Key activities are the most important actions a company must take in order to successfully execute its business model. In the Business Model Canvas, key activities are one of the nine building blocks that make up a business model.
These activities are crucial to the functioning of the business and are necessary for creating value for customers, maintaining customer relationships, and generating revenue.
Key activities can include things like production, problem solving, and platform or network maintenance. It is important for a company to identify its key activities in order to ensure that it is focusing its resources and efforts on the most important aspects of its business.
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The nominal annual risk-free rate is
2.2% in the U.S. and 3.5% in Brazil.
What should be the one-year forward
premium or discount according to interest rate parity?
The one-year forward premium or discount should be 1.3%.
According to interest rate parity, the one-year forward premium or discount should be the difference between the nominal annual risk-free rates in the U.S. and Brazil.
In this case, the difference is 3.5% - 2.2% = 1.3%.
Therefore, the one-year forward premium or discount should be 1.3%.
This means that if an investor were to enter into a one-year forward contract to exchange U.S. dollars for Brazilian reais, they would expect to receive a 1.3% premium (or discount, depending on the direction of the exchange) on the exchange rate.
This is because the higher interest rate in Brazil should result in a higher expected return for investors, and therefore a higher forward exchange rate for the Brazilian reai relative to the U.S. dollar.
In other words, the one-year forward premium or discount is the difference between the expected future exchange rate and the current spot exchange rate, and is determined by the difference in interest rates between the two countries.
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"US
Accounting is the best in the world". Discuss whether or not you
agree with this quote, use valid references to support your answer
(no more than 200 words)
The United States has long been known as one of the premier countries in the world for accounting and finance. Its legal and regulatory framework, large population of accountants and business professionals, and efficient markets have made it a global leader in the field.
However, it is impossible to say definitively that the US is the best in the world when it comes to accounting. Other countries such as the UK, Canada, Australia, and Singapore have all had success in accounting and finance, and each has its own advantages and disadvantages.
When considering whether the US is the best in the world for accounting, it is important to look at the quality of accounting education, professional certifications, and overall level of expertise in the country. The US has world-class accounting and finance programs in its universities, such as the Wharton School at the University of Pennsylvania, and is home to the prestigious CPA and CFA designations. Additionally, the US has a wealth of accounting firms, from the Big Four to mid-sized and regional firms, which offer a wide range of accounting services.
Ultimately, the US is a great place for accounting, but it is impossible to definitively say that it is the best in the world. Each country has its own unique advantages and disadvantages, and it is important to consider them all before making a decision.
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Biscayne’s Rent-A-Ride rents two models of automobiles: the standard and the deluxe. Information follows:
Standard Deluxe
Rental price per day $ 46.00 $ 54.00
Variable cost per day 18.50 23.20
Biscayne’s total fixed cost is $22,500 per month.
Required:
1. Determine Biscayne’s new break-even point in each of the following independent scenarios:
a. Product mix is 40/60.
b. Sales price increases on both models by 15 percent. (Assume a product mix of 50/50.)
c. Fixed costs increase by $3,800. (Assume a product mix of 50/50.)
d. Variable costs increase by 20 percent. (Assume a product mix of 50/50.)
The break-even point in the following independent scenarios for standard and deluxe model are a. 1,387 units and 1,039 units b. 984 units and 771 units c. 1,369 units and 1,100 units d. 1,821 units and 1,377 units respectively.
To determine Biscayne's new break-even point in each of the independent scenarios, we will use the formula:
Break-even point = Fixed costs / (Price - Variable cost).
1. a. Product mix is 40/60:
Break-even point for standard model = (22,500 / 0.4) / (46 - 18.50) = 1,387 units
Break-even point for deluxe model = (22,500 / 0.6) / (54 - 23.20) = 1,039 units
b. Sales price increases on both models by 15 percent:
New price for standard model = 46 + (46 * 0.15) = 52.90
New price for deluxe model = 54 + (54 * 0.15) = 62.10
Break-even point for standard model = (22,500 / 0.5) / (52.90 - 18.50) = 984 units
Break-even point for deluxe model = (22,500 / 0.5) / (62.10 - 23.20) = 771 units
c. Fixed costs increase by $3,800:
New fixed costs = 22,500 + 3,800 = 26,300
Break-even point for standard model = (26,300 / 0.5) / (46 - 18.50) = 1,369 units
Break-even point for deluxe model = (26,300 / 0.5) / (54 - 23.20) = 1,100 units
d. Variable costs increase by 20 percent:
New variable cost for standard model = 18.50 + (18.50 * 0.20) = 22.20
New variable cost for deluxe model = 23.20 + (23.20 * 0.20) = 27.84
Break-even point for standard model = (22,500 / 0.5) / (46 - 22.20) = 1,821 units
Break-even point for deluxe model = (22,500 / 0.5) / (54 - 27.84) = 1,377 units
Therefore, the new break-even points for each of the independent scenarios are as follows:
a. Product mix is 40/60: 1,387 units for standard model and 1,039 units for deluxe model
b. Sales price increases on both models by 15 percent: 984 units for standard model and 771 units for deluxe model
c. Fixed costs increase by $3,800: 1,369 units for standard model and 1,100 units for deluxe model
d. Variable costs increase by 20 percent: 1,821 units for standard model and 1,377 units for deluxe model
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Q3. What is regression analysis and how does it help in
estimating a cost function? Interpret your results with a numerical
example.
Regression analysis is a statistical method that is used to study the relationship between two or more variables. It helps in estimating a cost function by finding the relationship between the cost and the factors that affect it.
This is done by fitting a regression line to the data points and using it to make predictions about the cost.
For example, let's say we want to estimate the cost of producing a product based on the number of units produced. We can collect data on the cost and the number of units produced for several time periods and plot them on a graph. The regression line would then be fit to the data points, and we can use the equation of the line to estimate the cost for a given number of units produced.
For example, if the regression equation is y = 2x + 10, where y is the cost and x is the number of units produced, we can estimate the cost for producing 5 units by plugging in the value of x into the equation:
y = 2(5) + 10
y = 20
Therefore, the estimated cost for producing 5 units is $20.
Regression analysis is a useful tool for estimating cost functions as it allows us to make predictions based on the relationship between the cost and the factors that affect it. It is important to interpret the results carefully and consider the limitations of the method, such as the assumption of a linear relationship and the potential for outliers to affect the results.
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A borrower takes out a 30-year adjustable rate mortgage loan for $391,000 with monthly payments. The first two years of the loan have a "teaser" rate of 4%, after that, the rate can reset with a 5% annual payment cap. On the reset date (end of year 2), the composite rate is 6%. What is the payment amount during the third year?
The payment amount during the third year of the borrower's 30-year adjustable-rate mortgage loan is $2,932.50 per month.
The payment amount during the third year of the borrower's 30-year adjustable-rate mortgage loan can be calculated using the following steps:
Step 1: Calculate the monthly payment for the first two years of the loan using the "teaser" rate of 4%.
Monthly payment = (Loan amount x Interest rate) / 12
= ($391,000 x 0.04) / 12
= $1,307
Step 2: Calculate the new interest rate for the third year of the loan using the 5% annual payment cap.
New interest rate = Initial interest rate + Annual payment cap
= 4% + 5%
= 9%
Step 3: Calculate the monthly payment for the third year of the loan using the new interest rate of 9%.
Monthly payment = (Loan amount x Interest rate) / 12
= ($391,000 x 0.09) / 12
= $2,932.50
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Question THREE
a) Why is finance described as the most important activity in any organization? Use relevant examples to support your answer (5 marks)
b) Discuss the merit and demerits of debt finance (5 marks)
Finance is described as the most important activity in any organization because it is the process of acquiring and allocating resources to achieve organizational goals.
Without proper financing, an organization cannot function efficiently and effectively. For example, an organization needs finance to pay employees, purchase raw materials, and invest in marketing and advertising to promote its products or services. Without sufficient funds, an organization cannot hire qualified employees, produce quality products, or reach potential customers.
The Answer to Question BDebt finance is a method of raising funds by borrowing money from a lender, such as a bank or investor. The borrower must pay back the loan with interest over a specified period of time.
The merits of debt finance include:
The ability to raise large sums of money quicklyThe ability to maintain ownership and control of the organizationThe ability to deduct interest payments on the loan from taxable incomeThe demerits of debt finance include:
The obligation to make regular interest payments, which can strain an organization's cash flowThe risk of default if the organization cannot repay the loanThe potential for higher borrowing costs if the organization has a poor credit rating.Learn more about financial management https://brainly.com/question/989344
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Discussion topic centers on the United States use of
financial sanctions as an instrument of its foreign policy.
Discuss the effectiveness of these sanctions on Afghanistan's
economy and its people.
The financial sanctions are designed to limit or restrict the flow of money and other financial resources to targeted individuals, groups, or entities in an effort to pressure them to change their behavior or policies.
The United States has used financial sanctions as a tool of foreign policy in various countries, including Afghanistan.
In the case of Afghanistan, financial sanctions have been used to target individuals and groups associated with terrorism and the Taliban. These sanctions have included freezing assets, restricting access to financial services, and prohibiting transactions with US persons and entities.
While these sanctions have had some success in limiting the financial resources of targeted individuals and groups, their overall effectiveness on Afghanistan's economy and its people is debatable. On one hand, sanctions can help to isolate and weaken terrorist groups, making it more difficult for them to fund their activities.
On the other hand, sanctions can also have negative consequences for the broader Afghan economy and its people, including inflation, shortages of goods and services, and a decline in economic growth.
In conclusion, the effectiveness of financial sanctions on Afghanistan's economy and its people is a complex and nuanced issue, with both positive and negative impacts. It is important to consider these impacts and weigh them against the intended goals of the sanctions in order to evaluate their overall effectiveness.
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Question 5 – 7
A pharmacy store sells hand sanitizer, which is supplied by a chemical manufacturer in
a nearby city. The lead time is 16 days. The daily demand for hand sanitizer is normally
distributed. The mean of daily demand is 20 bottles with the variance of 36 bottles2. The
pharmacy store wants to keep its stock-out probability as low as 2.5%.
Due to the unexpected shipping delay and supply shortage, the chemical manufacturer
cannot guarantee delivery on demand. Instead, the chemical manufacturer suggests the
pharmacy store switch to a periodic-inventory system. The manufacturer checks the
pharmacy store’s inventory level every 20 days. In the most recent inventory check, the
manufacturer found that there were only 110 bottles left. Assume the stock-out level is
still 2.5%.
Q5: What is the target inventory level? (Reminder: round UP to the next whole
number)
Q6: How many bottles were ordered? (Keep the whole number)
Q7: Keep everything else the same, if the pharmacy store now sets its safety stock to
be 85 bottles, what will happen to its service level?
Service level goes up
Service level goes down
Service level unchanged
Using the information given, the target inventory level is 332 bottles. The number of bottles ordered were 222. Keep everything else the same, if the pharmacy store now sets its safety stock to be 85 bottles, the service level is go up.
5. The target inventory level can be calculated as follows:
1. Calculate the lead time demand: 20 bottles/day * 16 days = 320 bottles
2. Calculate the safety stock:
Z-score for 2.5% stock-out probability = 1.96,
standard deviation = sqrt(36) = 6 bottles,
so safety stock = 1.96 * 6 = 11.76, rounded up to 12 bottles
3. Calculate the target inventory level: 320 bottles + 12 bottles = 332 bottles
Therefore, the target inventory level is 332 bottles.
6. The number of bottles ordered can be calculated as follows:
1. Calculate the target inventory level: 332 bottles (from answer 5)
2. Subtract the current inventory level: 332 bottles - 110 bottles = 222 bottles
Therefore, 222 bottles were ordered.
7. If the pharmacy store sets its safety stock to be 85 bottles, its service level will go up. This is because a higher safety stock means that there is a lower probability of stock-out, and therefore a higher service level.
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Entrepreneurial orientation generally involves all the following except:Risk takingInnovativenessProactivenessDifferentiationInnovativeness is the tendency to pursue which of the following?Risk taking, leadershipCreativity, differentiationCreativity, experimentationExperimentation, intrapreneurship
Entrepreneurial orientation generally involves all the following except differentiation. Differentiation is a strategy used by businesses to distinguish their products or services from those of their competitors.
While it is an important aspect of business, it is not considered a part of entrepreneurial orientation.Entrepreneurial orientation generally includes risk taking, innovativeness, and proactiveness. Risk taking involves the willingness to take chances and pursue opportunities that may involve risk. Innovativeness is the tendency to pursue creativity, experimentation, and new ideas. Proactiveness is the tendency to anticipate and act on future needs and opportunities.Innovativeness is the tendency to pursue creativity and experimentation. This involves coming up with new ideas and finding new ways to solve problems. It also involves being willing to try new things and take risks in order to achieve success.
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Work out the net present value of the following investments. The risk-free rate is 3%, and the average return on the market index is 7%
You invest £1,000 in cash in a 0.8-beta project. The project uses a machine you already own, costing £500 last year. You can sell the machine this year for £300. The cash flow from the project is £400 annually in years one through four. The machine is worthless in year four
The net present value of this project is calculated by discounting the expected cash flows with the appropriate discount rate. The discount rate used is the sum of the risk-free rate (3%) and the beta of the project multiplied by the average return on the market index (7%).
The beta of this project is 0.8, thus the appropriate discount rate is 3% + (0.8 x 7%) = 6.6%. The present value of the cash flows in years one through four is £1,179. The present value of the machine is £233. Thus, the net present value of the project is £1,179 - £233 = £946.
Overall, the net present value of this project is positive, meaning it is profitable for the investor. This is because the expected cash flows in years one through four discounted at the appropriate rate are greater than the present value of the machine. The investor stands to make a profit of £946 from this project.
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The Manufacturing Overhead (MOH) is applied at the rate of TK. 4.5 per direct labour hour. During the period direct labour hours are 40,000 and the actual Manufacturing Overhead (MOH) is TK. 195,000/-
a) State whether the Manufacturing Overhead (MOH) is over applied or under applied and compute the amount of under or over applied Manufacturing Overhead (MOH). Marks: 2
b) If the cost of goods manufactured is TK. 750,000/- that includes applied MOH, compute the cost of goods manufactured which is adjusted for under/over applied MOH.
a) To determine whether the Manufacturing Overhead (MOH) is over applied or under applied, we need to compare the applied MOH and the actual MOH. The applied MOH is calculated by multiplying the direct labour hours by the MOH rate, which is TK. 4.5 per hour.
Applied MOH = Direct labour hours × MOH rate
= 40,000 hours × TK. 4.5/hour
= TK. 180,000
The actual MOH is given as TK. 195,000. Since the actual MOH is greater than the applied MOH, the MOH is under applied. The amount of under applied MOH is calculated by subtracting the applied MOH from the actual MOH.
Under applied MOH = Actual MOH - Applied MOH
= TK. 195,000 - TK. 180,000
= TK. 15,000
b) To compute the cost of goods manufactured which is adjusted for under/over applied MOH, we need to add the under applied MOH to the cost of goods manufactured that includes applied MOH.
Adjusted cost of goods manufactured = Cost of goods manufactured + Under applied MOH
= TK. 750,000 + TK. 15,000
= TK. 765,000
Therefore, the adjusted cost of goods manufactured is TK. 765,000.
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5.3 compared consolidated balance sheets assets notes 31.12.2020 31.12.2019 31.12.2018
non-current assets 29.046.8 29.893.3 25.991.2
goodwil 7,1 10,514,2 9,585,6 9,597,1
other intagible assets 7,2 3,356,3 3,163,8 3,087,3
right of use assets 3,2 1,525,3 1,892,3 property, plant and equipment 3,2 3,225,2 3,644,3 3,624,6
non-current financial assets 9,3 9,604,8 10,819,1 9,100,5
investnents in associates 8 11,1 10,9 9,0
deferred tax associates 6,3 809,9 777,3 572,7
current assets 14,560,1 13,916,5 12,466,3
inventaries 3,3 2,675,8 2,920,8 2,821,9
trade accounts receivable 3,3 3,511,3 4,086,7 3,983,2
other current assets 3,3 1,72,7 1,474,9 1,509,1
current tax assets 234,4 148,1 160,1
cash and cash equivalents 9,2 6,405,9 5,286,0 3,992,0
total 43,606,9 43,809,8 38,457,5
The consolidated balance sheet provides a snapshot of the company's assets over a three-year period and can be used to analyze the company's financial health and performance.
The consolidated balance sheet presented in the question shows the assets of a company over a three-year period, from 2018 to 2020. The assets are categorized into non-current assets and current assets.
Non-current assets include goodwill, other intangible assets, right of use assets, property, plant and equipment, non-current financial assets, investments in associates, and deferred tax associates. Current assets include inventories, trade accounts receivable, other current assets, current tax assets, and cash and cash equivalents.
The consolidated balance sheet shows that the company's total assets have increased from 38,457.5 in 2018 to 43,606.9 in 2020. This indicates that the company has been able to acquire more assets over this period. However, there has been a slight decrease in total assets from 2019 to 2020, from 43,809.8 to 43,606.9. This could be due to a decrease in certain asset categories, such as goodwill, other intangible assets, and property, plant and equipment.
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Diana has recently taken out a $25,000, fully amortizing car loan where she will make one payment at the end of each year for 6 years. The loan's apr is 7%. How much of her third payment will go towards interest?
In the third month with loan's apr being 7% first year payment will be 1750+4166, second month will be 1335+4166, for third month it will be 950+4166= 5116
An annual percentage rate (APR) is the annual rate that is charged for a loan or earned by an investment. Financial institutions must reveal the APR of a financial instrument before such an arrangement is signed. The APR provides a trustworthy foundation for displaying annual interest rate information in order to protect customers from misleading advertising. An APR may not correctly reflect the costs of borrowing because lenders have some discretion in calculating it, which can result in the elimination of some expenditures. APR should not be confused with APY (annual percentage yield), a metric that considers interest compounding.
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What are some of the organisational mechanisms that might be
considered when developing risk control plans? List seven.
Some of the organizational mechanisms that might be considered when developing risk control plans are: Clear communication, Documentation, risk response planning etc.
Some of the organizational mechanisms that might be considered when developing risk control plans are:
Clear communication: Ensuring that everyone involved in the project is aware of the potential risks and their roles in mitigating them.Risk assessment: Identifying potential risks and determining their likelihood and potential impact.Risk response planning: Developing strategies for reducing or avoiding risks.Monitoring and control: Keeping track of risks and their potential impact, and adjusting plans as necessary.Contingency planning: Developing plans for responding to unforeseen events or emergencies.Training and education: Ensuring that all personnel involved in the project are aware of potential risks and know how to respond to them.Documentation: Keeping detailed records of all risk management activities to help identify patterns and improve future risk management efforts.By implementing these organizational mechanisms, a company can effectively develop and implement a risk control plan to reduce the potential impact of risks on the project.
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As new analyst of an investment bank, you are asked to calculate the required rate of returns or CAPM (capital asset pricing model) of the following US companies. The T-Bill (US Government short-term bond) has a 1,5% rate and the risk premium is 9%. beta Company A 1.3 CAPM = Company B 0.9 CAPM = Company C 1 CAPM = Company D 1.7 CAPM = Considering that the investor is risk-averse, which share between A, B, C and D would you recommend him top buy ?
The investor should buy shares in Company B, as it has the lowest CAPM of 9.6%. The Capital Asset Pricing Model (CAPM) is used to calculate the required rate of return for an investment. It takes into account the risk-free rate, the market risk premium, and the stock's beta. The formula for CAPM is:
CAPM = Risk-free rate + (Market risk premium * Beta)
In this case, the risk-free rate is the T-Bill rate of 1.5%, and the market risk premium is 9%. We can use these values and the given beta for each company to calculate the CAPM for each company.
Company A: CAPM = 1.5% + (9% * 1.3) = 13.2%
Company B: CAPM = 1.5% + (9% * 0.9) = 9.6%
Company C: CAPM = 1.5% + (9% * 1) = 10.5%
Company D: CAPM = 1.5% + (9% * 1.7) = 16.8%
Since the investor is risk-averse, they would prefer to invest in the company with the lowest CAPM, as it indicates the lowest level of risk. Therefore, I would recommend the investor to buy shares in Company B, as it has the lowest CAPM of 9.6%.
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Briefly explain about marketing campaigns/advertisements (TVCommercial or print ad) which influenced you as achild. Do you think this ad will have an impact on the currentgeneration, explain why?
Advertising campaigns and advertisements are a powerful way of influencing people. As a child, I was impacted by television commercials and print ads that featured interesting characters or storylines.
Advertising campaigns and advertisements are a powerful way of influencing people. These campaigns had an impact on my values and beliefs, and likely had a similar effect on others.
Today, many of the same strategies are used in marketing campaigns. However, the current generation is also exposed to more interactive digital media, which can be even more influential. Through digital media, companies are able to capture the attention of younger generations and target their messages to different demographics.
As a result, modern marketing campaigns have the potential to have a great impact on the current generation.
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Sport Direct Limited placed an order for 500 TR56 machines at a cost of $150 000 (after discount) from Walles Limited, a supplier in the UK. The TR56 machines are top of the range ball feeder machines and are exclusive to Walles Limited. The order was placed on the 15th of March 2020 as Sport Direct is hoping it will arrive in time for the cricket league season. The order was accepted by Walles Limited on the 18th of March 2020. The order was completed and packed for loading on the 27th of June 2020. On the 1st of July 2020, the stock was delivered to the harbour and loaded onto the ship. Due to industrial strike action by staff at the Port, the ship had to delay its leaving of the Port. The ship eventually left the harbour on the 6th of July 2020 and arrived in Durban on the 1 August 2020. The inventory was off loaded and released from Customs on the same day. On the 3rd of August 2020, the inventory was delivered to Sport Direct’s warehouse. The company sold 80% of the goods ordered to a local sports organization by the 31st of December 2020 with a markup on Page 5 of 5 20% on cost. Payment for the order was made on the 15th of January 2021. Sport Direct Limited’s financial year end is 31st of December. Required: 1. State the transaction, translation, and settlement dates assuming the machines were shipped FOB with supporting reasons where possible for your answer. (3) 2. Show all the journal entries in the books of Sport Direct Limited for the year ended 31 December 2020 and journals for the ended 31 December 2021. Assumed the goods were shipped using the CIF method. Please include narrations and dates and workings – marks will be awarded!
The transaction date is the date when the order was placed, which is 15th of March 2020 and Cr. Accounts Receivable $144,000.
1. The transaction date is the date when the order was placed, which is 15th of March 2020. The translation date is the date when the order was accepted by Walles Limited, which is 18th of March 2020. The settlement date is the date when payment for the order was made, which is 15th of January 2021.
2. Journal entries in the books of Sport Direct Limited for the year ended 31 December 2020:
15th of March 2020
Dr. Inventory $150,000
Cr. Accounts Payable $150,000
(To record the purchase of 500 TR56 machines from Walles Limited)
1st of August 2020
Dr. Accounts Payable $150,000
Cr. Cash $150,000
(To record the payment for the purchase of 500 TR56 machines from Walles Limited)
31st of December 2020
Dr. Cost of Goods Sold $120,000
Cr. Inventory $120,000
(To record the cost of goods sold for 80% of the goods ordered)
31st of December 2020
Dr. Accounts Receivable $144,000
Cr. Sales Revenue $144,000
(To record the sale of 80% of the goods ordered to a local sports organization with a markup of 20% on cost)
Journal entries in the books of Sport Direct Limited for the year ended 31 December 2021:
15th of January 2021
Dr. Cash $144,000
Cr. Accounts Receivable $144,000
(To record the receipt of payment from the local sports organization for the sale of 80% of the goods ordered)
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Lancers Retail Stores is considering the opening of a new store in Des Moines. An analyst for the company has created the following simple model:
Initial Investment at t=0, $1.2M
Life of store, 10 years
Revenues, $1.3M
Variable cost rate, 60%
Fixed costs, (inc., $50K of depreciation) of $300K per year
Expected tax rate 18.0% There are no net working capital implications
The appropriate risk adjusted discount rate is 10.0%
The above values are base case values. The analyst has also said the three assumptions above that are the most uncertain are Revenues, Variable Cost Rate, and the Tax Rate – the rest of the assumptions are easy to estimate in comparison and the analyst has greater certainty as to those values. For these three assumptions the analysts has created the following additional analysis:
Based on the information provided, analysts used sensitivity analysis to determine the potential changes in the three most uncertain assumptions (revenue, variable cost rate, and tax rate) to the net present value (NPV) of the new Des Moines business. impact can be determined. A sensitivity analysis helps the analyst identify the key drivers of her NPV and assess the risks associated with the project.
To perform a sensitivity analysis, the analyst can create a table of base case values for the three most uncertain assumptions and vary each assumption individually while keeping her other two assumptions constant. The analyst can then calculate her NPV for each scenario and compare it to her NPV for the base case to determine the sensitivity of the NPV to changes in each assumption.
An analyst can change her earnings assumption from $1 million to $1.6 million while keeping the variable cost rate and tax rate constant at the base case values. Analysts can then calculate the NPV for each scenario and compare it to the NPV of the base case to determine the sensitivity of the NPV to changes in earnings.
The analyst could also change the variable cost rate assumption from 50% to 70% while keeping the revenue and tax rate constant at the base case values. The analyst can then calculate her NPV for each scenario and compare it to her NPV for the base case to determine the sensitivity of her NPV to changes in the variable cost ratio.
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Kellogg’s ($K) Our team’s previous memorandum on return on capital and cost of capital analysis for Kellogg’s and General Mills pointed to a significant challenge that Kellogg’s has, its significant debt problem. Kellogg’s acknowledges this in their most recent 10-K filing as well. The 2021 consolidated balance sheet shows current debts of $712M and noncurrent debt of $6.26B for a total debt of $6.97B. The company’s balance sheet shows total company equity of $3.72B. This results in a debt-to-equity ratio of 1.87. We expect that the debt-heavy financing mix was chosen due to Kellogg’s cost of equity being substantially higher than their cost of debt. While the company does cite several potential risks associated with its high debt ratio, including limiting its ability to pay dividends, the debt is currently being managed in a manner that doesn’t substantially impact today’s cash flows Kellogg’s has a long history of consistently paying dividends and growing its dividend distribution year over year. Since becoming a publicly-traded company Kellogg’s has paid dividends every year, with the dividend distribution growing or staying at the previous year’s level, each year. In 2021 Kellogg’s paid total dividends of $2.31 per share across four quarterly distributions, this is up from a total of $2.28 per share in dividends in 2020. 2021 dividend distribution cost a total of $788M up from $782M in 2020. Over the past two years, Kellogg’s has allocated significant resources to repurchase outstanding shares. In 2021 Kellogg’s has a treasury stock balance of 79.21M shares at a total cost of $4.71B, this was an increase from the 2020 balance of 77.07M shares at a total cost of $4.56B. In their 10K filing Kellogg’s notes that treasury stock shares are generally used to satisfy stock-based awards for employees. General Mills ($GIS) As discussed in the previous memo, General Mills currently has a debt-to-equity ratio of .56. The company’s 2021 Form 10-K filing shows the current portion of long-term debt as $2,463.8M and long-term debt of $9,786.9M. Long-term debt decreased from a high of $10,929.0M in 2020. The company’s total stockholders’ equity was $9,470.4M in 2021 compared to $8,058.5M in 2020. These values show that General Mills has decreased its debt-to-equity ratio over the past year. The company does not give a reason for this in its Form 10-K, but it may be to increase its flexibility as it pursues its stated accelerated growth strategy in the face of the ongoing pandemic. Concerning the company’s dividend strategy, General Mills proudly boasts that it and its predecessors have continuously paid dividends for the past 120 years without interruption. Dividends have steadily increased since 2013 when dividends per share were $1.55. 2021 saw dividends of $2.02 per share for total dividend payments of $1,246.4M. This was an increase from the previous two years in which dividends per share were $1.96. The company could have paid out more in dividends in 2021 as we have estimated General Mills’ FCFE as $2,608.7M. This indicates that the company had excess earnings that have not been put to use and could be returned to shareholders. The company has made significant efforts to repurchase outstanding shares and boost its treasury holdings. General Mills states that it uses the treasury balance for employee stock compensation plans. The company repurchased $301.4M in stocks for the fiscal year 2021. This was a drastic increase from the years 2020 and 2019 which saw stock repurchases of $3.4M and $1.1M, respectively. General Mills appears to be shifting more focus to returning shareholder wealth through share buybacks. Again, the company still had excess free cash flows that could have been used to return even more wealth. While General Mills had excess FCFE for 2021, the company has been using its capital wisely. As discussed in the last memo, The company’s ROIC was much higher than its WACC, indicating that General Mills has a history of selecting good projects and will likely continue to do so. As such, we feel the shareholders have faith in the management team and will continue to allow the company to operate under its current dividend policy. Similar to General Mills, Kellogg’s continued dividend growth and a policy of repurchasing shares of stock, are indications that investors’ interests are being accounted for by the company’s management. However, investors should be cautious as the capital structure of Kellogg’s, specifically, their debt load could be problematic in the future if it is not carefully monitored and controlled.
Both Kellogg's and General Mills have strong dividend policies and a history of repurchasing shares to return wealth to shareholders.
However, Kellogg's has a significant debt problem, with a debt-to-equity ratio of 1.87, which could potentially limit its ability to pay dividends in the future. On the other hand, General Mills has a lower debt-to-equity ratio of 0.56 and has decreased its debt-to-equity ratio over the past year, indicating a stronger financial position. Both companies use treasury stock shares to satisfy stock-based awards for employees. General Mills appears to be shifting more focus to returning shareholder wealth through share buybacks, while Kellogg's continues to grow its dividend distribution. Investors should be cautious about Kellogg's debt load, but both companies seem to be accounting for investors' interests in their dividend policies and share repurchases.
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What is the order in which the following will be paid by a
company: Taxes, supplies expense, rent, corporate bonds, cost of
goods sold, preferred stock, treasury bonds, and common stocks.
The order in which the following will be paid by a company is:
1. Cost of goods sold: This is the direct cost associated with the production of goods sold by the company and is typically the largest expense for a company.
2. Supplies expense: This includes the cost of any supplies needed to run the business, such as office supplies, cleaning supplies, etc.
3. Rent: This is the cost of leasing or renting any property or equipment used by the company.
4. Taxes: This includes any taxes owed by the company, such as income tax, sales tax, etc.
5. Corporate bonds: These are debt securities issued by the company to raise funds. The company is obligated to pay back the principal and interest to bondholders.
6. Preferred stock: This is a type of stock that gives the holder the right to receive dividends before common stockholders.
7. Treasury bonds: These are debt securities issued by the U.S. government. The company is obligated to pay back the principal and interest to bondholders.
8. Common stocks: These are shares of ownership in the company and are typically the last to be paid in the event of a liquidation.
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what can you to do change the climate (supportive or defensive) of an existing relationship ?
There are several things that can be done to change the climate of an existing relationship, whether it is to make it more supportive or defensive.
1. Communicate openly and honestly: One of the most important things in any relationship is communication. If there are issues or concerns that need to be addressed, it is important to be open and honest about them in order to create a more supportive and healthy relationship.
2. Set boundaries: It is important to set boundaries in a relationship to ensure that both people are comfortable and feel respected. This can help to create a more supportive and defensive climate in the relationship.
3. Practice empathy: Putting yourself in the other person's shoes and trying to understand their perspective can help to create a more supportive and understanding climate in the relationship.
4. Be supportive and encouraging: Offering support and encouragement can help to create a more positive and supportive climate in the relationship.
5. Address any issues or conflicts head on: It is important to address any issues or conflicts in the relationship as soon as they arise in order to prevent them from escalating and creating a defensive climate.
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Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at rd = 10%, and its common stock currently pays a $3.75 dividend per share (D0 = $3.75). The stock's price is currently $29.25, its dividend is expected to grow at a constant rate of 9% per year, its tax rate is 35%, and its WACC is 13.75%. What percentage of the company's capital structure consists of debt? Do not round intermediate calculations. Round your answer to two decimal places.
The percentage of the company's capital structure that consists of debt is 115.8%.
To calculate the percentage of the company's capital structure that consists of debt, we can use the formula for the weighted average cost of capital (WACC):
WACC = (wd)(rd)(1-T) + (we)(re), where wd is the weight of debt, rd is the cost of debt, T is the tax rate, we is the weight of equity, and re is the cost of equity.
We are given that rd = 10%, T = 35%, and WACC = 13.75%. We also know that the company's capital structure consists solely of debt and common equity, so wd + we = 1.
We can calculate the cost of equity (re) using the dividend discount model: re = D0/P0 + g, where D0 is the current dividend, P0 is the current stock price, and g is the expected growth rate. We are given that D0 = $3.75, P0 = $29.25, and g = 9%. Plugging these values into the formula, we get:
re = ($3.75/$29.25) + 0.09 = 0.1282
Now we can plug all of the known values into the WACC formula and solve for wd:
13.75% = (wd)(10%)(1-35%) + (1-wd)(12.82%)
13.75% = 6.5%wd + 12.82% - 12.82%wd
7.32% = 6.32%wd
wd = 1.158
Therefore, the percentage of the company's capital structure that consists of debt is 115.8%.
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Give examples of three marketing roles assigned to personnel in an organisation. Briefly explain what marketing tasks and responsibilities are attached to each role.
Marketing plays a crucial role in the success of an organisation, and there are several marketing roles assigned to personnel in an organisation. Here are three examples of marketing roles and their associated tasks and responsibilities:
1. Marketing Manager: The Marketing Manager is responsible for developing and executing the organisation's overall marketing strategy. This includes conducting market research, identifying target markets, setting pricing strategies, developing marketing plans, and overseeing the implementation of marketing campaigns. The Marketing Manager also oversees the work of other marketing personnel and is responsible for ensuring that the organisation's marketing goals are met.
2. Marketing Communications Specialist: The Marketing Communications Specialist is responsible for creating and disseminating marketing materials, such as advertisements, press releases, and social media posts. This role involves working closely with the Marketing Manager to develop the organisation's messaging and branding, and ensuring that all marketing communications are consistent and effective.
3. Market Research Analyst: The Market Research Analyst is responsible for collecting and analysing data on customer preferences, buying habits, and market trends. This information is used to inform the organisation's marketing strategy and help identify new opportunities for growth. The Market Research Analyst is also responsible for monitoring the performance of marketing campaigns and making recommendations for improvements.
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1. Does Tyson use process manufacturing or the assembly process? Is the production of McDonald’s McNuggets an intermittent or continuous production process? Justify your answers.
2. What location factors might go into the selection of a manufacturing site for McDonald’s McNuggets?
1. Tyson uses process manufacturing for the production of their products, including McDonald's McNuggets. Process manufacturing involves the production of goods through a series of chemical processes, whereas assembly manufacturing involves the production of goods through the assembly of individual parts.
The production of McDonald's McNuggets is a continuous production process, as it involves the continuous production of a standardized product. This is evidenced by the fact that McNuggets are produced in large quantities and are identical in size, shape, and taste.
2. There are several location factors that might go into the selection of a manufacturing site for McDonald's McNuggets.
These include proximity to raw materials, such as chicken farms and suppliers of other ingredients; proximity to transportation networks, such as highways and railways.
For efficient distribution of the finished product; availability of labor, as the production of McNuggets requires a large workforce; and cost of land and utilities, as these can impact the overall cost of production.
Additionally, McDonald's may consider the local business climate, including tax incentives and regulations, when selecting a manufacturing site.
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The Canadian dollar/U.S. dollar spot exchange rate is C$1.68/US$, the Singapore dollar/U.S. dollar spot rate is S$1.25/US$ and the Canadian dollar/Singapore dollar spot rate is C$1.20/S$. If you have US$1,000, the triangular arbitrage profit is equal to US$__________________________
The triangular arbitrage profit is equal to US$ 27.78.
To calculate the triangular arbitrage profit, we need to follow the steps below:
1. Start with US$ 1,000 and convert it into Canadian dollars using the Canadian dollar/U.S. dollar spot exchange rate.
US$ 1,000 x C$ 1.68/US$ = C$ 1,680
2. Next, convert the Canadian dollars into Singapore dollars using the Canadian dollar/Singapore dollar spot rate.
C$ 1,680 x S$ 1.20/C$ = S$ 2,016
3. Finally, convert the Singapore dollars back into U.S. dollars using the Singapore dollar/U.S. dollar spot rate.
S$ 2,016 x US$ 1/S$ 1.25 = US$ 1,612.80
4. The triangular arbitrage profit is the difference between the final amount of U.S. dollars and the initial amount of U.S. dollars.
US$ 1,612.80 - US$ 1,000 = US$ 612.80
5. To find the profit per US$ 1,000, divide the triangular arbitrage profit by the initial amount of U.S. dollars.
US$ 612.80/US$ 1,000 = 0.6128
6. The triangular arbitrage profit is equal to US$ 0.6128 per US$ 1,000 or US$ 27.78 per US$ 45.45 (US$ 1,000/0.6128).
Therefore, the triangular arbitrage profit is equal to US$ 27.78.
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1.10 What is computer integrated manufacturing? 1.11 What are some of the reasons why companies automate their operations? Nine reasons are given in the text. 1.12 Identify three situations in which manual labor is preferred over automation.
1.10 Computer Integrated Manufacturing (CIM) is the process of using computers to control and coordinate all aspects of manufacturing, including design, production, and distribution. It involves the use of computer-aided design (CAD), computer-aided manufacturing (CAM), and computer-aided engineering (CAE) software to automate the entire manufacturing process.
1.11 Companies automate their operations for a variety of reasons, including:
- To increase productivity and efficiency
- To reduce labor costs
- To improve product quality and consistency
- To reduce waste and scrap
- To increase flexibility and customization
- To improve safety and reduce the risk of injury
- To reduce downtime and maintenance costs
- To improve inventory management and control
- To increase competitiveness and profitability
1.12 There are some situations in which manual labor is preferred over automation, including:
- When the task requires creativity, judgment, or critical thinking
- When the task involves complex or unpredictable situations that are difficult to automate
- When the cost of automation is too high or the technology is not available
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Give a recent example that shows how news about future
fundamentals can affect the current level of an exchange rate,
providing supporting empirical evidence and discussion
One recent example of how news about future fundamentals can affect the current level of an exchange rate is the announcement of Brexit in 2016. This event had a significant impact on the value of the British pound against other currencies.
After the Brexit announcement, the pound immediately dropped to its lowest level against the US dollar in over 30 years. This drop was caused by the uncertainty surrounding the future of the UK economy and its relationship with the EU. Investors were unsure about the future of trade and investment between the UK and the EU, leading to a decrease in demand for the pound and a corresponding drop in its value.
Empirical evidence supports this impact on the exchange rate. A study by Forbes (2016) found that the pound dropped by 10% against the US dollar and 7% against the euro within 24 hours of the Brexit announcement. Another study by the Bank of England (2017) found that the pound dropped by 15% against a basket of currencies in the months following the announcement.
This example illustrates how news about future fundamentals can have a significant impact on the current level of an exchange rate. It also highlights the importance of considering the potential impact of future events on the value of a currency when making investment decisions.
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15. An $8,000 note dated 06/22/2021, matures on 12/22/2021 at
8.15%. (Banker’s Rule) What interest is paid on the note?
The interest paid on the note is $326. To find the interest paid on the note, we can use the Banker's Rule formula:
I = P × r × t
Where I is the interest, P is the principal, r is the annual interest rate, and t is the time in years.
First, we need to find the time in years. The note matures on 12/22/2021 and is dated 06/22/2021, so the time is 6 months or 0.5 years.
Next, we can plug in the values into the formula:
I = $8,000 × 8.15% × 0.5
I = $8,000 × 0.0815 × 0.5
I = $326
Therefore, the interest paid on the note is $326.
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Break down the different components that make up tangible and
intangible products
The main difference between tangible and intangible products is that tangible products are physical items, while intangible products are services or ideas.
Tangible products are items such as cars, furniture, and clothing. Intangible products include services such as healthcare, education, and consulting services.
Tangible products:
- Physical components such as parts and materials
- Packaging
- Branding and marketing
Intangible products:
- Service components such as customer service, repairs, and support
- Branding and marketing
- Intellectual property such as trademarks, copyrights, and patents
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Consider a bond issued by the Lee Corporation. The bond matures on March 15, 2041, and pays a 5 percent annual coupon, paid semi-annually. Interest accrues following the 30/360 interest accrual convention. Please assume that the par value of the bond is $100. Lee Corporation has an investment-grade credit rating of A. Today (the "settlement date") is 3/8/2021.
A. Suppose that a reasonable risk-free benchmark interest rate for that bond’s cash flows would be 4 percent per year. What would the (clean) price of this bond be if this bond were priced at this risk-free benchmark rate?
B. Suppose that the clean price of the bond is 95. What is the yield of this bond?
C. What is the implied spread to the risk-free benchmark described above?
D. What is the accrued interest and dirty price of this bond right now?
E. What is the Macaulay Duration of the bond?
F. What is the Modified Duration of the bond?
G. Use this Modified Duration to calculate an approximate measure of the bond’s percent price change if the benchmark yield were to rise 0.5% with no change in spreads.
A. The clean price of the bond at the risk-free benchmark rate is $104.46
B. The yield of the bond is 5.26%.
C. The implied spread to the risk-free benchmark is 1.26%
D. The accrued interest of this bond is $0.32 and the dirty price is $95.32
E. The Macaulay Duration of the bond is 18.32
F. The Modified Duration of the bond is 17.48
G. The approximate measure of the bond's percent price change if the benchmark yield were to rise 0.5% with no change in spreads is -8.74%.
A. The clean price of the bond at the risk-free benchmark rate of 4% can be calculated using the formula:
Price = (C/2) * [(1 - (1 + r/2)^-2n)/(r/2)] + (FV/(1 + r/2)^2n)
Where C is the annual coupon, r is the risk-free benchmark rate, n is the number of years until maturity, and FV is the par value of the bond. Plugging in the given values:
Price = (5/2) * [(1 - (1 + 0.04/2)^-2*20)/(0.04/2)] + (100/(1 + 0.04/2)^2*20)
Price = $104.46
Therefore, the clean price of the bond at the risk-free benchmark rate is $104.46.
B. The yield of the bond can be calculated using the formula:
Yield = [(C/2) + ((FV - Price)/(2n))] / [(FV + Price)/2]
Where C is the annual coupon, FV is the par value of the bond, Price is the clean price of the bond, and n is the number of years until maturity. Plugging in the given values:
Yield = [(5/2) + ((100 - 95)/(2*20))] / [(100 + 95)/2]
Yield = 0.0526 or 5.26%
Therefore, the yield of the bond is 5.26%.
C. The implied spread to the risk-free benchmark is the difference between the yield of the bond and the risk-free benchmark rate. In this case, the implied spread is:
Implied spread = 5.26% - 4% = 1.26%
D. The accrued interest of the bond can be calculated using the formula:
Accrued interest = (C/2) * (d/D)
Where C is the annual coupon, d is the number of days since the last coupon payment, and D is the number of days in the coupon period. In this case, the accrued interest is:
Accrued interest = (5/2) * (23/180) = $0.32
The dirty price of the bond is the sum of the clean price and the accrued interest. In this case, the dirty price is:
Dirty price = $95 + $0.32 = $95.32
E. The Macaulay Duration of the bond can be calculated using the formula:
Macaulay Duration = [(C/2) * (1 + (1/(1 + r/2))^2n - 1)/(r/2) + (2n * FV/(1 + r/2)^2n)] / Price
Where C is the annual coupon, r is the yield of the bond, n is the number of years until maturity, FV is the par value of the bond, and Price is the clean price of the bond. Plugging in the given values:
Macaulay Duration = [(5/2) * (1 + (1/(1 + 0.0526/2))^2*20 - 1)/(0.0526/2) + (2*20 * 100/(1 + 0.0526/2)^2*20)] / 95
Macaulay Duration = 18.32
F. The Modified Duration of the bond can be calculated using the formula:
Modified Duration = Macaulay Duration / (1 + r/2)
Where Macaulay Duration is the Macaulay Duration of the bond and r is the yield of the bond. Plugging in the given values:
Modified Duration = 18.32 / (1 + 0.0526/2)
Modified Duration = 17.48
Therefore, the Modified Duration of the bond is 17.48.
G. The approximate measure of the bond's percent price change can be calculated using the formula:
Percent price change = -Modified Duration * (change in yield)
Where Modified Duration is the Modified Duration of the bond and change in yield is the change in the benchmark yield. Plugging in the given values:
Percent price change = -17.48 * (0.005)
Percent price change = -0.0874 or -8.74%
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