable suppliers, strikes advantageous deals and oversees the procurement procedures. A key factor in ensuring efficient production processes is purchasing and supply management which optimizes inventory levels while reducing costs and upholding quality standards.
By locating cutting edge parts and technologies, it also aids in the development of new products. The success of Samsung's operations as a whole depends on effective cooperation between the purchasing and supply management department and the operations department.
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Konkuk Foundation (KF) began operations on January 1st 2021, the first day of its fiscal year with the assets, liability and net asset balances shown in the following table. Record the eight transactions (1-8) below on the worksheet provided with the exam.
Account Beginning Balance
Cash $25,000
Grants Receivable 2,000
Inventory 2,000
Unrestricted Net Assets 50,000
Pledges Receivable 1,000
Property, plant, and equipment 25,000
Wages Payable $5,000
Be sure to identify the accounts impacted by each transaction and show that the transactions are balanced. You must enter each transaction in the worksheet provided.
1) Took out a $50,000 bank loan. SF also signed a contract with a local car dealer to buy a van for their summer program and gave the dealer a $1,000 deposit. 2) Received $50,000 in contribution pledges and cash contributions from members of the Konkuk community. $25,000 of the contributions were received in cash. KF expects that 20% of the remaining pledges will not be collected. 3) Received a check for $10,000 from the Korea Society. This amount includes the final payment of $2,000 from a grant made by the Korea Society in 2019 as well as new grant for the remainder. 4) Purchased a van for $50,000. The van is expected to have a useful life of 10 years and no residual value. KF uses straight-line depreciation. The van was purchased at the beginning of the year. 5) Purchased $5,000 worth in supplies for the Summer Camp. KF paid 80% of the cost of the supplies in cash. 6) KF paid its employees $30,000 in wages during the fiscal year. Wage expense for the year was $25,000. The payment included the wages payable balance outstanding from fiscal year 2020. 7) By the end of the year, LU used $4,000 worth of supplies to operate their summer camp. 8) Complied with terms of the bank loan, which require KF to pay the bank $1,400. That includes interest for the year at an annual rate of 2% plus a portion of the principal.
40. Prepare a Balance Sheet for KF as of December 31, 2021, the last day of fiscal year, along with a comparative balance sheet for the prior fiscal year, 2020.
41. Prepare an Activity Statement for KF for the fiscal year ending December 31, 2021.
42. Prepare a Cash Flow Statement for KF for the fiscal year ending December 31, 2021.
Konkuk Foundation (KF) is a non-profit organization that began operations on January 1st, 2021. Here, we will prepare a balance sheet, activity statement, and cash flow statement for KF for the fiscal year ending December 31, 2021.
Konkuk Foundation (KF) is a non-profit organization that started operations on January 1st, 2021. In this case, we will prepare a balance sheet, activity statement, and cash flow statement for KF for the fiscal year ending December 31, 2021. These statements provide valuable insights into the financial position and performance of the organization.
1. Balance Sheet for KF as of December 31, 2021, along with a comparative balance sheet for the prior fiscal year, 2020:
The balance sheet is a snapshot of the financial position of an organization. It shows the assets, liabilities, and equity of the organization. Below is the balance sheet for KF as of December 31, 2021, along with a comparative balance sheet for the prior fiscal year, 2020.
Balance Sheet for KF as of December 31, 2021:
ASSETS
Cash: $25,000
Grants Receivable: $2,000
Inventory: $2,000
Pledges Receivable: $40,000
Property, Plant, and Equipment: $47,500
Less: Accumulated Depreciation: $5,000
Net Property, Plant, and Equipment: $42,500
Total Assets: $111,500
LIABILITIES AND EQUITY
Liabilities
Wages Payable: $5,000
Bank Loan Payable: $50,000
Total Liabilities: $55,000
Equity
Unrestricted Net Assets: $50,000
Total Equity: $56,500
Total Liabilities and Equity: $111,500
Comparative Balance Sheet for KF for the prior fiscal year, 2020:
ASSETS
Cash: $20,000
Grants Receivable: $2,000
Inventory: $2,000
Pledges Receivable: $30,000
Property, Plant, and Equipment: $25,000
Less: Accumulated Depreciation: $2,500
Net Property, Plant, and Equipment: $22,500
Total Assets: $76,500
LIABILITIES AND EQUITY
Liabilities
Wages Payable: $10,000
Total Liabilities: $10,000
Equity
Unrestricted Net Assets: $66,500
Total Equity: $66,500
Total Liabilities and Equity: $76,500
2. Activity Statement for KF for the fiscal year ending December 31, 2021:
An activity statement shows the change in net assets for a given period, including the sources of revenue and the expenses incurred. Below is the activity statement for KF for the fiscal year ending December 31, 2021.
Activity Statement for KF for the fiscal year ending December 31, 2021:
REVENUE
Contributions and Pledges: $62,500
Grants: $10,000
Total Revenue: $72,500
EXPENSES
Wages: $30,000
Supplies: $5,000
Depreciation: $2,500
Interest Expense: $1,400
Total Expenses: $39,900
Change in Net Assets: $32,600
3. Cash Flow Statement for KF for the fiscal year ending December 31, 2021:
A cash flow statement shows the inflows and outflows of cash and cash equivalents for a given period. Below is the cash flow statement for KF for the fiscal year ending December 31, 2021.
Cash Flow Statement for KF for the fiscal year ending December 31, 2021:
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from contributions and pledges: $50,000
Cash received from grants: $10,000
Cash paid for wages: ($30,000)
Cash paid for supplies: ($4,000)
Cash paid for interest: ($1,400)
Net cash provided by operating activities: $24,600
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of van: ($50,000)
Net cash used in investing activities: ($50,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loan: $50,000
Net cash provided by financing activities: $50,000
NET INCREASE IN CASH AND CASH EQUIVALENTS: $24,600
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR: $25,000
CASH AND CASH EQUIVALENTS, END OF YEAR: $49,600
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Cumberland's Contracting uses linoleum I and vinyl v panels to produce floors in homes. The two inputs are perfect substitutes, but due to the slightly higher quality of their vinyl supplier, the marginal product of vinyl panels is three floors and the marginal product of linoleum panels is two floors. These marginal products are constant. (a) (3) Write down the production function relating output to the amount of linoleum and vinyl panels used in production (f(q. q.)). (b) (3) Given your production function in part (a), does the firm's technology exhibit increasing, constant, or decreasing returns to scale? Justify your answer. (c) (6) Graph the isoquants corresponding to 6, 12, and 24 floors produced with linoleum panels on the horizontal axis and vinyl panels on the vertical axis. Label all relevant slopes and intercepts, as well as each isoquant. What is the MRTS? (d) (8) Suppose that each package of linoleum paneling costs $50 and each package of vinyl paneling costs $100. Derive an expression for a firm's minimum costs of producing f floors, taking into account the input bundle the firm demands and showing clearly how you arrived at your answer.
(a) The production function can be written as:
f(q1, q2) = 2q1 + 3q2
(b) The output increases proportionally with the scale factor k, which means the firm's technology exhibits constant returns to scale.
(c) The isoquants will be downward sloping straight lines. Labeling the three isoquants as IQ6, IQ12, and IQ24, we find the following intercepts and slopes:
- IQ6 intercepts: (0, 2), (3, 0)
- IQ12 intercepts: (0, 4), (6, 0)
- IQ24 intercepts: (0, 8), (12, 0)
(d) The firm's minimum costs of producing f floors is ($50/3)f.
(a) The production function relating output (floors) to the amount of linoleum panels (q1) and vinyl panels (q2) used in production can be written as:
f(q1, q2) = 2q1 + 3q2
(b) To determine if the firm's technology exhibits increasing, constant, or decreasing returns to scale, we need to examine how the output changes when both inputs are scaled up proportionally. Let's consider multiplying both inputs by a constant factor of k:
f(kq1, kq2) = 2(kq1) + 3(kq2) = 2kq1 + 3kq2
We can see that the output increases proportionally with the scale factor k, which means the firm's technology exhibits constant returns to scale.
(c) To graph the isoquants corresponding to 6, 12, and 24 floors produced with linoleum panels on the horizontal axis (q1) and vinyl panels on the vertical axis (q2), we can rearrange the production function:
q2 = (1/3)(f - 2q1)
The isoquants will be downward sloping straight lines. Labeling the three isoquants as IQ6, IQ12, and IQ24, we find the following intercepts and slopes:
- IQ6 intercepts: (0, 2), (3, 0)
- IQ12 intercepts: (0, 4), (6, 0)
- IQ24 intercepts: (0, 8), (12, 0)
The slope of each isoquant represents the marginal rate of technical substitution (MRTS), which is the rate at which one input can be substituted for the other while keeping the level of output constant. In this case, the MRTS is constant and equal to 2/3.
(d) To derive the expression for the firm's minimum costs of producing f floors, we need to consider the cost of the input bundle that minimizes the cost while producing the desired output. The cost can be calculated as:
Cost = Price of linoleum panels * quantity of linoleum panels + Price of vinyl panels * quantity of vinyl panels
Given that each package of linoleum paneling costs $50 and each package of vinyl paneling costs $100, the cost expression becomes:
Cost = $50q1 + $100q2
To find the input bundle that minimizes the cost while producing f floors, we need to substitute the production function f(q1, q2) = 2q1 + 3q2 into the cost expression:
Cost = $50q1 + $100q2 = $50(q1) + $100(f - 2q1)/3
Simplifying, we can rewrite the expression as:
Cost = ($50/3)f + ($100/3)q1
So, the firm's minimum costs of producing f floors is ($50/3)f.
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