The five types of normalization adjustments that can be made to a private company's earnings to translate them to a "reasonably well run, public company equivalent basis" are non-recurring expenses, owner's compensation, related-party transactions, non-operating assets, and non-operating expenses.
Normalization adjustments are made to a private company's earnings to translate them to a "reasonably well run, public company equivalent basis." These adjustments are made to provide a more accurate representation of a company's financial performance. There are several types of normalization adjustments that can be made, but five common ones are non-recurring expenses, owner's compensation, related-party transactions, non-operating assets, and non-operating expenses.
Non-recurring expenses are expenses that are not expected to occur again in the future, such as one-time legal fees or costs associated with a natural disaster. These expenses are removed from the company's earnings to provide a more accurate representation of its ongoing financial performance. Private companies often pay their owners a salary that is significantly higher or lower than what would be paid to a CEO of a comparable public company. This adjustment is made to reflect the owner's compensation that would be paid to a CEO of a reasonably well run, public company.Related-party transactions are transactions between the company and its owners or other related parties. These transactions are often not conducted at arm's length, and therefore may not reflect the true value of the goods or services exchanged. This adjustment is made to reflect the value that would be paid in an arm's length transaction.Non-operating assets are assets that are not necessary for the company's ongoing operations, such as excess cash or investments. These assets are removed from the company's earnings to provide a more accurate representation of its operating performance.Non-operating expenses are expenses that are not necessary for the company's ongoing operations, such as interest expense on excess cash or investments. These expenses are removed from the company's earnings to provide a more accurate representation of its operating performance.Learn more about Financial performance:
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Question 3
Critically examine the business case and necessary requirements for providing funding for Projects, with specific focus on Special Purpose Vehicle (SPV) Financing of large and complex infrastructure or similar type of projects.
Discuss what a business case is for SPV ( 250 words )
Introduce NPV, IRR, and DSCR and explain critically why they are best business decision indicators for SPV infrastructure projects. ( 250 words )
Discuss applications/Benefits of NPV. IRR and DSCR in an SPV business case. ( 250 words )
Discuss limitations of NPV. IRR and DSCR in an SPV business case. ( 250 words )
A business case is a document that outlines the reasons for undertaking a project, including the expected benefits, costs, and risks. In the case of Special Purpose Vehicle (SPV) financing, the business case outlines the rationale for using this specific financing structure for large and complex infrastructure or similar type of projects.
SPV financing involves the creation of a separate legal entity, the SPV, to finance and own the project. The SPV then raises debt and equity financing, and the project's cash flows are used to repay the debt and provide returns to equity investors. The business case for SPV financing typically includes an analysis of the project's expected cash flows and the potential risks and benefits of using this financing structure.
One of the key requirements for providing funding for projects using SPV financing is a strong business case that demonstrates the project's viability and the potential benefits of using this financing structure. This includes an analysis of the project's expected cash flows, the potential risks and benefits of using SPV financing, and the financial metrics used to evaluate the project's viability.
Three of the most commonly used financial metrics for evaluating SPV infrastructure projects are Net Present Value (NPV), Internal Rate of Return (IRR), and Debt Service Coverage Ratio (DSCR). NPV is a measure of the present value of the project's expected cash flows, taking into account the time value of money. IRR is a measure of the project's expected rate of return, and DSCR is a measure of the project's ability to generate sufficient cash flows to cover its debt service obligations.
These financial metrics are critical for making business decisions about SPV infrastructure projects because they provide an indication of the project's expected financial performance and its ability to generate sufficient cash flows to repay the debt and provide returns to equity investors. NPV, IRR, and DSCR are also important for assessing the potential risks and benefits of using SPV financing, and for determining the appropriate mix of debt and equity financing for the project.
One of the key benefits of using NPV, IRR, and DSCR in an SPV business case is that they provide a quantitative basis for evaluating the project's expected financial performance and its ability to generate sufficient cash flows to repay the debt and provide returns to equity investors. These metrics can also be used to compare different financing options and to assess the potential risks and benefits of using SPV financing.
However, there are also some limitations of using NPV, IRR, and DSCR in an SPV business case. One of the main limitations is that these metrics are based on estimates of future cash flows, which are subject to uncertainty and may not accurately reflect the project's actual performance.
Additionally, these metrics do not take into account non-financial factors, such as the project's social and environmental impacts, which may also be important considerations in the decision-making process.
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Write about logistics performance priorities for "Any Saudi" fast food restaurant chain in Covid 19 restrictions; explain why you have come to your conclusions:The Answer must follow the outline points below:1. Executive summary (2 Mark, word count rage 400-500)- Summarize what is logistics performance priorities, what Logistics and Supply Chain Management concepts/tools applied to achieve the company’s objective.2. Background information (2 Mark, word count rage 400-500)- Briefly introduce the company background (e.g., name, products, business size, location, internal/external interesting facts, etc).
1. The logistics performance priorities for "Any Saudi" fast food restaurant chain during the Covid-19 restrictions involve ensuring the timely and efficient delivery of food products, maintaining proper inventory levels, and adapting to changes in demand. 2."Any Saudi" is a fast food restaurant chain that specializes in traditional Saudi cuisine. The company operates several locations throughout the Kingdom of Saudi Arabia and is known for its high-quality food and excellent customer service.
1.Executive Summary:The company must apply logistics and supply chain management concepts and tools such as inventory management, forecasting, and transportation management to achieve its objectives during these challenging times.
2. Background Information:
Due to the Covid-19 restrictions, the company has had to adapt its business model to continue serving its customers while ensuring the safety of its employees and customers. This has included implementing measures such as contactless delivery, curbside pickup, and social distancing in its restaurants. Despite these challenges, "Any Saudi" has continued to thrive and maintain its reputation as one of the top fast food chains in the country.
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Suppose, on a very tiresome day, you and your friend have decided to visit Tabaq Coffee. While drinking cappuccino you and your friend have come up with an idea to engage in a similar business like this in your locality. In order to draft the ordering process your friend wants to draw a business process model. Now please help your friend to draw a BPMN 2.0 diagram using the following details:
Customer:
Ask baristas for menu.
If a touchless menu is preferred, then scan the QR code available on the table. Otherwise, receive a menu from the barista.
Check if cappuccino coffee is available. Otherwise, select another item.
Place order. Customers may also add cookies to the order.
Get a token for the order and simultaneously, receive a money receipt.
Receive ordered items.
Rate Tabaq coffee shop.
Cashier:
Receive order from customer.
Generate a bill for the selected item.
Receive payment from customer.
Save order for preparation with status set to pending.
Give a token and a money receipt to the customer for the order.
Presenter:
Receive new order.
Prepare food as per the order.
Present to the customer when prepared.
Update order status as delivered.
The process of BPMN diagram begins with a Customer asking a Barista for the menu.
Below is a BPMN 2.0 diagram illustrating the ordering process for Tabaq Coffee:
The process of BPMN diagram begins with a Customer asking a Barista for the menu. If the Customer prefers a touchless menu, they can scan the QR code available on the table. If not, they will receive a menu from the Barista. The Customer then checks if Cappuccino coffee is available, and if not, they select another item. They then place their order, and they may also add cookies to the order. After that, they receive a token for the order and a money receipt. Finally, they receive the ordered items and rate the Tabaq Coffee shop.
The Cashier will then receive the order from the Customer, generate a bill for the selected item, receive payment from the Customer, save the order for preparation with status set to pending, and give a token and a money receipt to the Customer for the order.
Finally, the Presenter will receive the new order, prepare the food as per the order, present it to the Customer when prepared, and update the order status as delivered.
In conclusion, BPMN diagrams can be used to model a wide range of business processes, from simple linear processes to complex workflows with multiple decision points and loops. They provide a clear and concise representation of the process that can be easily understood by both technical and non-technical stakeholders, making them a useful tool for process improvement and communication.
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Performance Appraisal Issues Jocelyn took a deep breath and took another look at the clock. It was 5:45 p.m. and still no Melvin. Start Up Central was running its fifth session in the eight-week Hatchery program from 6:00 p.m. until 8:00 p.m., and Melvin was scheduled to facilitate the session. The front door bells jingled and two more keen entrepreneurs entered the collision space for the reception before the session. They hung up their coats and headed toward the coffee and snack station. joining the other entrepreneurs gathered in anticipation of tonight's session. The event calendar indicated they should expect representatives from 12 early-stage companies, although Jocelyn knew from experience that others might decide to show up at the last minute. Tonight was their practice pitch event and all representatives would get the opportunity to spend three minutes describing their business opportunity to the mock investors in the room and receive feedback on their performance The entrepreneurs had been generating their business canvases and crafting their pitch decks in the weeks since the Hatchery program had begun. On the final night just three weeks from tonight, they would be pitching their business opportunities to an angel investment crowd in the greater Toronto area Back when Start Up Central was just getting off the ground, Jocelyn had led the Hatchery program herself She was the inaugural executive director of Start Up Central, which was founded by a group of serial entrepreneurs in the Toronto aren. The group had put seed money into Start Up Central with a view to developing new entrepreneurs in a boot camp type fashion. Jocelyn herself had built a social marketing company that had been acquired by Forbes four years ago. With a successful experience building Page 23 and then exiting a startup herself, she found the executive director role filled her desire to give back to the community by connecting new entrepreneurs with the various resources they needed to make their business dreams come true. Building Start Up Central and setting new entrepreneurs up for success was ord Chan job to Jocelyn it had become her life's work. But there was a reason she had hired Melvin to now shoulder some of the Start Up Central workload Jocely eelt at hier des since before 8 am that morning. She had met with their advisorsroun over 4 Teported From lunch, provided input on a panel to the Ontario provincial government about their Young Entrepreneurs program, and placed calls to secure business advisors for the next round of the Hatchery program beginning in the fall. When Jocelyn had decided to bring on an entrepreneur-in-residence (ER). Melvin had come strongly recommended by one of the advisors on the Start Up Central advisory group. When she had met with him, he exuded confidence and was credible in the EiR role. He had been a serial entrepreneur for 10 years, but was still "relatable to the new entrepreneur crowd. In Jocelyn's experience, the distance between start-up hopefuls and some of the successful entrepreneurs in the greater Toronto area was perceived as vast. As well, the travel and commitment schedules of many of the super successful entrepreneurs meant they weren't available for eight Wednesdays in a row to help with the Hatchery program. Through his EiR role, Melvin was still able to be engaged in his own start-up ventures, but he received a stipend from Start Up Central to act as an advisor one-on-one to the start-up companies in their programs and to attend their events. Jocelyn thought that the $50,000 per year stipend they were paying him was at least enough to get him to show up for the Hatchery program as the lead facilitator. Jocelyn pushed back her chair and sighed. She stood up and grabbed her suit jacket, prepared to go out and lead tonight's practice pitch event. She put a smile on her face and tried to leave her frustration with Melvin behind as she went out to greet the budding entrepreneurs. DISCUSSION QUESTIONS 1. Are there any differences between Melvin as an entrepreneur in-residence with a stipend as compared to an employee of Start Up Central Discuss. 2. As Jocelyn, how would you handle Melvin's absence? How would you ensure that Melvin has clear performance expectations? 3. If this was Melvin's third unexplained absence as compared to his first, how would you set up a set of steps to ensure performance improvement? St Pet 4. Is absence a reason for just cause dismissal? Explain the documentation and steps you would have to take to dismiss Melvin for just cause.
The answers to the given questions are given below:
Are there any differences between Melvin as an entrepreneur in residence with a stipend as compared to an employee of Start up central? Discuss.Yes, there is a difference between Melvin as an entrepreneur in residence with a stipend as opposed to an employee of Startup central. Entrepreneur-In-Residence (EIR) job is to create new entrepreneurial opportunities for law firms.
They offer technical advises and services to the emerging entrepreneur in their business measures and decisions to acquire clients for the law firms,
As Jocelyn, how would you handle Melvin's absence? How would you ensure that Melvin has clear performance expectation?
Like Jocelyn, the absence of Melvin is to be dealt with with with extremely carefully in the professional world, making it important to take into account Melvin's unprofessional attitude.
Since it might give the entrepreneurs a negative impact as things are colliding with Jocelyn and Melvin.
To make sure that Melvin has reasonable performance goals it is receiving a whopping $50,000 per annum in grants as a lead facilitator for the hatchery programme.
If this was Melvin's third unexplained absence as compared to his first, how would you set up a set of steps to ensure performance improvement?
If it is the third unexplained absence for Melvin compared with his first, the performance improvement plan must be established by developing the following;
Melvin has a responsibility to obey the appropriate Start-Up Central instructions.
Melvin must have the duty, responsibility and place entrusted to him in his capacity as a consultant.
Melvin must be obliged to obey the policies and rules of Start-Up Central.
Start-Up Central must make sure it clearly shows that the workplace is fair for everyone.
To hold a conversation with Melvin, that it should be addressed if there is a conscious absence or if there are any valid factors, such as health conditions or personal reasons.
Start Up Central is free to call Melvin in the event that its lack of problems can not be overcome despite the performance management guidelines.
Is absence a reason for just cause dismissal? Explain the documentation and steps you would have to take to dismiss Melvin for just cause.
Yeah, absence is a justification for only dismissal.
For Melvin, he ought, before continuing with his dismissal for fair cause, to have formally been warned of his daily absence. Melvin should have again been explicitly told of the position and obligations of Melvin and why he is paid according to the contract if anything.
Melvin needs to know that his daily absence costs the business a lot for no good cause, and Start-up Central is free to step down if he does not further change his conduct. Surely, the dismissal for absenteeism for Just Cause is justified if things don't go north hand.
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Problem 4-18 Cost–Volume–Profit Analysis; Degree of Operating Leverage [LO1, LO3, LO4, LO5, LO8] Feather Friends, Incorporated, distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable expenses are $8 per unit, and fixed expenses total $200,000 per year. Its operating results for last year were as follows:
The break-even point for Feather Friends, Incorporated is 16,667 units, the margin of safety is 8,333 units, the degree of operating leverage is 3, and the operating income is $100,000.
1. Break-even point: The break-even point is the point at which total revenue equals total costs. It can be calculated by dividing the fixed expenses by the contribution margin per unit (selling price - variable expenses). In this case, the break-even point is:
Break-even point = $200,000 / ($20 - $8) = $200,000 / $12 = 16,667 units
2. Margin of safety: The margin of safety is the difference between the actual sales and the break-even point. It can be calculated by subtracting the break-even point from the actual sales. In this case, the margin of safety is:
Margin of safety = Actual sales - Break-even point = 25,000 units - 16,667 units = 8,333 units
3. Degree of operating leverage: The degree of operating leverage is a measure of how sensitive the operating income is to changes in sales. It can be calculated by dividing the contribution margin by the operating income. In this case, the degree of operating leverage is:
Degree of operating leverage = Contribution margin / Operating income = ($12 x 25,000 units) / ($12 x 25,000 units - $200,000) = $300,000 / $100,000 = 3
4. Operating income: The operating income is the difference between the total revenue and the total expenses. It can be calculated by subtracting the total expenses from the total revenue. In this case, the operating income is:
Operating income = Total revenue - Total expenses = ($20 x 25,000 units) - ($8 x 25,000 units + $200,000) = $500,000 - $400,000 = $100,000
Therefore, the break-even point, margin of safety, degree pf operating leverage and the operating income for Feather Friends Incorporated is 16,667 units, 8,333 units, 3, and $100,000 respectively.
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1. Which form should be used to record customer prepayments (deposits)?a. Record Depositsb. Create Sales Receiptsc. Write Chequesd. Receive Payments2. How many days after the invoice date is the full amount of an invoice due if the termsof sale are 1/10, n/30?a. 1 dayb. 10 daysc. 30 daysd. Immediately3. What discount would be applied for early payment of an invoice with sales terms of 1/10, n/30?a. 1% b. 2% c. 10% d. 30%4. What type of account is the Sales Discounts account? a. Contra-Revenueb. Revenuec. Contra-Expensed. Asset5. Which form should be used to enter a transaction involving a Purchase Discount?a. Make General Journal Entriesb. Pay Billsc. Enter Billsd. Receive Bills6. What form should be used to enter Vendor prepayments?a. Write Chequesb. Enter Billsc. Purchase Ordersd. Pay Bills57. What are the steps for turning on Sales Estimates in a QuickBooks company file?a. Open the Company menu, then choose Company Information and select theEstimates checkboxb. Open the Company Snapshot, then select the Estimates checkboxc. Open the Edit menu, then choose Preferences. From the Jobs and EstimatesCompany Preferences tab, click Yes under Do You Create Estimates?d. From the Customer Center, select Sales Preferences, and then click the Yes buttonunder Estimates.8. Which of the following represents the journal entry created when a credit is applied to a customer account?a. Debit Bank ChequingCredit Accounts Receivableb. Debit Accounts ReceivableCredit Bank Chequingc. Debit RevenueCredit Accounts Receivabled. No journal entry is created
1. The correct form to be used to record customer prepayments (deposits) is Record Deposits (Option A). 2. The full amount of an invoice is due 30 days after the invoice date if the terms of sale are 1/10, n/30 us 30 days (Option C). 3. The discount that would be applied for early payment of an invoice with sales terms of 1/10, n/30 is 1% (Option A). 4. The Sales Discounts account is a Contra-Revenue account (Option A). 5. The correct form to be used to enter a transaction involving a Purchase Discount is Pay Bills (Option B). 6. The correct form to be used to enter Vendor prepayments is Write Cheques (Option A). 7. The correct steps for turning on Sales Estimates in a QuickBooks company file are Open the Edit menu, then choose Preferences (Option C). 8. The correct journal entry created when a credit is applied to a customer account is Debit Accounts Receivable, Credit Bank Chequing (Option B).
Correct options:1. The correct form to be used to record customer prepayments (deposits) is Record Deposits. This form is used to record any deposits or prepayments from customers before the sale is finalized. Therefore, the correct option is a.
2. The full amount of an invoice is due 30 days after the invoice date if the terms of sale are 1/10, n/30 is 30 days. This means that the customer has 30 days to pay the full amount, but can receive a 1% discount if they pay within 10 days. Therefore, the correct option is c.
3. The discount that would be applied for early payment of an invoice with sales terms of 1/10, n/30 is 1%. This means that the customer will receive a 1% discount if they pay within 10 days of the invoice date. Therefore, the correct option is a.
4. The Sales Discounts account is a Contra-Revenue account. This means that it is used to reduce the amount of revenue recorded for a sale. Therefore, the correct option is a.
5. The correct form to be used to enter a transaction involving a Purchase Discount is Pay Bills. This form is used to record the payment of bills, including any discounts that are applied. Therefore, the correct option is b.
6. The correct form to be used to enter Vendor prepayments is Write Cheques. This form is used to record any prepayments or deposits made to vendors before the purchase is finalized. Therefore, the correct option is a.
7. The correct steps for turning on Sales Estimates in a QuickBooks company file are Open the Edit menu, then choose Preferences. From the Jobs and Estimates Company Preferences tab, click Yes under Do You Create Estimates? This will enable the use of estimates in the company file. Therefore, the correct option is c.
8. The correct journal entry created when a credit is applied to a customer account is Debit Accounts Receivable, Credit Bank Chequing. This entry reduces the amount owed by the customer and increases the amount in the bank account. Therefore, the correct option is b.
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An example of a money market instrument is: a. A Treasury- bill.
b. A certificate of deposit. c. A corporate bond. d. A treasury-
bond.
An example of a money market instrument is: b. A certificate of deposit.
Money market instruments are short-term debt securities that are used by corporations, banks, and governments to raise funds. They typically have maturities of one year or less and are considered to be low-risk investments. Examples of money market instruments include:
- Treasury bills: Short-term debt securities issued by the U.S. government with maturities of one year or less.
- Certificates of deposit (CDs): Time deposits offered by banks that pay a fixed interest rate and have a specific maturity date.
- Commercial paper: Short-term, unsecured promissory notes issued by corporations to raise funds.
- Banker's acceptances: Short-term, negotiable debt instruments that are guaranteed by a bank.
Among the options provided in the question, a certificate of deposit (CD) is an example of a money market instrument. Treasury bills are also considered money market instruments, but treasury bonds are not, as they have maturities of more than one year. Corporate bonds are also not considered money market instruments, as they typically have maturities of more than one year and are considered to be higher-risk investments.
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A company is looking into investing in renewable energies which would involved the following investement and expected cash flows :
II CF Initial investment 13,500,000 Cash flow year 1 4,945,000 Cash flow year 2 5,601,222 Cash flow year 3 4,684,525 From the BCR (benefit cost ratio) or PI (profitability index) point of vue, would you recommend this investment and why ?
A company is looking into investing in renewable energies which would involved the following investement and expected cash flows : II CF Initial investment 13,500,000 Cash flow year 1 4,945,000 Cash flow year 2 5,601,222 Cash flow year 3 4,684,525 From the BCR (benefit cost ratio) or PI (profitability index) point of vue, This investment appears to be a good one. Since the BCR for this investment is 1.14, it is expected to generate a positive return
The Benefit Cost Ratio (BCR) or Profitability Index (PI) is a financial metric used to evaluate the feasibility and profitability of an investment. It is calculated by dividing the total present value of expected cash flows by the initial investment.
In this case, the BCR or PI would be:
BCR = (4,945,000 + 5,601,222 + 4,684,525) / 13,500,000 = 1.14
A BCR or PI greater than 1 indicates that the investment is expected to generate a positive return, and therefore, would be a profitable investment. Since the BCR for this investment is 1.14, it is expected to generate a positive return and would be a recommended investment.
However, it is important to consider other factors such as the risk associated with the investment, the company's overall financial situation, and the availability of alternative investment options before making a final decision.
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On June 30, 2018, Georgia-Atlantic, Inc. , leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2018. Georgia-Atlantic’s incremental borrowing rate is 10%, the same rate IC used to calculate lease payment amounts. IC purchased the equipment from Builders, Inc. At a cost of $3 million. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided. )
Georgia-Atlantic's present value of lease payments is PVL = $1,547,087.74. The fair value of the lease liability is FVL = $2,079,572.35.
Georgia-Atlantic's present value of lease payments (PVL) can be calculated using the Present Value of an Annuity Due of 1 factor with a present value of $1 from the tables provided. The formula for PVL is as follows:
PVL = [$562,907 x (1 - (1 + 10%)-3)/10%] x (1 + 10%)
PVL = $1,547,087.74
The fair value of the lease liability (FVL) for Georgia-Atlantic can be calculated using the Future Value of an Annuity Due of 1 factor with a future value of $1 from the tables provided. The formula for FVL is as follows:
FVL = [$562,907 x ((1 + 10%)3 - 1)/10%] x (1 + 10%)
FVL = $2,079,572.35
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Environment of business exerts multi-dimensional pressure on
businesses. How can businesses information systems respond to these
pressures more effectively?
Businesses information systems respond effectively to these pressures by provide them with the insights and data they need to remain competitive.
Environment of business can exert multi-dimensional pressure on businesses, such as changes in customer preferences, emerging technologies, and globalization.
Information systems can help businesses to better understand customer preferences, predict and respond to market changes, and gain better access to new technologies.
Additionally, they can help businesses to increase efficiency, minimize costs, and improve collaboration between departments and across the global organization.
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Question 1
Spinning the Career Wheel How will the study of accounting help you? A working knowledge of accounting is desirable for virtually every field of business. Some examples of how accounting is used in business careers include:
General management: Managers at Ford Motors, Massachusetts General Hospital, California State University— Fullerton, a McDonald’s franchise, and a Trek bike shop all need to understand accounting data in order to make wise business decisions.
Marketing: Marketing specialists at Procter & Gamble, must be sensitive to costs and benefits, which accounting helps them quantify and understand. Making a sale is meaningless unless it is a profi table sale.
Finance: Do you want to be a banker for Citicorp, an investment analyst for Goldman Sachs, or a stock broker for Merrill Lynch? These fields rely heavily on accounting knowledge to analyze financial statements. In fact, it is difficult to get a good job in a finance function without two or three courses in accounting.
Real estate: Are you interested in being a real estate broker for Prudential Real Estate? Because a third party—the bank—is almost always involved in financing a real estate transaction, brokers must understand the numbers involved: Can the buyer afford to make the payments to the bank? Does the cash flow from an industrial property justify the purchase price? What are the tax benefits of the purchase?
Required:
Indicate the accounting knowledge you will need in your workplace.
Describe any THREE (3) usages of accounting information which you are finding useful at your workplace. (15 marks)
Could you please solve this question as soon as possible?
The study of accounting can be helpful in a wide range of careers, including general management, marketing, finance, and real estate.
In general management, accounting knowledge is used to make wise business decisions based on accounting data. In marketing, accounting is used to quantify and understand costs and benefits.
In finance, accounting knowledge is used to analyze financial statements, and is essential for getting a good job in the finance field. In real estate, accounting knowledge is used to understand the numbers involved in a transaction, such as the buyer's ability to make payments and the cash flow from a property.
The accounting knowledge needed in the workplace will vary depending on the specific career field. However, some general accounting knowledge that is useful in most careers includes understanding financial statements, budgeting, cost-benefit analysis, and tax considerations.
Three specific usages of accounting information that can be useful in the workplace are:
Budgeting: Accounting information is used to create budgets and track expenses, helping businesses stay within their budget and make informed financial decisions.Cost-benefit analysis: Accounting information is used to quantify and compare the costs and benefits of different business decisions, helping businesses make the most profitable choices.Tax considerations: Accounting information is used to understand the tax implications of different business decisions, helping businesses minimize their tax liability and comply with tax laws.Learn more about accounting knowledge brainly.com/question/24081234
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1. If you are a finance manager, which goal of the firm you will pursue. How can you achieve firm's goal at the same time reduce agency costs. Should you reduce agency cost. 2. What is financial market. show a diagram the function of financial market. what is the investment banking process
3. imagine your parents want to save the cost of your BBA before you admitted in the university. after three years you will be admitted in BBA program of a well known university. now what amout should your parents deposit in a bank account to accumulate BDT 6 lac at 7% interesr rate after 3 years
4. if you buy 10 shares of square pharma each price at 67 taka (total 670 taka) now, and you sell those shares after 2 years at 700, what is the rate of returns
1. As a finance manager, the primary goal of the firm is to maximize its value by increasing profits and decreasing costs.
2. Diagram - Refer explanation
3. To accumulate BDT 6 lac at 7% interest rate after 3 years, your parents will need to deposit BDT 4,62,863 in the bank account.
4. The rate of returns in this scenario is 4.7%.
1. As a finance manager, the primary goal of the firm is to maximize its value by increasing profits and decreasing costs. To reduce agency costs, the finance manager should monitor the firm's financial performance closely and focus on preventing any potential fraud or negligence. Additionally, they should ensure proper utilization of resources and focus on reducing waste and duplication of effort.
2. A financial market is a marketplace where participants trade financial securities and other financial instruments. The diagram below outlines the various functions of the financial market and their functions, such as providing a platform for trading securities, enabling price discovery, facilitating risk transfer, and supporting economic growth.
Financial markets play a critical role in the economy by connecting savers and borrowers and promoting efficient allocation of resources. The investment banking process involves advising the clients on their investments, helping the clients with raising capital, and executing the securities of clients.
3. To accumulate BDT 6 lac at 7% interest rate after 3 years, your parents will need to deposit BDT 4,62,863 in the bank account.
4. The rate of returns in this scenario is 4.7%. This is calculated as follows:
Profit = 700 - 67 = 633
Rate of return = (Profit/ Investment) X 100 = (633/ 670) X 100 = 4.7%.
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110 PART 2 PORTER'S APPROACH TO INDUSTRY ANALYSIS Michael Porter, an authority on competitive strategy, contends that corporation is mes con cemed with the intensity of competition within its incestry
Michael Porter's approach to industry analysis is based on his ive Forces Fmodel. This model is used to determine the intensity of competition within an industry and to identify the key factors that influence a corporation's ability to compete in the market.
The five forces include:
1. Threat of new entrants: This refers to the ease with which new competitors can enter the market. If there are low barriers to entry, the threat of new entrants is high, and competition within the industry is likely to be intense.
2. Bargaining power of suppliers: This refers to the ability of suppliers to influence the prices of the goods and services they provide. If suppliers have a high degree of bargaining power, they can exert more control over the prices of their products, which can impact the profitability of the corporations within the industry.
3. Bargaining power of buyers: This refers to the ability of buyers to influence the prices of the goods and services they purchase. If buyers have a high degree of bargaining power, they can exert more control over the prices of the products they buy, which can impact the profitability of the corporations within the industry.
4. Threat of substitute products: This refers to the availability of products or services that can be used in place of those offered by the corporations within the industry. If there are many substitute products available, the threat of substitution is high, and competition within the industry is likely to be intense.
5. Rivalry among existing competitors: This refers to the level of competition among the corporations within the industry. If there is a high degree of rivalry, competition within the industry is likely to be intense.
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1. "Development finance plays an important in expanding capital availability to finance economic growth and development". Discuss.
2. As a Development Finance Expert, what policy interventions would you propose for attracting remittances? How do international remittances influence growth and development?
3. The Ghana Government established a National Development Bank in 2021 (Development Bank Ghana) with funding from the World Bank, European Investment Bank (EIB) and KfW Development Bank. What are the motivations for establishing a National Development Bank in Ghana? What challenges do you envisage such a bank will encounter?
Note:
• Length of each assignment: Maximum 5 pages long (New Times Roman, font size 12, 1 ½ space).
1. Development finance is a type of financial service that is dedicated to providing capital to businesses and organizations that are engaged in activities related to economic growth and development.
2. To attract remittances, policy interventions should focus on lowering the costs of sending money abroad, as well as ensuring that remittances are directed to areas where they can be used most effectively.
3. The Ghana Government established the Development Bank Ghana (DBG) in 2021 with funding from the World Bank, the European Investment Bank (EIB) and KfW Development Bank.
1. Development finance aims to create positive economic, social and environmental impacts, as well as generate financial returns. Development finance is a key element of financial inclusion, as it encourages increased access to capital, investment, and innovation.
Development finance can be used to finance large-scale projects such as infrastructure, as well as smaller-scale projects that support small businesses and entrepreneurs. It also has an important role to play in addressing poverty and inequality, as it can provide capital for activities that promote economic inclusion, such as microfinance and access to housing and education.
2. Remittance transfer fees should be kept as low as possible, and public and private sector initiatives should be introduced to promote financial literacy and awareness of remittance services. Other initiatives could include the creation of low-cost remittance corridors, the development of innovative remittance services such as mobile money, and the creation of diaspora savings schemes.
3. The motivations for establishing the DBG are to increase access to finance, boost economic growth, and promote poverty reduction and financial inclusion. The bank is expected to facilitate private sector investment in small and medium-sized enterprises (SMEs), provide risk capital for new and innovative businesses, and offer financing for infrastructure projects.
The challenges that the DBG is likely to face include limited capacity and resources to implement projects and manage risk, as well as difficulty in accessing additional capital. The bank is also likely to face challenges in dealing with the competing interests of its donors and shareholders, as well as managing its own financial resources. In addition, the bank may encounter resistance from local stakeholders, who may have different priorities and objectives than the DBG.
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States are sometimes referred to as "the laboratories of democracy," that is, one state may experiment with a different approach, which other states may emulate if the experiment succeeds but spurn if the experiment doesn’t succeed. Is the MSAPA project inconsistent with that idea? Does the MSAPA threaten to impose a uniformity inconsistent with creativity and experimentation? If so, would we be paying too high a price for procedural harmonization?
The MSAPA (Model State Administrative Procedure Act) project is not necessarily inconsistent with the idea of states being "laboratories of democracy." The MSAPA is a model act that provides guidance for states in creating their own administrative procedure laws. While it does promote uniformity in certain aspects, it also allows for states to tailor the act to their own needs and circumstances.
Furthermore, the MSAPA does not impose uniformity in the sense that it forces states to adopt its provisions. Rather, it is a voluntary model that states can choose to adopt or not. Therefore, it does not threaten to impose a uniformity inconsistent with creativity and experimentation.
In terms of the price of procedural harmonization, it is important to consider the benefits that come with it, such as increased efficiency and consistency in administrative procedures. While there may be some trade-offs, the MSAPA does not necessarily impose a uniformity that would stifle creativity and experimentation in the states.
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Problem 1: Littlewoods Rule (10 points) A newly created AirRarotonga flight from Rarotonga to Aitutaki has 20 seats. The high fare on the flight is $800 and the restricted/low fare is $300. There is ample demand for the low fare class, but high fare demand is random. Further, the customers who buy low fares buy their tickets well in advance before high fare customers. Assume the demand d for the high fare is distributed according to the following discrete probability distribution: 16 demand al 0 21 31 Probid 0.005 0.005 0.01 0.05 51 0.11 61 02 011 71 81 91 10 11 12131 14 151 0.2 0.15 0.05 0.04 0.03 0.02 0.015 0,015 0.01 When answering the following questions, show your calculations. a. Mr. Wright is in charge of the flight booking operations and decides to set a protection level for the high fare. What is the optimal protection level for the high fare? (2 points) b. Suppose a protection level of 8 is chosen. How many high fare passengers does the airline expect to turn away due to a lack of capacity? (2 points) c. Suppose a protection level of 8 is chosen. How many seats are expectedly empty at departure? (2 points) d. Assuming a protection level of 8, what is the total expected revenue for low and high fare passengers? Write down your analytical calculation. (2 points) e. Suggest two reasonable extensions to the optimization model that is underlying Littlewood's rule and motivate your suggestion. What challenges do you expect with these extensions? (2 points)
a.) The rule states that the protection level should be the maximum demand for the high fare class minus one.
b.) The airline can expect to turn away 8 high fare passengers due to lack of capacity.
c.) The airline can expect 12 seats to be empty at departure
d.) The total expected revenue for low and high fare passengers
e.) Additional factors such as seasonality, weather and additional variables.
a. Mr. Wright is in charge of the flight booking operations and decides to set a protection level for the high fare. What is the optimal protection level for the high fare? (2 points)
The optimal protection level for the high fare can be determined by using Littlewood's rule. This rule states that the protection level should be the maximum demand for the high fare class minus one. In this case, the maximum demand for the high fare is 16, therefore the optimal protection level for the high fare is 15.
b. Suppose a protection level of 8 is chosen. How many high fare passengers does the airline expect to turn away due to a lack of capacity? (2 points)
Given a protection level of 8, the airline can expect to turn away 8 high fare passengers due to lack of capacity.
c. Suppose a protection level of 8 is chosen. How many seats are expectedly empty at departure? (2 points)
Given a protection level of 8, the airline can expect 12 seats to be empty at departure (20 total seats - 8 protection level = 12 empty seats).
d. Assuming a protection level of 8, what is the total expected revenue for low and high fare passengers? Write down your analytical calculation. (2 points)
Assuming a protection level of 8, the total expected revenue for low and high fare passengers can be calculated using the following formula:
Expected Revenue = (Low Fare Demand * Low Fare Price) + (High Fare Demand * High Fare Price)
Therefore, the total expected revenue is:
(16 * $300) + (8 * $800) = $7,200
e. Suggest two reasonable extensions to the optimization model that is underlying Littlewood's rule and motivate your suggestion. What challenges do you expect with these extensions? (2 points)
Two reasonable extensions to the optimization model underlying Littlewood's rule are:
1. Taking into account additional factors such as seasonality, weather, or availability of competitors' flights. This would provide more comprehensive insights into the demand for high fare class and would enable the airline to make better decisions about the protection level.
2. Introducing additional variables such as the cost of each additional seat sold beyond the protection level, or the expected lost revenue for each additional seat turned away due to the lack of capacity. This would allow the airline to make more informed decisions when setting the protection level.
The main challenge with these extensions would be obtaining accurate data on all the additional factors, as well as ensuring the accuracy of the calculations.
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5TH GRADE
What are your career goals?
(PLEASE HELP ME I NEED EXAMPLES)
2)
Explain about internal and external users of accounting and provide
some examples? The users of managerial accounting lie in which
category?
Internal users of accounting are individuals within the organization who use accounting information for decision making purposes.
Examples of internal users include managers, employees, and owners. External users of accounting are individuals outside of the organization who use accounting information for decision making purposes. Examples of external users include investors, creditors, government agencies, and the general public.
The users of managerial accounting fall into the category of internal users. Managerial accounting is used to provide information to managers within the organization for decision making purposes. This information is not typically shared with external users. Examples of decisions that may be made using managerial accounting information include budgeting, performance evaluation, and product pricing.
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Damerly Company (a Utah employer) wants to give a holiday bonus check of $250 to each employee. Since it wants the check amount to be $250, it will need to gross-up the amount of the bonus. Calculate the withholding taxes and the gross amount of the bonus to be made to John Rolen if his cumulative earnings for the year are $46,910. Besides being subject to social security taxes and federal income tax (supplemental rate), a 5.0% Utah income tax must be withheld on supplemental payments.Enter deductions beginning with a minus sign (-).Gross bonus amount $Federal income tax withheld OASDI tax withheld HI tax withheld Utah income tax withheld Take-home bonus check $
The withholding taxes and the gross amount: Gross bonus amount: $250, Federal income tax withheld: -$55, OASDI tax withheld: -$15.50, HI tax withheld: -$3.63, Utah income tax withheld: -$12.50 and Take-home bonus check: $163.37.
To calculate the gross bonus amount for John Rolen, we need to take into account the withholding taxes and the supplemental rate for federal income tax. Here are the steps to calculate the gross bonus amount:
1. Calculate the federal income tax withheld at the supplemental rate of 22%: $250 x 0.22 = $55
2. Calculate the OASDI tax withheld at 6.2%: $250 x 0.062 = $15.50
3. Calculate the HI tax withheld at 1.45%: $250 x 0.0145 = $3.63
4. Calculate the Utah income tax withheld at 5.0%: $250 x 0.05 = $12.50
5. Add up all the withholding taxes: $55 + $15.50 + $3.63 + $12.50 = $86.63
6. Subtract the withholding taxes from the gross bonus amount to get the take-home bonus check: $250 - $86.63 = $163.37
7. To get the gross bonus amount, add the withholding taxes to the take-home bonus check: $163.37 + $86.63 = $250
Therefore, the gross bonus amount for John Rolen is $250, the federal income tax withheld is $55, the OASDI tax withheld is $15.50, the HI tax withheld is $3.63, the Utah income tax withheld is $12.50, and the take-home bonus check is $163.37.
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What did banks do during the global financial crisis?
During the global financial crisis, banks took several actions to try to mitigate the effects of the crisis on their operations and on the broader economy. Some of these actions included:Tightening lending standards, Seeking government assistance, Reducing interest rates and Selling assets.
Tightening lending standards: Many banks became more cautious about extending credit to individuals. Seeking government assistance: Many banks applied for and received funds from the Troubled Asset Relief Program (TARP)
Reducing interest rates: Many banks lowered their interest rates in an attempt to stimulate borrowing and spending. Selling assets: Some banks sold off assets, such as mortgage-backed securities, in an attempt to raise capital and reduce their exposure to risky investments.
Overall, banks played a central role in the global financial crisis, both in terms of contributing to the crisis and in terms of responding to it.
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Why do you think that load funds offer breakpoints to investors
the more they invest?
Load funds offer breakpoints to investors because it encourages investors to invest more money into the fund. By offering breakpoints, or reduced sales charges, at certain investment levels, investors are incentivized to invest larger amounts in order to take advantage of the reduced fees.
This benefits the load fund because it allows them to attract more assets and generate more income from management fees. Additionally, investors with larger investments in the fund are more likely to stay invested for longer periods of time, providing stability for the fund. Overall, breakpoints are a way for load funds to attract and retain investors with larger amounts of capital.
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You should not put all of your eggs in one basket.
Diversification is essential and beneficial to your financial strategy. But to what extent will it be beneficial?
We have discussed the possibility of World War 3 (hopefully not!) as a result of Russia's confrontation with Ukraine. To which risk category does this belong? Do you believe that diversification might completely compensate for the war's investment loss?
Let me know what you think!
The phrase "Don't put all your eggs in one basket" is a metaphor for diversification, which means spreading out your investments among different types of assets or classes (stocks, bonds, mutual funds, real estate, etc.).
This mainly aims to minimize the potential risk associated with any one investment.
To what extent diversification will be beneficial will depend on the individual's portfolio, goals, and risk tolerance.
Risk associated with Russia's confrontation with Ukraine would fall into the category of political risk, which is a type of investment risk that arises from changes in a country's political or economic environment that could cause a negative change in the value of investments.
Diversification may not be able to completely compensate for losses related to political risk, but it can help to minimize the impact.
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Please read the Case-1.2 "The Hokies Lunch Group." from Chapter 1 "Modern Project Management" given in your textbook – Project Management: The Managerial Process 8th edition by Larson and Gray page no: 24-27 also refer to specific concepts you have learned from the chapter to support your answers. Answer the following questions for Part-A, Part-B, Part-C of the case study.2. What are the two important things you learned about working on projects from the case ? Why are they important ? Explain for each part (A,B,C) (2 Marks each for A,B,C) Total (6 Marks).
The case study "The Hokies Lunch Group" from Chapter 1 of Project Management: The Managerial Process 8th edition by Larson and Gray illustrates the importance of understanding the roles and responsibilities of each team member, as well as the importance of effective communication and collaboration.
Part A: In this part, the team learns that communication is an important factor in successful project management. Without clear and effective communication, the team cannot properly assess their roles and tasks. Communication helps to ensure everyone is on the same page and to foster collaboration between team members.
Part B: Here, the team learns that everyone has a role to play in a project and should be mindful of each other’s responsibilities. It is important to recognize and appreciate the different strengths each team member brings to the table, as well as how these skills can benefit the project as a whole.
Part C: The final part of the case highlights the importance of collaboration. Working together to share ideas and come up with creative solutions to problems can help the team succeed. It is also important to listen to everyone’s perspective and be open to constructive criticism.
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Identify the three ways in which Mary Parker Follett believed managers typically deal with conflict.
a. Coercion, mediation, and integration
b. Domination, compromise, and integration
c. Administration, coercion, and negotiation
d. Facilitation, mediation, and coercion
e. Accommodation, mediation, and coercion
According to Mary Parker Follett, the three ways in which managers typically deal with conflict are: domination, compromise, and integration. Therefore, the correct answer is option b. Domination, compromise, and integration.
Domination is when one party imposes their solution on the other party. Compromise is when both parties give up something in order to reach a solution. Integration is when both parties work together to come up with a solution that meets the needs of both parties. In conclusion, the three ways in which Mary Parker Follett believed managers typically deal with conflict are domination, compromise, and integration.
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The specialty cruise has a pirate theme and goes on fun missions. Cruise members become part of the crew. For this question, use the following business rules:
Cruise ships generate revenue from two sources: ticket sales and onboard purchases made by passengers using pre-loaded cruise cards and wristbands with chips (e.g., alcoholic beverages, casino games, spa services, art auctions, and shore excursions).
The specialty cruise follows a pleasant objective and has a suitable theme. The cruise passenger joins the staff. Use the following business principles to answer this question:
1. The captain and each cruiser have individual IDs.
2. A parrot that can go to another captain is only owned by a captain.
3. On a ship, there are a lot of crew members.
4. Each mission includes one or more ships and a special mission number.
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Consider the following table for a seven-year period: Returns Year U.S. Treasury Bills Inflation Year 1 3.55 % −1.17 % Year 2 3.40 −2.31 Year 3 4.30 −1.21 Year 4 4.72 0.63 Year 5 2.52 −6.45 Year 6 1.40 −9.37 Year 7 1.13 −10.32 Required: What was the average real return for Treasury bills for this time period?
The average real return for Treasury bills for this time period is 7.32%
The average real return for Treasury bills can be calculated by first finding the difference between the return on Treasury bills and the inflation rate for each year, and then finding the average of those differences.
Step 1: Calculate the difference between the return on Treasury bills and the inflation rate for each year.
Year 1: 3.55 - (-1.17) = 4.72
Year 2: 3.40 - (-2.31) = 5.71
Year 3: 4.30 - (-1.21) = 5.51
Year 4: 4.72 - 0.63 = 4.09
Year 5: 2.52 - (-6.45) = 8.97
Year 6: 1.40 - (-9.37) = 10.77
Year 7: 1.13 - (-10.32) = 11.45
Step 2: Find the average of the differences.
(4.72 + 5.71 + 5.51 + 4.09 + 8.97 + 10.77 + 11.45) / 7 = 7.32
Therefore, the average real return for Treasury bills for this time period is 7.32%.
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Read the following scenario before answering the questions that follow.
As the CEO of her company, one of Bethany’s annual priorities is to assist Anthony – her Chief Financial Officer (CFO) – in planning and calculating WorkWizard’s budget for the coming year. Every year, a key part of budgeting involves figuring out how best to divide the budget across potential investment opportunities. Although WorkWizard constantly identifies, and is inundated with, investment opportunities, the limited budget allocated to investments means that each opportunity needs to be carefully assessed. Once this is done, Bethany and her executive committee choose the most appropriate, and most financially-sound investment options, leaving the remainder of WorkWizard’s budget available for any expenses throughout the year.
In the past week, WorkWizard has received the following three investment proposals:
Option 1:
The first investment proposal is from Paper Trail, a company that specialises in utilising print media (such as newspapers, magazines, and flyers) to provide more publicity and exposure to businesses. In its proposal, Paper Trail details WorkWizard’s projected cash flow as a result of using its services over a five-year investment. Following an initial investment capital of R50,000, WorkWizard will receive cash inflows of R11,000 in year one, R7,500 in year two, R10,500 in year three, R12,000 in year four, and R15,000 in the final year.
Option 2:
The second investment proposal is from Data Detectives, a data consulting company comprising data analysts who are outsourced to companies to improve their data analysis capabilities. Through Data Detectives, companies are able to collect data about themselves and their clients, and analyse said data to draw conclusions around how to improve their services. Data Detectives also details WorkWizard’s projected cash flow as a result of using its services over a five-year investment period. Following an initial investment of R100,000, WorkWizard will receive cash inflows of R20,000 in year one, R25,000 in year two, R30,000 in year three, R15,000 in year four, and R40,000 in year five.
Option 3:
The third investment proposal is from The Green Agenda, a company focused on environmental sustainability and ensuring that companies (specifically large companies) remain environmentally conscious and lessen their impact on the environment. The Green Agenda has identified WorkWizard as being one such company that would benefit from its services, which range from introducing recycling initiatives to promoting a paperless workspace. In its proposal, The Green Agenda outlines WorkWizard’s projected cash flow through using its services over a five-year investment. Following an initial investment of R50,000, WorkWizard will receive cash inflows of R8,000 in year one, R10,000 in year two, R13,500 in year three, R16,500 in year four, and R13,000 in the final year as a result of efficiencies gained.
Based on the summaries of the proposals above, it is up to Bethany and her executive committee to decide which investment option to pursue, should any of them prove to be financially viable. In order to complete the necessary calculations, Bethany will be using an interest rate (required rate of return) of 6%. Additionally, Bethany’s CFO informs her that the internal rate of return that they will need for their calculations is also 6%. This is because he believes that they can earn a 6% return by investing in their own shares.
The current investment budget that Bethany and the executive committee have to plan with is limited at R100,000 for local investments. While Bethany may choose to use the budget to invest in one or more of the many investment proposals that WorkWizard is inundated with, she also has the option to invest the money in other investment assets, such as shares, bonds, or an alternative asset class.
Question 1
1.1 If Bethany chooses to reinvest the R100,000 local investment budget (at an internal rate of return of 6%) into purchasing shares in the company, calculate the FV of WorkWizard’s R100,000 investment, over a five-year period. (Max. 5 lines.)
1.2 If Bethany chooses to forego all investments, in favour of receiving a R100,000 cash inflow from one of WorkWizard’s external investors five years from now, what would the PV of that external investment (R100,000) be? (Max. 5 lines.)
Question 2
If you were the CEO of WorkWizard, which of the three investment options outlined in the case study would you choose to invest the R100,000 investment budget in? Your answer should include calculations around the net present value (NPV) of each investment, as well as a recommendation on whether or not to invest based on each option’s NPV and the allocated investment budget. Please note, this question is separate from Question 1. (Max. 30 lines.)
Answer 1.1
If Bethany chooses to reinvest the R100,000 local investment budget (at an internal rate of return of 6%) into purchasing shares in the company, the FV of WorkWizard’s R100,000 investment, over a five-year period would be:
FV = PV * (1 + r)^n
FV = R100,000 * (1 + 0.06)^5
FV = R100,000 * 1.3382255776
FV = R133,822.56
Answer 1.2
If Bethany chooses to forego all investments, in favour of receiving a R100,000 cash inflow from one of WorkWizard’s external investors five years from now, the PV of that external investment (R100,000) would be:
PV = FV / (1 + r)^n
PV = R100,000 / (1 + 0.06)^5
PV = R100,000 / 1.3382255776
PV = R74,730.16
Answer 2
If I were the CEO of WorkWizard, I would calculate the net present value (NPV) of each investment option to determine which one would be the most financially viable. The NPV of each investment option would be calculated as follows:
Option 1:
NPV = -R50,000 + (R11,000 / (1 + 0.06)^1) + (R7,500 / (1 + 0.06)^2) + (R10,500 / (1 + 0.06)^3) + (R12,000 / (1 + 0.06)^4) + (R15,000 / (1 + 0.06)^5)
NPV = -R50,000 + R10,377.36 + R6,677.01 + R8,838.65 + R9,056.18 + R10,610.36
NPV = -R4,440.44
Option 2:
NPV = -R100,000 + (R20,000 / (1 + 0.06)^1) + (R25,000 / (1 + 0.06)^2) + (R30,000 / (1 + 0.06)^3) + (R15,000 / (1 + 0.06)^4) + (R40,000 / (1 + 0.06)^5)
NPV = -R100,000 + R18,867.92 + R22,241.36 + R25,227.06 + R11,304.23 + R28,267.18
NPV = R5,907.75
Option 3:
NPV = -R50,000 + (R8,000 / (1 + 0.06)^1) + (R10,000 / (1 + 0.06)^2) + (R13,500 / (1 + 0.06)^3) + (R16,500 / (1 + 0.06)^4) + (R13,000 / (1 + 0.06)^5)
NPV = -R50,000 + R7,547.17 + R8,896.68 + R11,368.04 + R12,432.27 + R9,195.43
NPV = -R560.41
Based on the NPV calculations, Option 2 would be the most financially viable investment option, as it has the highest positive NPV of R5,907.75. Therefore, I would choose to invest the R100,000 investment budget in Option 2.
However, it is important to note that the allocated investment budget may not be sufficient to cover the initial investment of R100,000 for Option 2, so additional funding may need to be secured.
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You are the CFO of The Maxim Group Inc. As part of your planning process, you are considering outsourcing production of a small component (the widget) of the company's main product. You have created the following scenario analysis for next year's production: Outcome Probability Widget Units Needed Exceptional 35% 1,000,000 Average 50% 800,000 Poor 15% 700,000
IF the company continues to manufacture this product "in-house", the variable cost per unit is $15.33. The fixed costs are $10M in total. ALTERNATIVELY, the company could outsource production of the widget, and the new supplier has quoted a price of $27 per widget. Based on the above facts, and ignoring other more esoteric concepts as supply chain security, should the company outsource production of the widget? Why? NOTE: this is a tough question - not that the calculations are hard, the insight is difficult. As a hint, and this may give too much away, do a thought experiment. Imagine you were running a business, and a supplier of an important part your business uses offers you two potential deals for next year – the first, buy all supplied parts for $100 each, no matter what happens. Alternatively, the second, if the economy is great, pay $120 each, if normal $100, and if poor $50. You do the math in your head, applying your own subjective probabilities to each, and estimate the average cost will be $140. Which do you choose – I think I would pay $120 for certain rather than an average of $140 but possibly more possibly less! (5 points)
The the company should outsource the production of the widget based on the provided information and advantages such as stability and predictability of outsourcing over risking the potential for unexpected costs and disruptions associated with producing the widget in-house.
As the CFO of The Maxim Group Inc., it is important to consider the potential costs and benefits of outsourcing production of the widget. Based on the scenario analysis for next year's production, we can calculate the expected cost of producing the widget in-house versus outsourcing it to a new supplier.
If the company continues to manufacture the widget in-house, the expected cost can be calculated as follows:
Exceptional outcome: (1,000,000 units x $15.33 variable cost) + $10M fixed costs = $25.33M
Average outcome: (800,000 units x $15.33 variable cost) + $10M fixed costs = $22.264M
Poor outcome: (700,000 units x $15.33 variable cost) + $10M fixed costs = $20.731M
The expected cost of producing the widget in-house is the sum of the probabilities of each outcome multiplied by the cost of that outcome:
(0.35 x $25.33M) + (0.5 x $22.264M) + (0.15 x $20.731M) = $23.057M
Alternatively, if the company outsources production of the widget, the expected cost can be calculated as follows:
Exceptional outcome: 1,000,000 units x $27 = $27M
Average outcome: 800,000 units x $27 = $21.6M
Poor outcome: 700,000 units x $27 = $18.9M
The expected cost of outsourcing the widget is the sum of the probabilities of each outcome multiplied by the cost of that outcome:
(0.35 x $27M) + (0.5 x $21.6M) + (0.15 x $18.9M) = $23.535M
Based on these calculations, the expected cost of producing the widget in-house is slightly lower than the expected cost of outsourcing it. However, it is important to consider the potential risks and benefits of each option. Outsourcing may provide more stability and predictability in terms of costs, but it also introduces the risk of supply chain disruptions and potential quality issues.
On the other hand, producing the widget in-house may allow for more control over the production process, but it also carries the risk of unexpected costs and potential inefficiencies.
Ultimately, the decision to outsource production of the widget should be based on a careful consideration of the potential costs, benefits, and risks of each option. As suggested in the thought experiment, it may be worth paying a slightly higher cost for the stability and predictability of outsourcing, rather than risking the potential for unexpected costs and disruptions associated with producing the widget in-house.
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If the expected inflation rate is 6% and the real rate is 2%,what should be the nominal rate of a risk-free government bond?8.12%9.18%9.14%10.21%8.07%
The nominal rate of a risk-free government bond should be 8.12%, which is calculated by subtracting the real rate (2%) from the expected inflation rate (6%).
The nominal rate of a risk-free government bond should be 8.12%. This is because the nominal rate is calculated by adding the expected inflation rate and the real rate. In this case, the expected inflation rate is 6% and the real rate is 2%, so the nominal rate would be 6% + 2% = 8%. Therefore, the correct answer is 8.12%.
Here is the formula for calculating the nominal rate:
Nominal rate = Expected inflation rate + Real rate
So in this case, the calculation would be:
Nominal rate = 6% + 2% = 8.12%
It is important to note that the nominal rate is the rate of return on a risk-free government bond before taking into account the effects of inflation. The real rate, on the other hand, is the rate of return after adjusting for inflation. Therefore, the nominal rate is always higher than the real rate.
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Naomi wants to decide the weights of risky and risk-free portfolios in her complete portfolio. The expected return of the risky portfolio is higher than the one of the risk-free portfolio .
a) (3 points) Characterize the optimization problem to derive the optimal weight on the risky portfolio and a safe asset. Hint: How can you derive y∗?
b) (3 points) Suppose that Naomi is risk-neutral, what is the optimal weight of the risky portfolio?
c) (4 points) Suppose instead that Naomi is risk-averse, what is the optimal weight of the risky portfolio?
d) (4 points) The Fed purchases/sells T-bills as an instrument of conventional monetary policies. Suppose the Fed tightens monetary policies and the risk-free rate increases. Should Naomi react to it by increasing or decreasing the weight of risky portfolio? Explain your answer based on your answer in (c)
a) Naomi's optimization problem is to maximize her expected return while minimizing her risk. b) If Naomi is risk-neutral, the optimal weight of the risky portfolio will be 1. c) If Naomi is risk-averse, the optimal weight of the risky portfolio will be less than 1. d) Naomi should react by decreasing the weight of the risky portfolio.
a) Naomi's optimization problem is to maximize her expected return and minimizing her risk. This can be achieved by finding the optimal weight on the risky portfolio (y*) that will maximize her expected return while minimizing her risk. The optimization problem can be characterized as follows:
max E[Rp] = y*E[Rr] + (1-y*)Rf
s.t. σp^2 = y*^2σr^2
Where E[Rp] is the expected return of the complete portfolio, E[Rr] is the expected return of the risky portfolio, Rf is the return of the risk-free portfolio, σp^2 is the variance of the complete portfolio, and σr^2 is the variance of the risky portfolio.
The optimal weight on the risky portfolio (y*) can be derived by taking the derivative of the expected return with respect to y* and setting it equal to zero:
dE[Rp]/dy* = E[Rr] - Rf = 0
y* = (E[Rr] - Rf)/σr^2
b) If Naomi is risk-neutral, the optimal weight of the risky portfolio will be 1, as she will be indifferent to risk and will only care about maximizing her expected return. This means that she will allocate all of her wealth to the risky portfolio.
c) If Naomi is risk-averse, the optimal weight of the risky portfolio will be less than 1, as she will be more concerned about minimizing her risk. The optimal weight will depend on her level of risk aversion, which can be represented by the parameter A. The optimal weight on the risky portfolio for a risk-averse investor can be derived as follows:
y* = (E[Rr] - Rf)/(Aσr^2)
d) If the Fed tightens monetary policies and the risk-free rate increases, Naomi should react by decreasing the weight of the risky portfolio. This is because the increase in the risk-free rate will make the risk-free portfolio more attractive, and Naomi will want to allocate more of her wealth to the risk-free portfolio to take advantage of the higher return. This will result in a decrease in the weight of the risky portfolio. This can be seen in the equation for the optimal weight on the risky portfolio for a risk-averse investor, where an increase in Rf will result in a decrease in y*.
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