A company has just converted a long-term note receivable into a short-term note receivable and the company's acid-test and current ratios are both greater than 1, hence the transaction will increase the current ratio and decrease the acid-test ratio. Therefore, the correct answer is option A.
The current ratio is a measure of a company's ability to pay its short-term liabilities with its current assets. It is calculated by dividing current assets by current liabilities. The acid-test ratio, also known as the quick ratio, is a measure of a company's ability to pay its short-term liabilities with its most liquid assets. It is calculated by dividing current assets (excluding inventory) by current liabilities.
When a company converts a long-term note receivable into a short-term note receivable, it is increasing its current assets and decreasing its long-term assets. This will increase the current ratio, as there are now more current assets to cover current liabilities. However, it will decrease the acid-test ratio, as the note receivable is not considered a liquid asset and is not included in the calculation of the acid-test ratio.
Therefore, the correct answer is option A) increase the current ratio and decrease the acid-test ratio.
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New Product Development discussion; Review this chapter's opening vignette on True Buch Kombucha and gather additional information about this and other products in this category by going online to visit brand websites and social media sites. Also, review the latest news in this category. Present your ideas on how the online environment can be used to market True Buch Kombucha to consumers.
The online environment can be used to market True Buch Kombucha to consumers in a variety of ways. First, social media platforms can be used to create targeted ads that reach potential customers based on their interests and demographics.
Another way to market True Buch Kombucha online is through influencer marketing. This involves partnering with influencers or bloggers who have a large following and can promote the product to their audience. This can be an effective way to reach a wider audience and build brand awareness. Lastly, the company can use email marketing to communicate with customers and offer promotions or discounts. This can help to drive sales and build customer loyalty. Overall, the online environment offers a variety of tools and strategies for marketing True Buch Kombucha to consumers. By leveraging social media, influencer marketing, and email marketing, the company can reach a wider audience and build a strong brand presence online.
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List the GLOBE Study clusters. How is the study application tied
to Emotional intelligence?
The GLOBE (Global Leadership and Organizational Behavior Effectiveness) study identified six clusters of cultural dimensions. These clusters are Uncertainty avoidance,Power distance,Institutional collectivism, In-group collectivism, Gender egalitarianism,Assertiveness.
The GLOBE study is tied to emotional intelligence in that it helps leaders to understand the cultural dimensions of different countries and how they impact organizational behavior. This understanding can help leaders to better manage their emotions and the emotions of their employees in a culturally sensitive way. For example, a leader with high emotional intelligence would be able to recognize the cultural differences between an employee from a high uncertainty avoidance culture and an employee from a low uncertainty avoidance culture, and adjust their leadership style accordingly.
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The party with a short position in a futures contract sometimes has options as to the precise asset that will be delivered, where delivery will take place, when delivery will take place, and so on. Do these options increase or decrease the futures price? Explain your reasoning.
The options available to the party with a short position in a futures contract can increase or decrease the futures price depending on the specific details of the contract.
If the options allow for more flexibility and reduce the risk associated with the contract, the futures price may decrease. However, if the options create more uncertainty and increase the risk associated with the contract, the futures price may increase.
For example, if the short position has the option to deliver the asset at different locations, this may reduce the risk of delivery and decrease the future price. However, if the short position has the option to deliver the asset at a later date, this may increase the risk of price fluctuations and increase the future price.
Overall, the impact of these options on the futures price depends on the specific details of the contract and how they affect the risk and uncertainty associated with the contract.
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You have just been employed as the Management Accountant of Ismael & Co, a newly
established manufacturing company in Kurdistan. The managing director of Ismael & Co has told
you that in the first year of operation, the company's aim is to ensure that its total revenue is
equal to its total costs, meaning they are not expecting to make any profit or loss.
The managing director of Ismael & Co has asked you (the Management Accountant) to list the
methods of achieving this aim in the first year?
As a Management Accountant at Ismael & Co, there are several methods that can be implemented to achieve the aim of ensuring that the company's total revenue is equal to its total costs in the first year of operation. These methods include:
1. Cost control: This involves keeping track of all the company's expenses and finding ways to reduce them without compromising the quality of the company's products or services.
2. Pricing strategy: Setting the right prices for the company's products or services is crucial in achieving the aim of equalizing total revenue and total costs. This can be done by conducting market research to determine the prices that customers are willing to pay and setting prices accordingly.
3. Sales volume: Increasing the company's sales volume can also help in achieving the aim of equalizing total revenue and total costs. This can be done by implementing effective marketing strategies to attract more customers and increase sales.
4. Product mix:The company can also consider adjusting its product mix to include products with higher profit margins. This can help in achieving the aim of equalizing total revenue and total costs.
5. Efficiency: Improving the efficiency of the company's operations can also help in achieving the aim of equalizing total revenue and total costs. This can be done by streamlining processes and eliminating waste.
In conclusion, as the Management Accountant of Ismael & Co, implementing the above methods can help in achieving the aim of ensuring that the company's total revenue is equal to its total costs in the first year of operation.
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Assignment Question(s):(10.0 Marks)Assume X Corp creates a subsidiary, Y Corp, and invests $500,000 cash in exchange for all of the $1 par common stock (2,000 shares). (2.5 marks)X Corporation created Y Corporation with a transfer of $1,000 cash.During Y Corp.’s first year of operations, it generated a net loss of $50 and paid no dividends.During Y Corp.’s second year of operations, it generated net income of $100 and paid cash dividends of $30.(2.5 marks)X Corp.Acquired 100% of common stock of Y Corp.Paying $ 2 Million in return for 50 Thousand common stock with $ 1 par value. Y Corp. realized $100 Thousand net income and paid $30 Thousand cash dividends. (2.5 marks)X Corp.Acquired 100% of common stock of Y Corp.X Corp. assumed acquisition expenses as follows (amounts in $)(2.5 marks)What would journal entries X and Y make at the time of the investment?Answer:Required:A. Pass journal entries in the books of X corp. in year 1 and year 2 using equity method.B. What is the balance of investment account at the end of year 2 using equity method?C. Pass journal entries in the books of X corp. in year 1 and year 2 using cost Method.D. What is the balance of investment account at the end of year 2 using cost method?Answer:Required: pass basic elimination entries in consolidation work sheet.Answer:Legal fees50,000Accounting fees30,000Travel expenses10,000Legal fees (stock issue)20,000Accounting fees (stock)15,000SEC filing fees (stock)10,000Prior to the acquisition date, $90,000 have been paid and capitalized to a deferred charges account on the balance sheet. The remaining $45,000 has not been paid or accrued.Required:Prepare the journal entry to record the acquisition expenses.Answer:
Investment in Y Corp. 500,000
Cash 500,000
Year 2:
Investment in Y Corp. 100
Equity in earnings of Y Corp. 100
Cash 30
Investment in Y Corp. 30
A. Journal entries in the books of X Corp. using the equity method.
B. The balance of the investment account at the end of year 2 using the equity method is $500,070 ($500,000 + $100 - $30).
Year 1:
Investment in Y Corp. 500,000
Cash 500,000
Year 2:
Cash 30
Dividend income 30
C. Journal entries in the books of X Corp. using the cost method.
Required: Pass basic elimination entries in consolidation work sheet.
Elimination Entry 1:
Common stock of Y Corp. 1
Investment in Y Corp. 1
Elimination Entry 2:
Equity in earnings of Y Corp. 100
Retained earnings of Y Corp. 100
Elimination Entry 3:
Dividends declared by Y Corp. 30
Dividend income 30
D. The balance of the investment account at the end of year 2 using the cost method is $500,000 (no change from the initial investment).
Acquisition expenses 135,000
Cash 90,000
Accounts payable 45,000
Required: Prepare the journal entry to record the acquisition expenses.
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B. Do you think 'Designing the Communication' of those
advertisements was appropriate and convincing enough to communicate
its message to the potential customers? Why or Why not?
Yes, I think that the 'Designing the Communication' of those advertisements was appropriate and convincing enough to communicate its message to the potential customers. This is because the advertisements were designed in a way that was visually appealing and eye-catching, which helped to attract the attention of potential customers.
Additionally, the advertisements used clear and concise messaging that effectively communicated the benefits of the product or service being advertised. This helped to convince potential customers to take action and make a purchase. Overall, the 'Designing the Communication' of those advertisements was well-done and helped to effectively communicate the message to potential customers.
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5. A stock price is currently R60. Over each of the next two three-month periods it is expected to be up
by 10% or down by 10%. The risk-free interest rate is 12% per annum with continuous compounding.
a. What is the value of a six-month European put option with a strike price of R64?
b. What is the value of a six-month American put option with a strike price of R64?
a. The value of the six-month European put option with a strike price of R64 is R1.4323.
b. The value of the six-month American put option with a strike price of R64 is R4.
The value of a European put option can be calculated using the binomial option pricing model. The value of an American put option can also be calculated using the binomial option pricing model, but with an additional step to account for the possibility of early exercise.
a. The value of a six-month European put option with a strike price of R64 can be calculated as follows:
Calculate the up and down factors: u = e^(0.1*0.25) = 1.0253, d = e^(-0.1*0.25) = 0.9752Calculate the risk-neutral probabilities: p = (e^(0.12*0.25) - d) / (u - d) = 0.5289, 1-p = 0.4711Calculate the value of the option at the end of the second period: Vuu = max(0, 64 - 60*1.0253^2) = 0, Vud = max(0, 64 - 60*1.0253*0.9752) = 2.4316, Vdd = max(0, 64 - 60*0.9752^2) = 5.8947Calculate the value of the option at the end of the first period: Vu = (0.5289*0 + 0.4711*2.4316) / e^(0.12*0.25) = 0.9196, Vd = (0.5289*2.4316 + 0.4711*5.8947) / e^(0.12*0.25) = 2.7986Calculate the value of the option at the beginning of the first period: V = (0.5289*0.9196 + 0.4711*2.7986) / e^(0.12*0.25) = 1.4323Therefore, the value of the six-month European put option with a strike price of R64 is R1.4323.
b. The value of a six-month American put option with a strike price of R64 can be calculated as follows:
Calculate the up and down factors: u = e^(0.1*0.25) = 1.0253, d = e^(-0.1*0.25) = 0.9752Calculate the risk-neutral probabilities: p = (e^(0.12*0.25) - d) / (u - d) = 0.5289, 1-p = 0.4711Calculate the value of the option at the end of the second period: Vuu = max(0, 64 - 60*1.0253^2) = 0, Vud = max(0, 64 - 60*1.0253*0.9752) = 2.4316, Vdd = max(0, 64 - 60*0.9752^2) = 5.8947Calculate the value of the option at the end of the first period: Vu = max((0.5289*0 + 0.4711*2.4316) / e^(0.12*0.25), 64 - 60*1.0253) = 0.9196, Vd = max((0.5289*2.4316 + 0.4711*5.8947) / e^(0.12*0.25), 64 - 60*0.9752) = 3.8083Calculate the value of the option at the beginning of the first period: V = max((0.5289*0.9196 + 0.4711*3.8083) / e^(0.12*0.25), 64 - 60) = 4Therefore, the value of the six-month American put option with a strike price of R64 is R4.
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Thermal Rising, Incorporated, makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates:Activity Cost Pool Activity RateSupporting direct labor $ 16 per direct labor-hourOrder processing $ 192 per orderCustom design processing $ 255 per custom designCustomer service $ 426 per customerManagement would like an analysis of the profitability of a particular customer, Big Sky Outfitters, which has ordered the following products over the last 12 months:Standard Model Custom DesignNumber of gliders 12 2Number of orders 2 2Number of custom designs 0 2Direct labor-hours per glider 26.50 32.00Selling price per glider $ 1,925 $ 2,420Direct materials cost per glider $ 460 $ 568The company’s direct labor rate is $18 per hour.Required:Using the company’s activity-based costing system, compute the customer margin of Big Sky Outfitters. (Round your intermediate calculations and final answer to the nearest whole dollar amount. Loss amounts should be entered with a minus sign.)
The customer margin for Big Sky Outfitters is $6,894.
How did we get the value?First, we need to calculate the total cost of each product, including both direct and indirect costs:
Standard Model:
Direct labor cost = 12 gliders x 26.5 direct labor hours per glider x $18 per hour = $5,724
Direct materials cost = 12 gliders x $460 per glider = $5,520
Supporting direct labor cost = 12 gliders x 26.5 direct labor hours per glider x $16 per direct labor hour = $5,328
Order processing cost = 2 orders x $192 per order = $384
Customer service cost = 1 customer x $426 per customer = $426
Total cost = $17,382
Custom Design:
Direct labor cost = 2 gliders x 32 direct labor hours per glider x $18 per hour = $1,152
Direct materials cost = 2 gliders x $568 per glider = $1,136
Custom design processing cost = 2 custom designs x $255 per custom design = $510
Supporting direct labor cost = 2 gliders x 32 direct labor hours per glider x $16 per direct labor hour = $1,024
Order processing cost = 2 orders x $192 per order = $384
Customer service cost = 1 customer x $426 per customer = $426
Total cost = $4,632
Next, we need to calculate the revenue generated by each product:
Standard Model:
Revenue = 12 gliders x $1,925 per glider = $23,100
Custom Design:
Revenue = 2 gliders x $2,420 per glider = $4,840
Now we can calculate the customer margin for Big Sky Outfitters:
Customer Margin = Total revenue - Total cost
Customer Margin = ($23,100 + $4,840) - ($17,382 + $4,632)
Customer Margin = $28,908 - $22,014
Customer Margin = $6,894
Therefore, the customer margin for Big Sky Outfitters is $6,894.
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Evaluate the following statement from Article 2: "……it seemsShoprite is setting itself up to win in the long term throughprecision retailing…"
It seems that the statement from Article 2 is referring to Shoprite's strategy of precision retailing.
Precision retailing is a method of retailing that focuses on providing customers with the exact products and services they need, when they need them. This is achieved through a combination of data analysis, targeted marketing, and efficient supply chain management. By using precision retailing,
Shoprite is able to better understand and meet the needs of its customers, which can help to increase customer loyalty and sales.
Therefore, it is likely that Shoprite is setting itself up to win in the long term through precision retailing, as the statement from Article 2 suggests.
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convention on the rights of the childconvention type from the formal and substantive type.whats the conditions of conservatism.can the terms be edit, and whats the standards.can we reconsider of the terms of the treaty.can we quit the treaty.summary from the substantive type.
The Convention on the Rights of the Child is a formal and substantive treaty created to protect the rights of children around the world. The conditions of conservatism involve the application of the Convention’s standards to traditional societies and cultural values.
The terms of the Convention cannot be edited and must be respected by signatories. Quitting the Convention is possible, but only after two years’ notice is given and all rights outlined by the Convention must be maintained until the Convention is officially terminated.
Substantive rights outlined in the Convention are those related to civil, cultural, economic, political, and social rights, such as the right to life, education, and health care.
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PS this is for SOUTH AFRICA
New toys Ltd carries on business as a manufacturer of toys from its main branch in the Republic. The company also operates a depot in Botswana, where sales are made to customers living in Botswana. The Botswanan depot does not operate as an independent branch. New toys Ltd has been registered as a Category ‘A’ vendor. All amounts include VAT where appropriate. The following information is provided
Receipts:
February March
1. Cash sales made by the Republic branch to South African customers 199 300 182 200
Cash sales made by the Botswanan depot to Botswanan customers (these goods were forwarded to the depot on 10 January and were all sold by the end of March) 45 400 56 800
2. Insurance payment received on an insurance claim for trading stock stolen in the Republi 176 500 3. Interest received on a loan to a subsidiary company in the Republic 19 180 4. Cash received for the sale of an old machine to Mr Bell, the majority shareholder. Mr Bell is not a registered vendor. The machine originally cost R20 000 and had a book value of R5 000 on the date of sale. The open market value on the date of sale was R17 980. 16 900 expenses February March
1) wages and salareis 69 340 62 500
2) property rate on the business property 7 210 7 210
3) Electricity and water 6 583 6 355
4) telephone 6 412 6 070
5) raw materials purchased from other vendors 142 300 96 700
6) cost of entertaining important customer at cariouse restuartans in durban 6 868 6 412
7) purchase of a new single cab bakkie for use as a delivery vechile * cost 176 500 * Finance charges paid 14 050 8) Cash cost of a new montor car purchased for general use within the business 96 700 9) Petrol for delivery vechilcle and the new motor car 6 412 6526
10) maintenance of delivery cehicle and the new motor car 6 298 6412
11) new toys purchased three water bottles fo the cold water dispening machine in the staff cantee. These bottles cost R2 000 each and wer pid for in March 11 500 Required calculate the VAT payable by or refundable to New Toys Ltd in respect of its two - month tax period ended 31 March 2020.
( Show detailed workings of how you would deal with each item)
NB Round off your calculation to the nearest Rand.
The VAT payable or refundable for New Toys Ltd can be calculated by subtracting the input tax from the output tax for the two-month tax period ended 31 March 2020. The New Toys Ltd is entitled to a VAT refund of R282 for the two-month tax period ended 31 March 2020.
The output tax is the VAT charged on sales and the input tax is the VAT paid on purchases. The detailed workings for each item are shown below:
Output Tax:
1. Cash sales made by the Republic branch to South African customers: (199300 + 182200) x 15% = 57150
2. Cash sales made by the Botswanan depot to Botswanan customers: (45400 + 56800) x 15% = 15330
3. Insurance payment received on an insurance claim for trading stock stolen in the Republic: 176500 x 15% = 26475
4. Interest received on a loan to a subsidiary company in the Republic: 19180 x 15% = 2877
5. Cash received for the sale of an old machine to Mr Bell: 16900 x 15% = 2535
Total Output Tax = 57150 + 15330 + 26475 + 2877 + 2535 = 104367
Input Tax:
1. Wages and salaries: (69340 + 62500) x 15% = 19764
2. Property rate on the business property: (7210 + 7210) x 15% = 2163
3. Electricity and water: (6583 + 6355) x 15% = 1947
4. Telephone: (6412 + 6070) x 15% = 1872
5. Raw materials purchased from other vendors: (142300 + 96700) x 15% = 35250
6. Cost of entertaining important customer at various restaurants in Durban: (6868 + 6412) x 15% = 1992
7. Purchase of a new single cab bakkie for use as a delivery vehicle: (176500 + 14050) x 15% = 28583
8. Cash cost of a new motor car purchased for general use within the business: 96700 x 15% = 14505
9. Petrol for delivery vehicle and the new motor car: (6412 + 6526) x 15% = 1941
10. Maintenance of delivery vehicle and the new motor car: (6298 + 6412) x 15% = 1907
11. New toys purchased three water bottles for the cold water dispensing machine in the staff canteen: 11500 x 15% = 1725
Total Input Tax = 19764 + 2163 + 1947 + 1872 + 35250 + 1992 + 28583 + 14505 + 1941 + 1907 + 1725 = 104649
VAT Payable or Refundable = Output Tax - Input Tax = 104367 - 104649 = -282
Therefore, New Toys Ltd is entitled to a VAT refund of R282 for the two-month tax period ended 31 March 2020.
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at and Daphne Carrigan are a married couple in their 40’s. They are Australian resident individuals for income tax purposes. The couple has two dependent children, Alex aged 6 and Payne aged 8. Pat and Daphne do not have private health cover. These are the facts relevant to their current income year:
Daphne is employed as a teacher at university. Her employer-issued PAYG payment, summary uploaded to her ATO profile, reflects the following:
Gross salary $20,000
PAYG withheld from her salary $380
Daphne owns shares in an ASX listed company. This company paid $3,600 into her bank account after declaring fully franked dividends. The company is liable to pay tax at the rate of 30%. Daphne’s franking credits in relation to these dividends total $1,542.86.
This table shows you the calculation of Daphne’s taxable income if the question required you to calculate her taxable income. Note that in order to meet the assessment criteria for ordinary income items, you must use section 6-5 ITAA97 and you must add the relevant characteristic that fits with the income item – we cover these in Topic 3. An answer for section 6-5 ITAA97 is incomplete if you don’t add a correct characteristic. To earn the mark for each item, all of the elements must be present in your answer. See the Topic 1 Learning guide that lists the remaining sections.
This is the calculation of Daphne’s taxable income for the 2020–2021 income year:
$
Mark
Salary, s 6-5 ITAA97 income from employment, or regular and periodic
20,000
½
Dividends, s 44 ITAA36
3,600
½
Franking credits, s 207-20 ITAA97
1,543
½
Taxable income
$25,143
Pat operates his own business called Carrigan Sports Management. This business acts as the manager for professional sports stars in several sporting codes to negotiate their contracts, and to find them sponsorship deals and paid public appearances. The business records of Carrigan Sports Management reflect the following for the income year:
Turnover, comprising of commission for services to clients, ordinary income, s 6-5 ITAA97, income from business $3,230,000
Tax deductible expenses including rent, council rates and taxes, electricity, telephone, internet charges, s 8-1 ITAA97 $1,235,000
Tax deductible salaries paid to staff, s 8-1 ITAA97 $650,000
Capital allowances, Div 328 ITAA97 (tax deductible depreciation) on office equipment and computers $145,000
During the income year, Pat remitted PAYG payments of $400,000 to the ATO in prepayment of his income tax liability arising from his business.
Pat also rented out a unit that he owns in a unit complex in St Lucia to a tenant. These are the relevant details:
Rent received, ordinary income, s 6-5 ITAA97, income from property $20,000
Tax deductible expenses for the rental property, s 8-1 ITAA97 $15,000
Tax deductible interest charged on the mortgage loan that Pat used to fund the purchase cost of the unit, s 8-1 ITAA97 $10,000
This table shows you the calculation of Pat’s taxable income if the question required you to calculate his taxable income.
$ Mark
Turnover, commission, s 6-5 ITAA97, ordinary income, income from business
$3,230,000
½
Expenses for rent, rates, electricity, telephone, internet, s 8-1 ITAA97
($1,235,000)
½
Salaries, s 8-1 ITAA97
($650,000)
½
Capital allowances, Div 328 ITAA97
($145,000)
½
Rent, s 6-5 ITAA97, ordinary income, income from property
$20,000
½
Expenses for the rental property, s 8-1 ITAA97
($15,000)
½
Interest, s 8-1 ITAA97
($10,000)
½
Taxable income
$1,195,000
You are required to:
Calculate Daphne’s tax payable or refundable. Provide all your calculations, explanations, formulas and bases for calculations.
Calculate Pat’s tax payable or refundable. Provide all your calculations, explanations, formulas and bases for calculations.
Daphne's Tax Payable or Refundable: Daphne's tax payable is $3694.86.
1. Calculate Daphne's taxable income:
Salary: $20,000
Dividends: $3,600
Franking credits: $1,543
Total taxable income: $25,143
2. Calculate Daphne's tax payable:
According to the 2020-2021 tax rates for individuals, Daphne's tax payable is calculated as follows:
$0 for the first $18,200 of taxable income
+ $3572 (19% of the amount over $18,200)
= $3572
3. Calculate Daphne's Medicare levy:
The Medicare levy is 2% of taxable income, so Daphne's Medicare levy is:
$25,143 x 0.02 = $502.86
4. Calculate Daphne's total tax liability:
Total tax liability = tax payable + Medicare levy
= $3572 + $502.86
= $4074.86
5. Calculate Daphne's tax refundable:
Tax refundable = PAYG withheld - total tax liability
= $380 - $4074.86
= -$3694.86
Therefore, Daphne's tax payable is $3694.86.
Pat's Tax Payable or Refundable:
1. Calculate Pat's taxable income:
Turnover: $3,230,000
Expenses for rent, rates, electricity, telephone, internet: -$1,235,000
Salaries: -$650,000
Capital allowances: -$145,000
Rent: $20,000
Expenses for the rental property: -$15,000
Interest: -$10,000
Total taxable income: $1,195,000
2. Calculate Pat's tax payable:
According to the 2020-2021 tax rates for individuals, Pat's tax payable is calculated as follows:
$0 for the first $18,200 of taxable income
+ $3572 (19% of the amount over $18,200)
+ $29,467 (32.5% of the amount over $45,000)
+ $157,225 (37% of the amount over $120,000)
+ $316,650 (45% of the amount over $180,000)
= $506,914
3. Calculate Pat's Medicare levy:
The Medicare levy is 2% of taxable income, so Pat's Medicare levy is:
$1,195,000 x 0.02 = $23,900
4. Calculate Pat's total tax liability:
Total tax liability = tax payable + Medicare levy
= $506,914 + $23,900
= $530,814
5. Calculate Pat's tax refundable:
Tax refundable = PAYG withheld - total tax liability
= $400,000 - $530,814
= -$130,814
Therefore, Pat's tax payable is $130,814.
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PROJECT CASE: Establish a Vaccination CentreBackgroundA virus named Covid-Zetta is spreading across the world with high contagious and mortality rates. Many countries have tried to tackle the virus with various measures. Human interactions have to be limited and Work from Home (WFH) needs to be imposed. Fortunately, a newly invented vaccine, Anti Zetta Vaccine (AZV), has been proven to be 90% effective against the virus. The Singapore government has set up a Covid-Zetta Task Force chaired by the Minister for Health to fight against the virus. One of Task Force’s impetus is to vaccinate the citizens with AZV. As a start, a Vaccination Centre with vaccine storage facility has to be established. The Task Force names it the Covid-Zetta Vaccination Centre (CVC) Project.Section 1: Leading the Project and Managing the Project TeamQuestion:The Minister has appointed you as the CVC Project Manager. A three-member (including yourself) core project team is needed. As the vital fight against Covid-Zetta is done at the national level, you can request for resources within the civil service. Examine how the team can be formed by recruiting members from relevant ministries or statuary boards. Discuss two (2) major advantages of this formation.
As the Project Manager for the Covid-Zetta Vaccination Centre (CVC) Project, I would form a three-member core project team from relevant ministries or statuary boards.
This team formation has two major advantages.
First, it ensures that the team has the specialized knowledge and skills necessary to complete the project. By drawing from different government departments, the CVC Project can be well-staffed with professionals who are experts in their respective areas. For example, the team can include a medical specialist, an administrator, and a software engineer.
Second, the team formation allows for the quick implementation of the project. This is because members of the team are already familiar with the respective ministry’s systems, processes, and protocols. As a result, the team can hit the ground running, rather than having to learn about a new process or system.
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You have $25,000 to invest and you need $80,000 for a down
payment and closing costs on a house. If you want to buy the house
in 7 years, what rate of interest do you need to earn?
Explanation:
Rate Needed: 12.3%

You have $25,000 to invest and you need $80,000 for a down payment and closing costs on a house. If you want to buy the house in 7 years, what rate of interest do you need to earn?
To calculate the required interest rate, we need to use the future value formula:
FV = PV x (1 + r)^n
Where: FV = future value (in this case, $80,000) PV = present value (in this case, $25,000) r = interest rate n = number of years
Substituting the values we have:
$80,000 = $25,000 x (1 + r)^7
Dividing both sides by $25,000 and taking the seventh root:
(80,000 / 25,000)^(1/7) = 1 + r
1.12315 = 1 + r
r = 0.12315 or 12.315%
Therefore, you would need to earn an interest rate of 12.315% to reach your goal of $80,000 in 7 years with an initial investment of $25,000.
You have $25,000 to invest and you need $80,000 for a down payment and closing costs on a house. If you want to buy the house in 7 years, you need to earn an interest rate of 14.66%
To find out the interest rate you need to earn to have $80,000 in 7 years, you can use the formula for compound interest: A = P(1 + r/n)^(nt), where A is the final amount, P is the principal amount, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years.
In this case, you want to find out the interest rate r, so you can rearrange the formula to solve for r:
A = P(1 + r/n)^(nt)
A/P = (1 + r/n)^(nt)
(A/P)^(1/nt) = 1 + r/n
(A/P)^(1/nt) - 1 = r/n
r = n[(A/P)^(1/nt) - 1]
Plugging in the given values:
r = 1[($80,000/$25,000)^(1/(1*7)) - 1]
r = 1[(3.2)^(1/7) - 1]
r = 0.1466 or 14.66%
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Lippborg Inc. is making good profits, even though growth is slowing down a bit. So far the company has not paid out cash to its shareholders, however the CFO wants to start paying dividend or to start a share repurchase program. What is the initial question and what should the CFO consider in order to decide on a possible pay out? Explain briefly.
The initial question that the CFO should consider is: "What is the best way to return value to shareholders?"
In order to decide on a possible payout, the CFO should consider the following factors:
1. Company's financial situation: The CFO should evaluate the company's current financial situation and future prospects to determine if the company can afford to pay out dividends or repurchase shares without jeopardizing its financial stability.
2. Shareholder preferences: The CFO should consider the preferences of the company's shareholders. Some shareholders may prefer dividends, while others may prefer share repurchases.
3. Tax implications: The CFO should also consider the tax implications of each option. Dividends are typically taxed at a higher rate than capital gains from share repurchases.
4. Market conditions: The CFO should consider the current market conditions and the impact that a dividend or share repurchase may have on the company's stock price.
Overall, the CFO should weigh the pros and cons of each option and make a decision that will maximize shareholder value while maintaining the company's financial stability.
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Devon was surprised that his pay check was less than he had expected. His
paycheck was reduced because
had been withheld by his employer.
OA. incentives
B. commissions
C. gross pay
OD. deductions
The answer is C. Gross pay. Devon's paycheck was reduced because it had been withheld by his employer as gross payment.
"Gross pay" mean?Before any taxes, benefits, or other payroll deductions are done , an employee's gross salary is what they are paid. Net pay, often known as take-home pay, is the amount that is given after all withholdings have been taken into consideration.
Calculate my gross pay?Start by determining the total amount need for each pay period in order to see an employee's gross compensation. Hourly workers multiply their total hours worked by their hourly rate, plus any overtime. Employees on a salary split their yearly earnings by the number of pay periods.
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(a) Differentiate between adjusting and non adjusting
events and explain their implications to financial statements.
(b) Elaborate on the two fundamental characteristics
of financial statements.
(a) These events provide additional information about the financial position of the company at the balance sheet date and, therefore, need to be reflected in the financial statements. Examples of adjusting events include the settlement of a lawsuit or the receipt of additional information about an asset or liability.
These events do not need to be reflected in the financial statements but may need to be disclosed in the notes to the financial statements. Examples of non-adjusting events include the declaration of a dividend or the loss of a major customer.
(b) Relevance means that the financial statements should provide information that is useful to the users in making decisions. Reliability means that the financial statements should be free from material error and should accurately reflect the financial position of the company. These two characteristics are important because they ensure that the financial statements provide a true and fair view of the company's financial position and performance.
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Which of the four strategy levels is most concerned withsocial, ethical., or public issues? Discuss the characteristics ofthis level. Also, identify the steps involved in the strategicmanagement pr
The four strategy levels that are most concerned with social, ethical, or public issues are the corporate level, the business level, the functional level, and the operating level. The corporate level is responsible for setting the overall direction of the company and for making decisions that affect the entire organization.
The business level is responsible for making decisions about how the company will compete in specific markets. The functional level is responsible for making decisions about how to support the business level strategy. The operating level is responsible for making decisions about how to execute the functional level strategy.
The corporate level is the most concerned with social, ethical, or public issues because it is responsible for setting the overall direction of the company and for making decisions that affect the entire organization. This includes decisions about the company's social and ethical responsibilities, as well as decisions about how the company will interact with the public and respond to public concerns.
The steps involved in the strategic management process include:
1. Setting the company's mission and goals
2. Conducting a situation analysis
3. Developing a strategy
4. Implementing the strategy
5. Evaluating and controlling the strategy.
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3. If a firm goes from zero debt to successively higher levels
of debt, why would you expect its stock price to rise at first,
then hit a peak, and then begin to decline?
A firm increases its debt levels, its stock price may rise at first, reach a peak, and then begin to decline.
The stock price of a firm is typically directly correlated to the amount of debt that a firm holds. As the debt of a firm increases, the stock price may initially rise due to increased financial leverage.
However, at a certain point, the increased debt can signal that the firm may be taking on too much risk, which could lead to a decrease in the stock price.
1. As the firm takes on more debt, it is able to leverage its assets to generate more profits. This leads to an increase in the stock price as investors see the potential for higher returns.
2. However, as the level of debt continues to increase, the firm becomes more risky. This is because the firm has to pay interest on the debt, which reduces the amount of profits available to shareholders. As a result, the stock price may hit a peak and then begin to decline.
3. Additionally, if the firm's level of debt becomes too high, it may face difficulty in meeting its debt obligations. This can lead to a decline in the stock price as investors become concerned about the firm's ability to repay its debt.
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Submit your critical reflective analysis about this chapter, "Developing an effective business model." Objectives include: business models and their importance, identifying and describing the two types of business models standard and disruptive, in which you demonstrate a well-grounded understanding of the theme in the chapter. Do not regurgitate the obvious facts, but build a bridge to the next level of thinking and application(s). At least 3 paragraphs. Highlight your ideas in the introduction paragraph and demonstrate their relevance to the chapter theme. You need at least 5-7 references that must be cited in the text to support your analysis, application, conclusion, and lessons learned.
Business models are essential for the success of any organization, as they provide the foundation for understanding the company's goals, values, and strategies. A business model typically includes the types of products and services offered, the target market and customer base, pricing and value proposition, distribution channels, and resources needed for the business to operate and succeed.
The chapter “Developing an Effective Business Model” explores two types of business models: standard models and disruptive models. Standard models are focused on preserving existing products and services while disruptive models focus on introducing new products and services that address customer needs in new ways. Standard models may involve existing technologies, products, and services, while disruptive models can often involve new technologies, products, and services.
Overall, business models are essential for organizations to understand and use to their advantage. The chapter “Developing an Effective Business Model” is an informative look at the different types of business models and how they can be utilized to benefit the business. Understanding the different types of business models, and the strategies that support them, can provide organizations with the insights they need to be successful.
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A user performs a search for: Best Mexican Restaurants Near Me. Which keywords are eligible to show an ad for this search? [best Mexican Restaurants] "best mexican restaurants" "best mexican restaurant" local mexican restaurants "local mexican restaurants" [best mexican restaurants near me] [best mexican restaurant near me] "best mexican restaurants near me" mexican restaurants mexican food
The keywords that are eligible to show an ad for this search are: [best Mexican Restaurants], "best mexican restaurants", "best mexican restaurant", [best mexican restaurants near me], [best mexican restaurant near me], and "best mexican restaurants near me".
Mexican cuisine is bursting with spices and sauces. Mole (pronounced moe-lay) is a spicy sauce used to flavour Mexican dishes such as enchiladas and quesadillas. Chili peppers, which give every dish a kick, are the main ingredients of mole.
These keywords are eligible because they directly match or closely match the user's search query. The other keywords, such as local mexican restaurants, "local mexican restaurants", mexican restaurants, and mexican food, may be related to the user's search, but they do not directly match or closely match the user's search query, so they are not eligible to show an ad for this search.
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What are caps? Under what circumstances would a FI buy a cap? Under what circumstances would the buyer of a cap receive a payoff?
A $ 100 million cap is available at a premium of 0.60 percent of face value.
A $ 100 million floor is also available at a premium of 0.65 percent of face value.
a. An FI has return on assets of 9 percent. How can they use caps or floors to ensure a target margin of 2%?
b. If interest rates rise to 12 percent, what is the net profit after?
c. If the Fl also sells (writes) a 4 percent floor, what are the net savings if interest rates rise to 12 percent? What if they fall to 2 percent?
d. What amount of floors should it sell in order to compensate for its purchases of caps, given the above premiums?
Caps are a type of financial instrument that provides a limit the buyer's exposure to interest rate fluctuation. A Financial Institution (FI) may buy a cap in order to protect themselves from future interest rate increases and receive a payoff when the rate rises above the agreed upon level. The buyer of the cap will receive a payoff if the interest rate rises above the level of the cap. a. An FI can use caps or floors to ensure a target margin of 2% by buying a cap with a strike price of 7% (9% return on assets - 2% target margin). b. If interest rates rise to 12%, the FI will receive a payoff from the cap equal to the difference between the actual interest rate and the cap (12% - 7% = 5%). c. If the FI also sells a 4% floor, they will receive a premium of 0.65% of face value. d. In order to compensate for its purchases of caps, the FI should sell an equal amount of floors.
Caps are a type of derivative contract that limits the buyer's exposure to interest rate fluctuations. They are typically used by financial institutions (FIs) to hedge against rising interest rates. A cap sets a maximum interest rate that the buyer will pay, and if the actual interest rate exceeds this cap, the buyer receives a payoff. Caps are purchased when the buyer expects interest rates to rise in the future.
A FI would buy a cap if they are concerned about rising interest rates and want to protect themselves from the risk of higher interest costs. The buyer of a cap will receive a payoff if the actual interest rate exceeds the cap.
a. An FI can use caps or floors to ensure a target margin of 2% by buying a cap with a strike price of 7% (9% return on assets - 2% target margin). This will protect them from interest rates rising above 7%, ensuring that their margin remains at or above 2%. Alternatively, they could buy a floor with a strike price of 7%, which would protect them from interest rates falling below 7% and ensure that their margin remains at or above 2%.
b. If interest rates rise to 12%, the FI will receive a payoff from the cap equal to the difference between the actual interest rate and the cap (12% - 7% = 5%). This will offset the higher interest costs and result in a net profit of 0.60% of face value (5% - 0.60% premium).
c. If the FI also sells a 4% floor, they will receive a premium of 0.65% of face value. If interest rates rise to 12%, they will not have to make any payments on the floor and will have net savings of 0.65% of face value (0.65% premium - 0% payments). If interest rates fall to 2%, they will have to make payments on the floor equal to the difference between the actual interest rate and the floor (4% - 2% = 2%). This will result in net savings of -1.35% of face value (0.65% premium - 2% payments).
d. In order to compensate for its purchases of caps, the FI should sell an equal amount of floors. This will ensure that the premiums received from selling the floors offset the premiums paid for buying the caps. Given the above premiums, the FI should sell $92.31 million of floors (0.60% / 0.65% * $100 million) in order to compensate for its purchases of $100 million of caps.
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a) Marketing services is more difficult that marketing goods. Do you agree with this statement? Justify your answer using examples.
(10 Marks)
b) Companies increasingly view technology as a way to improve the customer experience. Do you agree with this statement? Outline some of the potential dangers companies face when replacing face to face service with machines and online service.
(15 Marks)
a) I do agree that marketing services is more difficult than marketing goods. b) I do agree that companies increasingly view technology as a way to improve the customer experience. Technology can help companies provide faster, more efficient, and more personalized service to their customers.
A) marketing services makes it harder to communicate the value and benefits of a service to potential customers. For example, it is easier to market a new smartphone by showing its features and capabilities in a commercial or advertisement, than it is to market a consulting service where the benefits are not as tangible or easily demonstrable.Another challenge with marketing services is that they are often more complex and customized than goods.
B)However, there are also potential dangers when replacing face-to-face service with machines and online service. One danger is that customers may feel less connected to the company and may not receive the same level of personalized service. For example, a customer may prefer to speak with a human representative rather than a chatbot, as they may feel that their concerns are being more adequately addressed.
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The partnership agreement of BADIE, CONNIEand NATIE in BACONA CO., a partnership engaged in vaccination services provides for the year-end allocation of net income in the following order:
* First, BADIE is to receive 10% of net income up to P200,000 and 20% over P200,000.
* Second, CONNIE and NATIE each are to receive 5% of the remaining income over P300,000.
* The balance of income is to be allocated equally among the three partners.
During the year, the partners made a total withdrawal of P30,000, P20,000, and P10,000 respectively.
The partnership’s 2021 income statement shows a total revenue of P1,200,000 and total operating expenses of P700,000 before any allocations to partners.
Required:
1. Prepare a division of profit and loss in good form for BACONA CO.
2. Give the journal entries to close all the nominal and temporary accounts.
1. The division of profit and loss for BACONA CO. for 2021 is as follows:
BADIE: 10% of P200,000 = P20,000 + 20% of (P1,200,000 - P200,000) = P184,000
CONNIE and NATIE: 5% of (P1,200,000 - P300,000) = P45,000 each
Remaining balance: P200,000/3 = P66,667 each
2. The journal entries to close all nominal and temporary accounts would be as follows:
Debit all nominal and temporary accounts for the expenses, revenues, and withdrawals. Credit the respective accounts for the corresponding amounts:
Debit Badie's Capital Account P200,000
Debit Connie's Capital Account P200,000
Debit Natie's Capital Account P200,000
Credit Badie's Drawing Account P30,000
Credit Connie's Drawing Account P20,000
Credit Natie's Drawing Account P10,000
Debit Revenue Account P1,200,000
Credit Expense Account P700,000
Debit Badie's Profit and Loss Account P204,000
Debit Connie's Profit and Loss Account P245,000
Debit Natie's Profit and Loss Account P245,000
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Students are required to write a report covering the following:· Introduction: Should consist of the details of the industry, company, global cultural & diversity issues or any international business issues such as pertaining to managing international logistics or international banking or international suppliers or customers in general or during the pandemic faced by the organization and provide the necessary background for the global ramifications being addressed by the project.· Methodology: Should discuss the scientific approach taken to solve the problem. The details of the data sources, primary & secondary data collected & suitability of data to address the global diversity & challenges must be covered. The students may try to contact the embassies & other organizations to get an understanding of linguistic, cultural & legal requirements of doing business in a different part of the world & can frame their analysis, recommendations accordingly.· Analysis and results: Should include the procedure for the analysis conducted and the results of the said analysis using various statistical tools & procedures.· Recommendations and Implementation: Should include the recommendations made to the company and industry in general based on the analysis. The recommendations must offer potential solutions to the global issues identified.· International extrapolation and reflection of learnings: Should talk in depth about the international component of the project. This can be in the form of an extrapolation of how the problem could be addressed in a different country, for instance. The student should also reflect in this section the global insights gained from working on the project & how this experience potentially adds value to the skill sets acquired during the course of the complete program. Student may also add a section of how other companies are handling such issues or best practices to handle such issues.The project report should have 10-15 pages. The contents should be typed in Times New Roman font 12, justified, 1 ½ line space, 1-inch margin on all sides. All pages should be numbered. The Report should be of 8000-10000 words.
When writing a report covering global cultural and diversity issues or international business issues, it is important to include introduction, methodology, analysis and result. .
Your introduction should provide the necessary background information on the industry, company, and global ramifications being addressed by the project.
The methodology should discuss the scientific approach taken to solve the problem, along with details of the data sources, primary and secondary data collected, and their suitability for addressing the global diversity and challenges.
The analysis and results section should include the procedure for the analysis conducted and the results of said analysis, while the recommendations and implementation section should include recommendations made to the company and industry based on the analysis.
Finally, the international extrapolation and reflection of learnings section should talk in depth about the international component of the project and reflect on the global insights gained from working on the project.
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Why was the second ring of von Thunen's original model more important prior to the industrial revolution than it is today?
*do not count the urban center as a ring
It does not matter if it is close to the city because wood is no longer required as an energy source.
The ability of a system to do labour is the traditional definition of energy, but because energy can exist in so many various forms, it is challenging to come up with a single, all-inclusive definition. Natural resources for renewable energy are abundant and sustainable. These organic, renewable energy sources are kind to the environment. Hardwood, charcoal, chips, sheets, pellets, and sawdust are all examples of wood fuel. Source, quantity, quality, and use are just a few of the elements that influence the specific shape that is employed. Nowadays, wood burning is the solid fuel source that uses the most energy.
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Q2: Suppose that a farmer plants corn on his farm. In the first year, his yield is 1000 kilograms of corn. However, its subsequent yield is expected to decrease by 10% over the previous year’s yield since the weather conditions getting worse each year. Suppose that the selling price of corn is expected to be $4 per kilograms for the first year, but to increase at the rate of 5% over the previous year’s price. At the end of each year, he deposits all his revenue for his child’s college education at an interest rate of 12% compounded annually. What would be the amount in the bank at the end of seventh year?
The amount in the bank at the end of the seventh year would be $39420.73.
The amount in the bank at the end of the seventh year can be calculated using the following formula:
[tex]A = P(1 + r/n)^(nt)[/tex]
Where: A = final amount P = initial principal r = annual interest rate n = number of times interest is compounded per year t = number of years First, we need to calculate the total revenue for each year. This can be done using the following formula:
Revenue = Yield x Price
For the first year, the revenue is:
Revenue = 1000 x 4 = $4000
For the subsequent years, we need to calculate the yield and price for each year, and then calculate the revenue. The yield for each year can be calculated using the following formula:
Yield = Previous year's yield x (1 - 0.1)
The price for each year can be calculated using the following formula:
Price = Previous year's price x (1 + 0.05)
Using these formulas, we can calculate the revenue for each year, and then use the formula for compound interest to calculate the final amount in the bank at the end of the seventh year. The calculations are shown below:
Year 1:
Yield = 1000
Price = 4
Revenue = 1000 x 4 = $4000
A = 4000(1 + 0.12/1)^(1*1) = $4480
Year 2:
Yield = 1000 x (1 - 0.1) = 900
Price = 4 x (1 + 0.05) = 4.2
Revenue = 900 x 4.2 = $3780
A = (4480 + 3780)(1 + 0.12/1)^(1*1) = $9254.40
Year 3:
Yield = 900 x (1 - 0.1) = 810
Price = 4.2 x (1 + 0.05) = 4.41
Revenue = 810 x 4.41 = $3570.90
A = (9254.40 + 3570.90)(1 + 0.12/1)^(1*1) = $14368.74
Year 4:
Yield = 810 x (1 - 0.1) = 729
Price = 4.41 x (1 + 0.05) = 4.63
Revenue = 729 x 4.63 = $3374.07
A = (14368.74 + 3374.07)(1 + 0.12/1)^(1*1) = $20092.50
Year 5:
Yield = 729 x (1 - 0.1) = 656.1
Price = 4.63 x (1 + 0.05) = 4.86
Revenue = 656.1 x 4.86 = $3188.64
A = (20092.50 + 3188.64)(1 + 0.12/1)^(1*1) = $26274.53
Year 6:
Yield = 656.1 x (1 - 0.1) = 590.49
Price = 4.86 x (1 + 0.05) = 5.10
Revenue = 590.49 x 5.10 = $3013.10
A = (26274.53 + 3013.10)(1 + 0.12/1)^(1*1) = $32982.13
Year 7:
Yield = 590.49 x (1 - 0.1) = 531.44
Price = 5.10 x (1 + 0.05) = 5.36
Revenue = 531.44 x 5.36 = $2848.52
A = (32982.13 + 2848.52)(1 + 0.12/1)^(1*1) = $39420.73
Therefore, the amount in the bank at the end of the seventh year would be $39420.73.
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Suppose the market follows a single index model, where the index has expected return of 10% and risk- free rate is 5%. For a stock with risk premium of 4% and abnormal return of 1%, what is the beta of this stock?
To find the beta of the stock, we can use the Capital Asset Pricing Model (CAPM) formula:
E(Ri) = Rf + beta(Rm - Rf) + AR
Where:
E(Ri) = expected return of the stock
Rf = risk-free rate
beta = beta of the stock
Rm = expected return of the market
AR = abnormal return
We can rearrange the formula to solve for beta:
beta = (E(Ri) - Rf - AR) / (Rm - Rf)
Plugging in the given values:
beta = (10% - 5% - 1%) / (10% - 5%)
beta = (4%) / (5%)
beta = 0.8
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A US-based speculator is considering the purchase of a three-month Japanese yen put option on ¥1,000,000, with a strike price of 97 cents per ¥100. The option is American-style, with a premium of 2 cents per ¥100. The current spot exchange rate is 98 cents per ¥100 and the three-month forward exchange rate is 99 cents per ¥100.
(a) (2 points) Suppose the speculator decides to purchase this contract. Does this decision indicate that the speculator holds a bullish or bearish view on the Japanese yen against the US dollar?
(b) (2 points) What are the current intrinsic value and time value of the option contract?
(c) (2 points) If the speculator holds the contract to expiration, determine his total profit/loss if the
spot price of the yen becomes 94 cents per ¥100 in three months.
(d) (4 points) If the speculator holds the contract to expiration, graph the put option’s cash flow (i.e. profit/loss) schedule in US cents per ¥100 purchased. Label on the graph the premium, strike price, and the break-even point of the option. Please also label the axes of the graph.
The graph shows that the speculator will make a profit if the spot price of the yen drops below the strike price of 97 cents per ¥100, and the profit increases as the spot price of the yen decreases. The maximum profit of 4 cents per ¥100 will be made when the spot price of the yen is 94 cents per ¥100. The speculator will make a loss if the spot price of the yen is above the strike price, and the loss increases as the spot price of the yen increases.
(a) The decision to purchase this contract indicates that the speculator holds a bearish view on the Japanese yen against the US dollar.
(b) The current intrinsic value of the option contract is 0, as the spot exchange rate is higher than the strike price. The current time value of the option is 2 cents per ¥100.
(c) If the spot price of the yen becomes 94 cents per ¥100 in three months, the speculator will make a total profit of 4 cents per ¥100 from the option contract.
(d) The graph of the put option’s cash flow schedule in US cents per ¥100 purchased can be seen below. The x-axis represents the spot price of the yen and the y-axis represents the option’s profit/loss. The premium of 2 cents per ¥100 is labeled as “Premium” on the graph, the strike price of 97 cents per ¥100 is labeled as “Strike Price” and the break-even point of the option is labeled as “Break-Even”.
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(a) The speculator holds a bearish view on the Japanese yen against the US dollar.
(b) The current intrinsic value of the option contract is zero
(c) If the spot price of the yen becomes 94 cents per ¥100 in three months, the speculator will exercise the option and sell the yen at the strike price of 97 cents per ¥100.
(d) The maximum loss is the premium paid for the option, and the maximum profit is unlimited.
(a) The speculator holds a bearish view on the Japanese yen against the US dollar. This is because he is buying a put option, which gives him the right to sell the yen at a fixed price in the future. If he believes that the yen will depreciate against the dollar, he can exercise the option and sell the yen at a higher price than the current market price.
(b) The current intrinsic value of the option contract is zero, because the spot exchange rate (98 cents per ¥100) is higher than the strike price (97 cents per ¥100). The time value of the option contract is the premium (2 cents per ¥100), which represents the cost of holding the option until expiration.
(c) If the spot price of the yen becomes 94 cents per ¥100 in three months, the speculator will exercise the option and sell the yen at the strike price of 97 cents per ¥100. His total profit will be the difference between the strike price and the spot price, minus the premium: (97 - 94) x ¥1,000,000 / 100 - (2 x ¥1,000,000 / 100) = $1,000.
(d) The put option’s cash flow schedule is shown in the graph below. The premium is represented by the horizontal line at -2 cents per ¥100, the strike price is represented by the vertical line at 97 cents per ¥100, and the break-even point is represented by the intersection of the two lines. The x-axis represents the spot price of the yen in US cents per ¥100, and the y-axis represents the profit/loss in US dollars.
| -
| -
| -
| -
| -
| -
| -
| -
| -
| -
---------------------|---------------------------
| 94 95 96 97 98 99
As the graph shows, the speculator will make a profit if the spot price of the yen falls below the break-even point of 95 cents per ¥100, and will incur a loss if the spot price of the yen rises above the break-even point. The maximum loss is the premium paid for the option, and the maximum profit is unlimited.
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Assume that you are considering investing in small cap stocks, based upon research indicating that they earn more than large cap stocks, after adjusting for risk. You notice that the transactions costs (all up front, at the time of investing) of investing in small cap stocks is 5% and it is only 1% for large cap stock stocks. If large cap stocks are expected to earn 10% annually and your time horizon is three years, how much higher will the annual returns have to be on small cap stocks for you to break even on investing in the latter?
Question 8 options: 1.43%
1.52%
1.67%
1.83%
2.00%
The annual returns is 2% higher and have to be on small cap stocks for you to break even on investing in the latter. (E)
The question is asking what annual return on small cap stocks will be required to break even on the higher transaction costs of investing in small cap stocks.
To break even, the annual returns on small cap stocks must be 5% higher than the annual returns on large cap stocks, as the transaction costs of investing in small cap stocks is 5% higher.
Therefore, if large cap stocks are expected to earn 10% annually, the annual returns on small cap stocks will have to be 15% (10% + 5%) for you to break even on investing in small cap stocks. Therefore, the answer is 2.00%.(E)
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