Answer: -9
Explanation:
The Tax multiplier of a nation shows how much the aggregate demand of an economy will change if there is a change in taxes.
It is calculated by the formula:
= -MPC / ( 1 - MPC)
= -0.9 / (1 - 0.9)
= -9
If taxes are reduced, aggregate demand would increase by 9 times.
The balance sheet of XYZ Bank appears below. All figures in millions of US Dollars. Assets Liabilities Short-term consumer loans (1-year maturity) $150 Equity capital (fixed) $120 Long-term consumer loans 125 Demand deposits (2-year maturity) 40 3-month T-Bills 130 Passbook savings 130 6-month T-Notes 135 3-month CDs 140 3-year T-Bond 170 3-month Bankers Acceptances 120 10-year Fixed Rate Mortgages 120 6-month Commercial paper 160 30-year Floating Rate Mortgages (rate adjusted every 9-months) 140 1-year Time deposits 120 2-year Time deposits 40 $970 $970 The gap ratio is
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You are an American firm considering opening a factory in France. You believe that your initial costs will be $5 million, and your expected after-tax cash flows will be $350,000/year for 30 years. You estimate an all-equity Beta of .8, that the risk-free rate is 1%, and that the market risk-premium is 7%. You are subject to a 30% tax rate. To the nearest $10, what is your APV
Answer:
An American Firm in France
The APV is:
= $1,251,150
Explanation:
a) Data and Calculations:
Initial cost of investment = $5 million
Expected annual after-tax cash flows = $350,000
Duration of cash flows and investment = 30 years
All-equity Beta = .8 or 80% (.8 * 100)
Risk-free rate = 1%
Market risk-premium = 7%
Market rate = 8% (1% + 8%)
Expected return (after-tax)= .8 * 8% = 6.4%
The present value of the cash flows = $6,251,150
The APV (Adjusted Present Value) = $1,251,150 ($6,251,150 - $5,000,000)
From an online financial calculator:
N (# of periods) 30
I/Y (Interest per year) 6.4
PMT (Periodic after-tax Cash flows) $350,000
Results
PV = $6,251,146.79
Sum of all periodic receipts (after-tax) = $10,500,000.00
The Mary Company primarily sells dishes, and recently purchased a cardboard box company. Mary's new cardboard box division has no excess capacity and sells 30,000 boxes to outside customers. The variable cost of each box is $1.50 and usually has a contribution margin of $0.80 per box. Management of Mary's dish division has decided it would like the box division to provide it with boxes. What is the minimum transfer price the box division should find as acceptable
Answer: $1.50
Explanation:
Based on the information given in the question, we are informed that the variable cost of each box is $1.50 and usually has a contribution margin of $0.80 per box.
We should note that the minimum transfer price that the box division should find as acceptable will be the relevant cost. In this case, the relevant cost is given as $1.50 pee box and therefore, the minimum transfer price will be $1.50.
Sam and Sarah are thinking about getting married. However if either of them cheats on the other, they would get a payoff of 10, while the other person gets zero. If neither cheat, they stay with each other and get a payoff of 7 each and if both cheat, the relationship falls apart and each get a payoff of 1. What is the Nash equilibrium of this game?
Answer:
Self-interest can sometimes lead to sub-optimal outcomes.
Explanation:
In the field of economics, Nash equilibrium can be defined as the system which is stable and it involves the interaction of various participants where no participant can gain by the unilateral change in its strategy if the strategies of the others does not change. In order words, the player can obtain the desired outcome by not deviating or changing from their initial strategy.
In the context, as the outcome of cheating is more than staying together, both Sam and Sarah will tend to cheat and then end up achieving less payoff then what they will get if they stay together.
Therefore, sometimes, self interest can lead to the sub optimal outcomes.
If Wild Widgets, Inc., were an all-equity company, it would have a beta of .90. The company has a target debt-equity ratio of .60. The expected return on the market portfolio is 11 percent and Treasury bills currently yield 3.3 percent. The company has one bond issue outstanding that matures in 26 years, a par value of $2,000, and a coupon rate of 6 percent. The bond currently sells for $2,130. The corporate tax rate is 24 percent.
a. What is the company’s cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b. What is the company’s cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
c. What is the company’s weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Answer:
a. Cost of debt = 4.56%
b. Cost of equity = 10.23%
c. WACC = 8.46%
Explanation:
a. What is the company’s cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Cost of debt = Coupon rate * (100% - tax rate ) = 6% * (100% - 24%) = 4.56%
b. What is the company’s cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Cost of equity = Risk free rate + (Beta * (Market rate - Risk free rate)) = 3.3% + (0.90 * (11% - 3.3%)) = 10.23%
c. What is the company’s weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
WACC = (Cost of debt * Debt to total assets ratio) + (Cost of equity * Equity to total assets ratio) ………… (1)
Equity = Total assets - Debt
Debt to equity ratio = Debt / Equity = 0.60
0.60 = Debt / (Total assets - Debt)
0.60 * (Total assets - Debt) = Debt
0.60Total assets - 0.60Debt = Debt
0.60Total assets = Debt + 0.60Debt
0.60Total assets = (1 + 0.60)Debt
0.60Total assets = 1.60Debt
Debt / Total assets = 0.50 / 1.60 = 0.3125
Equity to total assets ratio = 1 - Debt to total assets = 1 - 0.3125 = 0.6875
Substituting all the relevant values into equation (1), we have:
WACC = (4.56% * 0.3125) + (10.23%* 0.6875) = 8.46%
Brief Exercise 12-8 Partially correct answer. Your answer is partially correct. Try again. Sheffield, Inc., manufactures golf clubs in three models. For the year, the Big Bart line has a net loss of $4,000 from sales $201,000, variable costs $176,000, and fixed costs $29,000. If the Big Bart line is eliminated, $20,100 of fixed costs will remain. Prepare an analysis showing whether the Big Bart line should be eliminated. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Answer:
The Big Bart line should NOT be eliminated.
Explanation:
The analysis can be prepared as follows:
Sheffield, Inc.
An Analysis showing whether the Big Bart line should be eliminated.
Details Continue Eliminate
$ $
Sales 201,000 0
Variable costs (176,000) 0
Contribution margin 25,000 0
Fixed costs (29,000) (20,100)
Net profit (loss) (4,000) (20,100)
From the analysis above, it can be seen that eliminating the Big Bart line would increase the net loss by $16,100 (i.e. $20,100 - $4,000 = $16,100) from $4,000 to $20,100. Therefore, the Big Bart line should NOT be eliminated.
Which of the following increases the supply of foreign exchange?
a.
Investments of capital in foreign countries
b.
Increases in tourism and export of local goods
c.
Import of goods and services to a country
d.
Demand for foreign goods and services
Swifty Corporation estimates its sales at 190000 units in the first quarter and that sales will increase by 11000 units each quarter over the year. They have, and desire, a 25% ending inventory of finished goods. Each unit sells for $25. 40% of the sales are for cash. 70% of the credit customers pay within the quarter. The remainder is received in the quarter following sale. Cash collections for the third quarter are budgeted at
Answer:
$5,250,500
Explanation:
Budgeted cash collection for third quarter = Cash sales + Collection of credit sale of 3rd quarter + Collection of credit sale of 2nd quarter
Budgeted cash collection for third quarter = [(190,000+22,000)*$25*40%] + (212,000*$25*60%*70%) + (201,000*$25*60%*30%)
Budgeted cash collection for third quarter = $2,120,000 + $2,226,000 + $904,500
Budgeted cash collection for third quarter = $5,250,500
M&M's Proposition II suggests that in a world of no taxes and no bankruptcy, ________. A. in simple terms, as the firm adds more debt to the financing mix, the shareholders require a higher and higher return on equity such that it exactly offsets the use of the cheaper debt B. no matter what the debtequity ratio is, the Ra or WACC of the firm increases with debt C. the value of the firm is sensitive to the funding choice between debt and equity D. Statements A, B, and C are all incorrect.
Answer:
A
Explanation:
Item1 0.41 points Item Skipped eBookAskPrintReferencesCheck my workCheck My Work button is now enabledItem 1 Problem 10-42 (LO 10-1) (Algo) Brittany started a law practice as a sole proprietor. She owned a computer, printer, desk, and file cabinet she purchased during law school (several years ago) that she is planning to use in her business. FMV at Time Purchase Converted to Asset Price Business Use Computer $ 5,800 $ 4,100 Printer 3,600 3,450 Desk 4,500 4,300 File cabinet 3,500 3,525 Using the above information, what is the depreciable basis that Brittany should use in her business for each asset
discuss the nature of COIDA
Answer:
please give me brainlist and follow
Explanation:
The main objective of the COIDA is to facilitate a process which provides for payment of medical treatment and compensation for disablement caused by occupational injuries and diseases sustained by employees in the course of their employment, or for death resulting from such injuries or diseases;
Turning down promotion interviews for positions you are not interested in is good policy.
Please select the best answer from the choices provided
OT
F
Answer:
False
Explanation:
The positions which you dont want in an organization but for that you would get the promotion interviews so it is not a good policy as the person have some kind of interest towards his or her work i.e. lacking here. Also without interest the person can provide the satisfaction work to the company
So here in the given situation it is not considered to be a good policy
Therefore the given statement is false
Sheffield Corporation makes a mechanical stuffed alligator that sings the Martian national anthem. The following information is available for Sheffield Corporation's anticipated annual volume of 524,000 units. Per Unit Total Direct materials $ 6 Direct labor $11 Variable manufacturing overhead $17 Fixed manufacturing overhead $3,144,000 Variable selling and administrative expenses $17 Fixed selling and administrative expenses $1,572,000 The company has a desired ROI of 25%. It has invested assets of $31,440,000. Compute the total cost per unit. Total cost per unit $enter the total cost per unit
Answer:
Total cost per unit using absorption costing = $34
Explanation:
Absorption costing is method of costing where overheads are charged to units produced using volume-based bases. e.g machine hours, labour hours e.t.c. Units are valued using full cost per unit
Full cost per unit= Direct material cost + direct labor cost + Variable production overhead + Fixed production overhead
Fixed production overhead = Budgeted overhead/Budgeted production units
unit cost for 2,000 units
Fixed production overhead = $3,144,000/524,000= 6
Total cost = 6 + 11+ 17 = 34
Total cost per unit using absorption costing = $34
what is the most important contribution of the hawthorne studies
The Hawthorne studies taught managers that communication with the employees is essential for higher productivity and efficiency. One theory in the human relations subject which is criticised is Maslow's hierarchy of needs.
Break-Even Sales Currently, the unit selling price of a product is $1,350, the unit variable cost is $900, and the total fixed costs are $810,000. A proposal is being evaluated to increase the unit selling price to $1,400. a. Compute the current break-even sales (units). fill in the blank 1 units b. Compute the anticipated break-even sales (units), assuming that the unit selling price is increased and all costs remain constant.
Answer:
(A). 1,800 units
(B). 1,620 units
Explanation:
(A). We can calculate the break-even sales by using following formula,
Current break-even sale (Unit) = Fixed cost ÷ Contribution margin/unit
Where, Fixed cost = $810,000
Contribution margin/unit = Unit sell price - Unit variable cost
= $1,350 - $900 = $450
By putting the above value in the formula, we get
Current break-even sale (Unit) = $810,000 ÷ $450
= 1,800units
(B). Similarly, we can calculate the anticipated break-even sales by using following formula:
Anticipated break-even sale(Unit) = Fixed cost ÷ Contribution margin/unit
Where, Fixed cost = $810,000
Contribution margin/unit = Unit sell price - Unit variable cost
= $1,400 - $900 = $500
By putting the above value in the formula, we get
Anticipated break-even sale(Unit) = $810,000 ÷ $500
= 1,620units
Firms HL and LL are identical except for their financial leverage ratios and the interest rates they pay on debt. Each has $23 million in invested capital, has $3.45 million of EBIT, and is in the 25% federal-plus-state tax bracket. Firm HL, however, has a debt-to-capital ratio of 50% and pays 12% interest on its debt, whereas LL has a 30% debt-to-capital ratio and pays only 10% interest on its debt. Neither firm uses preferred stock in its capital structure. Calculate the return on invested capital (ROIC) for each firm. Round your answers to two decimal places.
Answer:
ROIC for firm HL = 11.25%
ROIC for firm LL = 11.25%
Explanation:
Given:
EBIT = $3,450,000
Tax rate = 25%
Invested capital = $23,000,000
Note that the information above is the same for both firms HL and LL. This implies that their ROIC will be the same as calculated below:
ROIC = (EBIT * (100% - Tax rate)) / Invested capital ……………………. (1)
Substituting the values into equation (1), we have:
ROIC = ($3,450,000 * (100% - 25%)) / $23,000,000 = 0.1125, or 11.25%
Therefore, we have:
ROIC for firm HL = 11.25%
ROIC for firm LL = 11.25%
What factors do you need to consider when choosing financial institution?
Answer:
please give me brainlist and follow
Explanation:
The following key factors will help you to choose the best savings account for your needs:
Interest rate. ...
Minimum cash balance. ...
Presence or network of the bank/financial institution. ...
Service charges / ancillary fees. ...
Debit-card deals. ...
Doorstep banking facilities. ...
Disclaimer: Copyright Kotak Mahindra Bank Ltd.
True or False: Evaluation of a Request for proposal is based solely on price.
Answer:
false.
Explanation:
u help me i help you
This statement is false because there are many factors to be considered except price while evaluating the proposal.
What factors should keep in mind while evaluating a proposal?Evaluation of a proposal measures the progress of the condition between the project started and when the project was completed. To decide how many changes are required to make it successful.
there are many factors to keep in mind while evaluating a proposal are
Price of the projectCustomer review and preferenceThe competitive environmentThe uniqueness of the proposalTherefore this statement is false.
Learn more about the evaluation of the project here:
brainly.com/question/25876712
Bombeck Inc. has the following transactions during August of the current year. Indicate (a) the effect on the accounting equation and (b) the debit-credit analysis. Aug. 1 Opens an office as a financial advisor, investing $5,000 in cash in exchange for common stock. 4 Pays insurance in advance for 6 months, $1,800 cash. 16 Receives $1,900 from clients for services performed. 27 Pays secretary $1,000 salary.
Answer: Please see answers in explanation column
Explanation:
Date Accounts titles and explanation Debit Credit
Aug 1 Cash $5000
Common Stock $5000
--Since this is an investment by the owner of the business . When the business is gaining cash, it is being debited as it is an asset which is always debited with increase. Also there will be an increase in the owner's Equity Account leading to crediting the Common stock (equity) account.
Date Accounts titles and explanation Debit Credit
Aug 4 Prepaid Insurance $1800
Cash $1800
--The insurance paid in 6 months advance is an asset for the business. As stated above when asset increases, it is debited in the account journal So, prepaid insurance account is being debited . Also,since cash is being reduced as it is used for payment for insurance, it is credited in the accounts journal.
Date Accounts titles and explanation Debit Credit
Aug 16 Cash $1,900
Service Revenue $1,900
--The amount of $1,800 is the revenue for service rendered and since it is an equity account which increased revenue, we credit it. Also, since cash is being received, because it is an asset, debit is recorded on the cash account.
Date Accounts titles and explanation Debit Credit
Aug 27 Salary Expense $1000
Cash $1000
--Payment of salary is an expense to any business and paid from the business Cash Account causing a decrease in the Cash, since Cash is referred to an asset , because of its decrease, we credit the Cash Account. Also, the salary expense account is debited because it is increasing
Evan is single and has AGI of $277,300 in 2020. His potential itemized deductions before any limitations for the year total $52,300 and consist of the following: Medical expenses (before the AGI limitation) $29,000 Interest on home mortgage 8,700 State income taxes 9,500 Real estate taxes 3,600 Charitable contributions 2,500 After all necessary adjustments are made, what is the amount of itemized deductions Evan may claim
Answer:
$24,402.50
Explanation:
Medical expenses can be deducted only if they are above 7.5% of your AGI:
$277,300 x 7.5% = $20,797.50
Medical deductions = $29,000 - $20,797.50 = $8,202.50
Evan can deduct $8,700 in mortgage interests
Total deductions for state and local taxes for a single filer = $5,000
Charitable contributions are also deductible = $2,500
total deductions = $8,202.50 + $8,700 + $5,000 + $2,500 = $24,402.50
Find below the financial statements for Kenning Corp. Income Statement Balance Sheet Sales $5,000 Assets $14,800 Debt $11,000 Costs 3,410 Equity 3,800 Net income $1,590 Total $14,800 Total $14,800 Assume no income taxes. Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid and next year's sales are projected to be $5,970. What is the EFN?
Answer: $972.74
Explanation:
From the information given, the external finance is calculated thus:
Sales growth = ($5970 - $5000) / $5000 × 100 = $970/$5000 × 100 = 19.4%
Then, we calculate the net income which will be:
= Sales - Cost
= $5970 - ($3410 × 1.194)
= $5970 - $4071.54
= $1898.46
Total asset = $14800 × 1.194 = $17671.20
Total equity = $3800 + $1898.46 = $5698.46
External financing needed:
= Total assets - Total equity - Debt
= $17671.20 - $5698.46 - $11,000
= $972.74
On December 31, 2016, Krug Company reported pretax income of $300,000 prior to the following adjusting entries: Depreciation expense: $38,000; Accrued sales revenue: $36,000; Accrued expenses: $17,000; Used insurance: $4,000; the insurance was initially recorded as prepaid. Rent revenue earned: $2,000; the rent was initially prepaid by the tenant and credited to unearned rent revenue. How much is Krug's pretax income after the adjusting entries
Answer: $279,000
Explanation:
Accrued revenue and expenses should be accounted for because they have been realized and incurred in the current period.
Used insurance and depreciation should be accounted for as the expenses they are and rent revenue earned should be treated as revenue.
Pretax income after adjustments:
= Pretax income + Accrued sales revenue + rent revenue - Depreciation - Accrued expenses - Insurance
= 300,000 + 36,000 + 2,000 - 38,000 - 17,000 - 4,000
= $279,000
Xila-Fone Corp. expects to earn $4.00 per share next year, with an expected payout of 30%. Investors expect the dividend to grow at a constant rate of 8% for the foreseeable future. The risk-free rate is 5%, and the beta that is 10% more volatile than the market as a whole, and the expected return on the market is 14%. What is the estimated price of the stock
Answer:
P0 = $17.39130 rounded off to $17.39
Explanation:
The constant growth model of dividend discount model (DDM) can be used to calculate the price of the stock today. DDM calculates the price of a stock based on the present value of the expected future dividends from the stock. The formula for price today under constant growth DDM is,
P0 = D1 / (r - g)
Where,
D1 is the dividend expected in Year 1 or next yearg is the constant growth rate in dividends r is the discount rate or required rate of return
However, to calculate the Price of the stock today, we must first calculate the required rate of return (r) for the stock. The required rate of return can be calculated using the CAPM equation. The equation is as follows,
r = rRF + Beta * (rM - rRF)
Where,
rRF is the risk free rate rM is the expected return on market
We know the risk free rate and expected return on market and we also know that the beta of market is always equal to 1. So, the beta of stock which is 10% more volatile than the market will be,
Beta of stock = 1 * 10% + 1 = 1.1
r = 0.05 + 1.1 * (0.14 - 0.05)
r = 0.149 or 14.9%
The dividend expected for next year will be,
D1 = 4 * 30% = $1.2 per share
Using the DDM,
P0 = 1.2 / (0.149 - 0.08)
P0 = $17.39130 rounded off to $17.39
the yellow company has a current ratio of 2.65 . The acid test ratio is 2.01 . The current liabilities of the are company $45,000 . Assuming there are no prepaid expenses the dollar amount of merchandise inventoey is
Answer:
Amount of inventory = $28,800
Explanation:
Given:
Current ratio = 2.65
Acid test ratio = 2.01
Current liabilities = $45,000
Prepaid expenses = $0
Find:
Amount of inventory
Computation:
Current ratio = Current assets / Current liabilities
2.65 = Current assets / 45,000
Current assets = $119,250
Acid test ratio = [Current assets - Inventory - Prepaid expenses] / Current liabilities
2.01 = [119,250 - Inventory - 0] / 45,000
90,450 =119,250 - Inventory
Amount of inventory = $28,800
Why is it important for developers to be careful when using cascading deletes?
They may create orphaned records.
They may link to data in external databases.
They may delete more records than intended.
They may disconnect the bond between tables.
Answer:
C. They may delete more records than intended.
Explanation: Just answered it on edg. 2021
Answer:
(C) They may accidentally delete more records than intended.
Explanation:
Sheffield Corp. adopted the dollar-value LIFO method of inventory valuation on December 31, 2019. Its inventory at that date was $1010000 and the relevant price index was 100. Information regarding inventory for subsequent years is as follows: Date Inventory at Current Prices Current Price Index December 31, 2020 $1287000 106 December 31, 2021 1429000 124 December 31, 2022 1627000 129 What is the cost of the ending inventory at December 31, 2020 under dollar-value LIFO
Answer: $1226400
Explanation:
The cost of the ending inventory at December 31, 2020 under dollar-value LIFO will be calculated as:
= $1010000 + [($1287000/106 × 100) - $1010000] × 106/100
= $1010000 + ($1214151.4 - $1010000) × 1.06
= $1010000 + ($204150.94 × 1.06)
= $1010000 + $216400
= $1226400
Therefore, the cost of the ending inventory at December 31, 2020 under dollar-value LIFO is $1226400.
Rollins Corporation is estimating its WACC. It's current and target capital structure is 20
percent debt, 20 percent preferred stock, and 60 percent common equity. Its bonds have a 12
percent coupon rate, paid semiannually, a current maturity of 20 years, and sell for $1,040. The
firm could sell, at par, $100 preferred stock which pays a $12.00 annual preferred dividend.
Rollins' common stock beta is 1.2, and the risk-free rate is 10 percent. Rollins is a constant-
growth firm which just paid a dividend of $2.00. Its stock sells for $27.00 per share, and has a
growth rate of 3 percent. The floatation cost is 5% for debt, 10% for preferred stock, and 25%
for common stock. The firm's marginal tax rate is 40 percent.
Question 1 (worth 15 out of 100 possible points for the quiz)
Part a. Calculate the cost of existing debt.
Part b. Calculate the cost of new debt.
Answer:
i dont get it, all words are distinguish
Explanation:
At December 31, Folgeys Coffee Company reports the following results for its calendar year. Cash sales $ 914,000 Credit sales 314,000 Its year-end unadjusted trial balance includes the following items. Accounts receivable $ 139,000 debit Allowance for doubtful accounts 6,400 debit Prepare the adjusting entry to record bad debts expense assuming uncollectibles are estimated to be (1) 5% of credit sales, (2) 3% of total sales and (3) 8% of year-end accounts receivable.
Answer:
a.
Date Account Title Debit Credit
Dec, 31 Bad debt expense $15,700
Allowance for doubtful expense account $15,700
Working
= 5% * 314,000
= $15,700
b.
Date Account Title Debit Credit
Dec, 31 Bad debt expense $36,840
Allowance for doubtful expense account $36,840
Working
= 3% * (Cash sales + Credit sales)
= 3% * (914,000 + 314,000)
= $36,840
c.
Date Account Title Debit Credit
Dec, 31 Bad debt expense $17,520
Allowance for doubtful expense account $17,520
Working
= (8% * Year end accounts receivable) + Debit balance for Allowance for doubtful account
= (8% * 139,000) + 6,400
= $17,520
The management of Penfold Corporation is considering the purchase of a machine that would cost $270,000, would last for 5 years, and would have no salvage value. The machine would reduce labor and other costs by $60,000 per year. The company requires a minimum pretax return of 12% on all investment projects. Click here to view Exhibit 7B-1 and Exhibit 7B-2 to determine the appropriate discount factor(s) using the tables provided. The net present value of the proposed project is closest to (Ignore income taxes.): (Round your intermediate calculations and final answer to the nearest whole dollar amount.) Multiple Choice $(11,700) $(29,886) $(77,514) $(53,700)
Answer:
$(53,700)
Explanation:
The computation of the net present value is given below:
Given that
Initial investment is $270,000
Time period is 5 years
Annual cash flows is $60,000 per year
Discounting rate is 12%
Now the net present value is
Year cash flows discount rate at 12% Present value
1-5 $60,000 3.605 $216,300
Less:
Initial investment $270,000
Net present value ($53,700)
Ridley is an officer of Sun Watts, Inc. Ridley knows that a Sun Watts engineer recently developed a new, inexpensive method for collecting, storing, and converting solar power into fuel. Ridley takes advantage of this information to buy Sun Watts stock from Taylor and, after the discovery is announced publicly, to sell the stock to Ulrich at a profit. Taylor claims that this is a violation of federal law. Is Taylor correct
Answer:
Yes, Taylor is correct
Explanation:
In the case above between Taylor and Ridley, it a a clear violation of the federal law . This is due to the fact that Ridley bought the stocks of Sun Watts, Inc. from Taylor as a result of the insider information he has gotten and the public are not aware of it or or have no access to the information beforehand.
Ridley is in violation of federal law by buying the stock at a lower price.
It is stated in the SEC Act of 1934 both criminal and civil penalties. criminal guilty of the above can be fined about $5 million and up to 20 years in prison. Ridley can give a penalty amost to as much as triple the profits gotten or the loss avoided by the guilty party.