When saving money, the best interest would be A. Based on financial goals and risk tolerance.
What determines the best interest when saving money ?The best interest when saving money will depend on the individual's financial goals and risk tolerance. Generally speaking, the best interest rate on savings accounts is the one that offers the highest return on investment while also being safe and accessible.
It's important to keep in mind that the best option will depend on the individual's financial goals, risk tolerance, and the amount of money they have to save. For short-term goals, a high-yield savings account or a CD may be the best option. For longer-term goals, an investment in bonds or money market funds may be more appropriate. Consult with a financial advisor or a professional before making any decision.
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Options for this question include:
Based on financial goals and risk tolerance. Based on the amount of money to be madeBased on the location of the investmentHow do deductions affect the amount of a paycheck?
Deductions are amounts that are subtracted from an employee's gross pay (their total earnings before any deductions or taxes are taken out) to determine their net pay.
Several types of deductions may be taken out of a paycheck, including taxes, insurance premiums, and retirement plan contributions.
Additionally, some deductions, such as those for 401(k) contributions, are made on a pre-tax basis, which means that they are taken out of an employee's gross pay before taxes are calculated. Other deductions, such as taxes and insurance premiums, are taken out of an employee's gross pay after taxes have been calculated.
Employers must abide by the laws and regulations of the state and federal governments when it comes to deductions, and provide their employees with detailed information about the deductions taken out of their paychecks.
In summary, deductions are amounts that are subtracted from an employee's gross pay to determine their net pay and can include taxes, insurance premiums, and retirement plan contributions. Employers must take these deductions legally and should provide employees with detailed information about what deductions are being taken out of their paychecks.
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_______involves streamlining the processes and communications between the buyer and supplier using software applications
Answer:supplier relationship management
Explanation:
Supplier relationship management concerns facilitating the operations and communications between the buyer and supplier using software applications.
What is supplier relationship management?Supplier relationship management (SRM) is the method of determining the providers or suppliers that are essential to a business and executing a system of managing connections with those critical suppliers.
The objective of SRM is to increase the importance of supplier connections and to streamline acquisition processes. Without an adequate SRM technique, buyers risk cut off supply chains, etc.
Therefore, Supplier relationship management is concerned with the facilitation of operations and communication between the buyers and the suppliers.
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Dwight Donovan, the president of Fanning Enterprises, is considering two investment opportunities. Because of limited resources, he will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the machine is expected to have a useful life of four years and no salvage value. Project B supports a training program that will improve the skills of employees operating the current equipment. Initial cash expenditures for Project A are $108,000 and for Project B are $48,000. The annual expected cash inflows are $51,270 for Project A and $20,675 for Project B. Both investments are expected to provide cash flow benefits for the next three years. Fanning Enterprises’ desired rate of return is 6 percent. (PV of $1 and PVA of $1) Use appropriate factor(s) from the tables provided.)
A. Compute the net present value of each project. Which project should be adopted based on the net present value approach?
B. Compute the approx. internal rate of return of each project. Which one should be adopted based on the internal rate of return approach?
The net present value of Project A is $29,045.32, and net present value of project B is $22,264.52. The project that should be adopted based on the net present value is project A.
What is net present value?Net present value is the present value of after-tax cash flows from an investment less the amount invested.
a. The net present value of Project A:
= Present value of cash inflows - Initial expenditure
= (51,270 x present value interest factor, 6%, 3 years) - 108,000
= 51,270 x 2.673012 - 108,000
= $29,045.32
The net present value of Project B:
= 20,675 × 2.673012 - 33,000
= $22,264.52
b. Calculation of Internal Rate of Return:-
The IRR has been calculated using the financial calculator.
The IRR of Project A is 16% and that of Project B is 14%.
IRR of project A is more than Project B, which means Project A's return is more than project B. As per IRR Approach Project A is better than Project B.
Therefore, as per IRR and net present value approach Project A should be selected.
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hnberg Corporation had 540,000 shares of common stock issued and outstanding at January 1. No common shares were issued during the year, but on January 1, Ahnberg issued 160,000 shares of convertible preferred stock. The preferred shares are convertible into 320,000 shares of common stock. During the year Ahnberg paid $96,000 cash dividends on the preferred stock. Net income was $906,000. What were Ahnberg's basic and diluted earnings per share for the year
Answer: See explanation
Explanation:
Ahnbergs basic earnings per share will be calculated as:
= (Net Income - preferred dividends)/Weighted average shares outstanding
= ($906,000 - $96,000) / 540,000
= $810000 / 540000
= 1.50
The diluted earnings per share will be:
= Total Income - preferred dividends/(outstanding shares + Diluted Shares)
= 906000 / (96000 + 320000)
= 906000 / 416000
= 2.18
You are considering a project that requires an initial investment of $98,000 with a cost of capital of 14%. You expect the project to have a five-year life, and produce cash flows of $19,000 in year 1, $32,000 in year 2, $64,000 in year 3, $26,000 in year 4 and $10,000 in year 5. What is this project’s net present value? Group of answer choices
Answer:
NPV= 7,076.59
Explanation:
Giving the following information:
Initial investment= $98,000
Cash flows:
Cf1= 19,000
Cf2= 32,000
Cf3= 64,000
Cf4= 26,000
Cf5= 10,000
To calculate the NPV, we need to use the following formula:
NPV= -Io + ∑[Cf/(1+i)^n]
∑[Cf/(1+i)^n]:
Cf1= 19,000/1.14= 16,666.67
Cf2= 32,000/1.14^2= 24,622.96
Cf3= 64,000/1.14^3= 43,198.18
Cf4= 26,000/1.14^4= 15,394.09
Cf5= 10,000/1.14^5= 5,193.69
∑[Cf/(1+i)^n]= 105,076.59
Now, the NPV:
NPV= -98,000 + 105,076.59
NPV= 7,076.59
Jane plans on making flyers for the church bake sale. But she's running low on printer paper, so she takes home some paper from work to print them out. It's for
a good cause, but is this ethical?
Yes
No
It is not ethical for Jane to take papers from work to print flyers for the church bake sale. While the bake sale may be for a good cause, it is not appropriate for Jane to use resources from her work for personal gain or for the benefit of a third party.
Using company resources for personal or external purposes is generally considered to be a violation of ethical standards and workplace policies. In most cases, employees are expected to use company resources only for business-related purposes, and any personal use is strictly prohibited. This includes using company resources such as office supplies, equipment, and facilities for personal projects or for the benefit of a third party.
In addition to the ethical concerns, there may also be practical considerations to consider. For example, if Jane takes a significant amount of paper from work, it could potentially impact the company's operations or disrupt the workflow of her coworkers.
Overall, it is important for Jane to act responsibly and ethically in her use of company resources. Instead of taking papers from work, it would be more appropriate for her to purchase her own paper or seek permission from her employer before using company resources for personal purposes.
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Dextra Computing sells merchandise for $5,000 cash on September 30 (cost of merchandise is $3,000). Dextra collects 8% sales tax. Record the entry for the $5,000 sale and its sales tax. Also record the entry that shows Dextra sending the sales tax on this sale to the government on October 15.
Record the cash sales and 8 % sales tax
Answer:
Date General Journal Debit Credit
Sep 30 Cash $5,400
Sales $5,000
Sales taxes payable $400 ($5,000 * 8%)
Sep 30 Cost of goods sold $3,000
Merchandise inventory $3,000
Oct. 15 Sales taxes payable $400
Cash $400
The eleven southern New Jersey stores of Elder Dry Goods have been hurt in recent months by a large increase in shoplifting losses. The company's risk manager concluded that while the frequency of shoplifting losses has been high, the severity remains relatively low.
Required:
Which risk management techniques would be most appropriate for this problem?
Answer: loss control and retention
Explanation:
The options to the question are:
A. retention
B) loss control and retention
C) transfer through insurance
D) avoidance
Based on the information given in the question, management techniques would be most appropriate for this problem is the loss control and retention.
Loss control also referred to as risk reduction can be done through the prevention of loss by reducing the probability of risk, thereby minimizing the loss. This will be vital in this scenario as the shoplifting will reduce.
What was the opening price of Dow Jones Industrial Average on Aug 02, 2017 in the format of XXXXX.XX?
Outsourcing (Make-or-Buy) Decision
Assume a division of Hewlett-Packard currently makes 16,000 circuit boards per year used in producing diagnostic electronic instruments at a cost of $27 per board, consisting of variable costs per unit of $22 and fixed costs per unit of $5. Further assume Sanmina Corporation offers to sell Hewlett-Packard the 16,000 circuit boards for $27 each. If Hewlett-Packard accepts this offer, the facilities currently used to make the boards could be rented to one of Hewlett-Packard's suppliers for $25,000 per year. In addition, $3 per unit of the fixed overhead applied to the circuit boards would be totally eliminated. Calculate the net benefit (cost) to HP of outsourcing the component from Samina-SCI.
Answer:
If the company makes the units, it will save $7,000 per period.
Explanation:
Giving the following information:
Make in-house:
Number of units= 16,000
Variable cost per unit= $22
Avoidable fixed cost per unit= $3
Buy:
Number of units= 16,000
Buying price= $27
Rent= $25,000
First, we will determine the total cost of each option:
Make:
Total cost= 16,000*(22 + 3)= $400,000
Buy:
Total cost= 16,000*27 - 25,000= $407,000
If the company makes the units, it will save $7,000 per period.
Mountain Springs Water Company has two departments, Purifying and Bottling. The Bottling Department had 2,900 liters in beginning work in process inventory (30% complete). During the period, 59,110 liters were completed. The ending work in process was 5,180 liters (70% completed). All inventories are costed by the first-in, first-out method. What is the total equivalent units for direct materials (using the FIFO method) if materials were added at the beginning of the process?
Answer: 61,390 liters
Explanation:
If materials were added at the beginning, they will be 100% accounted for at the end of the process.
Equivalent Units = Units started and completed + Ending inventory
= Units completed - Beginning WIP + Ending inventory
= 59,110 - 2,900 + 5,180
= 61,390 liters
Graham Corp. has 1,000 cartons of oranges that were harvested at a cost of $26,500. The oranges can be sold as is for $30,000. The oranges can be processed further into orange juice at an additional cost of $12,500 and be sold at a price of $46,000. The net benefit (additional income) from processing the oranges into orange juice instead of selling as is would be: rev: 12_08_2020_QC_CS-243270 Multiple Choice $16,000. $(16,000). $(3,500). $3,500. $33,500.
Answer:
C. $3,500
Explanation:
The total cost of orange juice = $26,500 + $12,500
The total cost of orange juice = $39,000
So, the profit on the orange juice = $46,000 - $39,000 = $7,000
Profit when oranges are sold without juice = $30,000 - $26,500
Profit when oranges are sold without juice = $3,500
So, extra income = $7,000 - $3,500 = $3,500
Thus, the net benefit (additional income) from processing the oranges into orange juice instead of selling as is would be is $3,500
On January 2, 2021, L Co. issued at face value $22,500 of 2% bonds convertible in total into 1,500 shares of L's common stock. No bonds were converted during 2021. Throughout 2021, L had 1,500 shares of common stock outstanding. L's 2021 net income was $4,500. L's income tax rate is 20%. No potential common shares other than the convertible bonds were outstanding during 2021. L's diluted earnings per share for 2021 would be: Multiple Choice $1.50. $1.62. $1.65. $3.00.
Answer:
L's diluted earnings per share for 2021 would be $1.62.
Explanation:
Amount of increase in net income if bonds are converted = Total value of convertible bonds * Bond rate * (100% - Tax rate) = $22,500 * 2% * (100% - 20%) = $360
Total earnings available to Equity Shareholders = Net income + Amount of increase in net income if bonds are converted = $4,500 + $360 = $4,860
Number of common shares obtainable from convertible bonds = 1,500
Total number of shares outstanding = Number of shares of common stock outstanding during 2021 + Number of common shares obtainable from convertible bonds = 1,500 + 1,500 = 3,000
Diluted earnings per share = Total earnings available to Equity Shareholders / Total number of shares outstanding = $4,860 / 3,000 = $1.62
Select each of the phases in the project-management lifecycle.
project definition
project initiation
project closure
project monitoring
project execution
project planning
Answer:
PROJECT PLANNING IS YOUR ANSWER
HOPE IT HELPS
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Exxon has the following capital structure: the firm issued 6 million shares of common stock with the stock price in c), the firm also issued 1.5 million shares of preferred stock with $4.5 preferred dividend per share, currently, Exxon has $25 millions in debts with interest rate as 6.5%. Suppose the current preferred stock price is $6 per share and the current common stock price is as in question (c), and the corporate tax rate is 25%. What is the (after-tax) weighted average cost of capital for Exxon
Answer: some data is missing but I was able to find it online and that helped me resolve the problem .
answer : WACC = 15.76%
Explanation:
Given that the common stock price = $9 ( as seen in option C not attached above )
value of common stock = $9 * 6 * 10^6 = $54,000,000
cost of common equity = 10.93%
current preferred stock price = $6
value of preferred stock = $6 * 1,500,000 = $9,000,000
hence the cost of the preferred equity = $4.5 / $6 = 0.75 = 75%
interest rate of debts = 6.5%
value of debit = $25,000,000
Corporate tax rate = 25%
∴ The cost of the debit after tax = 6.5% * ( 1 - 25)% = 4.88%
The Total value = value of common stock + value of preferred stock + value of debit
= 54,000,000 + 9,000,000 + 25,000,00 = $88,000,000
Finally the weighted average cost of capital ( WACC )
[weight of debt * cost of debt after tax ] + [ weight of common equity * cost of common equity ] + [weight of preferred * cost of preferred ]
= [ (25/88) * 4.875 ] + [(54/88) * 10.933] + [ (9/88) * 75 ]
= 15.76%
Lynn has an account that ears interest at annual rate of 5% percent. Interest is compounded quarterly. Lynn’s account is $4000. What is the balance in her account at the end of the year
Answer:
Ending balance in account = $4,203.8 (Approx.)
Explanation:
Given:
Starting balance in account = $4,000
Rate of interest annually = 5%
Number of year = 1
Find:
Ending balance in account
Computation:
Compounded quarterly
So,
Number of interest period = 1 x 4 = 4
Rate of interest quarterly = 5% / 4 = 1.25% = 0.0125
So,
A = P[1+r]ⁿ
Ending balance in account = 4,000[1+0.0125]⁴
Ending balance in account = 4,000[1.0125]⁴
Ending balance in account = 4,000[1.05094]
Ending balance in account = 4203.76
Ending balance in account = $4,203.8 (Approx.)
Using the following information, compute the direct materials used.
Raw materials inventory, January 1 $15000
Raw materials inventory, December 31 35000
Work in process, January 1 18000
Work in process, December 31 12000
Finished goods, January 1 40000
Finished goods, December 31 32000
Raw materials purchases 1,600,000
Direct labor 760,000
Factory utilities 150,000
Indirect labor 50,000
Factory depreciation 400,000
Operating expenses 420,000
A. $1,100,000.
B. $1,115,000.
C. $1,135,000.
D. $1,085,000.
Answer:
$1,580,000
Explanation:
Computation for the direct materials used
Using this formula
Direct Material Used = Raw materials purchases + Opening Stock of Raw Material - Closing Stock of Raw Material
Let plug in the formula
Direct Material Used= $1,600,000 + $15,000 - $35,000
Direct Material Used= $1,580,000
Therefore The Direct Material Used is $1,580,000
Communication which occurs via a mass
email would fall under which category?
A. a synchronous
C. horizontal
B. vertical
D. synchronous
Mass email communication is considered to be synchronous communication. The correct answer is option (d).
What is synchronous communication?Real-time communication among two or more parties is referred to as synchronous communication. A synchronous communication interaction is essentially a live, interactive conversation between two parties. A continuous and constant timed transmission of data blocks is referred to be synchronous. When a lot of data has to be transported fast from one place to another, these connections are employed.
Synchronous is a generic term used to describe events that take place simultaneously. Face-to-face conversation and video chatting are examples of synchronous communication since they entail real-time back and forth. Instant messaging, video conferencing, and phone calls are synchronous communication examples.
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Suppose a major hurricane hits the eastern coast of Florida and only destroys significant amounts of physical capital. All else the same, real gross domestic product (GDP) will ________ in the short run, and real GDP will ________ in the long run. Group of answer choices decline; be permanently lower decline; end up higher than the original level decline; return to the steady state level increase; decrease be unchanged; decline
Answer: decline; return to the steady state level
Explanation:
Physical capital can help in the production of goods and services. If a significant amount was to be destroyed, this would mean less production of goods. This will therefore lead to a decline in the GDP in the Short run.
In the long run however, the real GDP will return to a steady state where the GDP will become the potential GDP as a result of the physical capital has either been replaced or rebuilt in the future thereby leading to the production level which will increase.
Marathon Company has 10,000 units of its product that were produced last year at a total cost of $150,000. The units were damaged in a rain storm because the warehouse where they were stored developed a leak in the roof. Marathon can sell the units as is for $2 each or it can repair the units at a total cost of $18,000 and then sell them for $5 each. Should Marathon sell the units as is or repair them and then sell them
Answer: Marathon should repair the units since an income of $12000 will be gotten.
Explanation:
Based on the information given, the following can be deduced:
Revenue when repaired = 10000 × $5 = $50000
Revenue if sold without repair = 10000 × $2 = $20000
Incremental revenue = $50000 - $20000 = $30000
Cost to repair = $18000
Incremental be Income = $30000 - $18000 = $12000
Therefore, Marathon should repair the units since an income of $12000 will be gotten.
Burns Industries currently manufactures and sells 18,000 power saws per month, although it has the capacity to produce 33,000 units per month. At the 18,000-unit-per-month level of production, the per-unit cost is $61, consisting of $38 in variable costs and $23 in fixed costs. Burns sells its saws to retail stores for $78 each. Allen Distributors has offered to purchase 4,800 saws per month at a reduced price. Burns can manufacture these additional units with no change in its present level of fixed manufacturing costs. Using an incremental analysis approach, Burns should consider accepting this special order only if the price per unit offered by Allen is at least:
Answer:
Burns Industries
Using an incremental analysis approach, Burns should consider accepting this special order only if the price per unit offered by Allen is at least:
above $38 (the variable cost per unit).
Explanation:
a) Data and Calculations:
Monthly production and sales units = 18,000
Production capacity per month = 33,000 units
Costs at the 18,000-unit-per-month level of production:
Variable costs = $38
Fixed costs = 23
Total per unit = $61
Selling price per unit = $78
Special offer for 4,800 saws per month, without changing the fixed manufacturing costs.
b) Incremental analysis approach is a management decision technique that specifies that only relevant, marginal, or differential costs should be taken into account. It rules out the inclusion of sunk or fixed costs, which do not change between alternatives.
Wizard Corp. needs to take out a one-year bank loan of $600,000 and has been offered loan terms by two different banks. One bank has offered a simple interest loan of 10% that requires monthly payments. The loan principal will be paid back at the end of the year. Another bank has offered 7% add-on interest to be repaid in 12 equal monthly installments.
Based on a 360-day year, what will be the monthly payment for each loan for November?
Value
Simple interest monthly payment 58,850.00
Add-on interest monthly payment 48,150.00
42,800.00
53,500.00
Choose the answer that best evaluates the following statement:
A bank loan officer has been approached by a start-up company that needs a five-year loan to purchase the equipment for its first project. The project will have a life of five years. At the end of five years, the equipment will be worthless. The founders of the company told the loan officer that they would be willing to pay a much higher interest rate on a simple interest loan rather than contracting to an add-on interest loan.
A. The loan officer should offer the company an add-on interest loan because there is a high risk that the company will not be able to repay the principal on the loan at the end of the project's life.
B. The loan officer should offer the company a simple interest loan. The bank will make more money in the long run, because it can charge a much higher interest rate.
Answer: a. $53500
b. A. The loan officer should offer the company an add-on interest loan because there is a high risk that the company will not be able to repay the principal on the loan at the end of the project's life.
Explanation:
a. Based on a 360-day year, the monthly payment for each loan for November will be:
Principal = $600,000
Interest rate = 10%
Simple interest = (P×R×T)/100
= (600000 × 10× 1) /100
= $60000
The simple interest per month which will also be thesame for Novemeber will be:
= 60000/12
= $5000
Since add on interest is 7%, then the interest will be:
= 7% × $600,000
= 0.07 × $600,000
= $42000
Therefore, the interest for month of November will be:
=(600000 +42000)/12
= $642000 / 12
= $53500
b. The answer that best evaluates the statement given is option B. It should be noted that since it's a startup company, there may be challenges in repaying the loan. Therefore, the best scenario will be that the loan should be given on add on interest basis.
standards for all managers ethical responsibillities are covered in a companys
Standards for all managers' ethical responsibilities are covered in a company's code of ethics.
Weidner Company sells 22,000 units at $30 per unit. Variable costs are $24 per unit, and fixed costs are $40,000.
Determine:
(a) the contribution margin ratio,
(b) the unit contribution margin, and
(c) income from operations.
Answer:
See below
Explanation:
a. Contribution margin ratio
= (Unit price - Variable cost per unit) / Unit price
Unit price = $30 per unit
Variable cost per unit = $24 per unit
Therefore,
Contribution margin ratio = ($30 - $24) / $30
Contribution margin = $0.2
b. Unit contribution margin
= Selling price unit - Variable cost per unit
Selling price per unit = $30 per unit
Variable cost per unit = $24
Therefore,
Unit contribution margin = $30 - $24
Unit contribution margin = $6
c. Income from operations
Sales (22,000 units at $30)
$660,000
Less:
Variable cost (22,000 units at $24)
$528,000
Contribution margin
$132,000
Less:
Fixed costs
($40,000)
Net income
$92,000
Which of the following tasks is the project manager least likely to be involved
in?
O A. Monitoring the budget
B. Defining the project scope
C. Documenting important project changes
D. Running project meetings
2. What was the reasons/motives of each contributors/authors behind developing such management theory
Explanation:
[tex]Cosθ[/tex]
Cos(θ)
Vijay Inc. purchased a three-acre tract of land for a building site for $310,000. On the land was a building with an appraised value of $125,000. The company demolished the old building at a cost of $12,600, but was able to sell scrap from the building for $1,610. The cost of title insurance was $880 and attorney fees for reviewing the contract were $410. Property taxes paid were $3,000, of which $170 covered the period subsequent to the purchase date. The capitalized cost of the land is:
Answer:
See below
Explanation:
Given the above information, the capitalised cost of the land is computed as seen below;
George has the following capital gains and losses for 2019: $6,000 STCL, $5,000 28% gain, $2,000 25% gain, and $6,000 0%/15%/20% gain. Which of the following is correct: Question 28 options: A) The net capital gain is composed of $6,000 25% gain and $1,000 0%/15%/20% gain. B) The net capital gain is composed of $5,000 28% gain and $2,000 0%/15%/20% gain. C) The net capital gain is composed of $3,000 28% gain, $2,000 25% gain, and $2,000 0%/15%/20% gain. D) The net capital gain is composed of $1,000 28% gain and $6,000 0%/15%/20% gain. E) The net capital gain is composed of $1,000 25% gain and $6,000 0%/15%/20% gain.
Answer:
E) The net capital gain is composed of $1,000 25% gain and $6,000 0%/15%/20% gain.
Explanation:
Calculation to determine what the net capital gain is composed of
Based on the information information given the amount of $6,000 STCL will have to offsets the $5,000 28% gain which is represent the highest tax rate gain while -$1,000 of 25% gain which is the amount that remain as loss will as well offsets the next highest tax rate gain.
Hence
Net capital gain= $6,000 STCL - $5,000 28% gain
Net capital gain= - $1,000 of 25% gain
Therefore the net capital gain is composed of
$1,000 25% gain and $6,000 0%/15%/20% gain.
Kelly’s Kites began operations on 1/1/11. When preparing her budget for 2012, Kelly estimated in January that she would sell 5,000 kites to local beach shops, for $10 per kite. She estimated that sales would increase 5% each month from the prior month. All sales are made to the local beach shops on credit. Kelly estimates that 50% of the sales will be collected within the same month of the sale, 40% will be collected the following month, and 10% will be collected two months after the sale. Sales in November, 2011 were 3,500 kites, and in December 2011 were 4,000 kites.
a. Prepare the sales budget for the 1st quarter of 2012.
b. Prepare the cash receipts budget for the 1st quarter of 2012.
Answer:
Total sales for the Quarter1 is $157,630
Total cash receipts for Quarter1 is $148,315
Explanation:
SALES BUDGET
Jan Feb Mar Q1
Budgeted Sales units 5,000 5,250 5,513 15,763
Selling price per unit 10 10 10 10
Total Sales 50,000 52,500 55,130 1,57,630
EXPECTED CASH COLLECTIONS
Jan Feb Mar Q1
Nov month sales 3,500 3,500
Dec month sales 16000 4000 20000
Jan Month sales 25,000 20000 5000 50,000
Feb month sales 26250 21000 47,250
March month sales 27565 27,565
Total Cash Collections 44,500 50,250 53,565 1,48,315
A bus company believes that its diesel fuel expenses might rise in the coming year and wants to create a hedge against the increase. The current price of diesel fuel is $3.50/gallon, and the company uses 10,000 gallons per month. The company purchased a futures contract for 10,000 gallons of diesel at $3.50/gallon to be delivered in six months. The price of the contract was $250.00. In six months, the spot price of diesel fuel is $3.85/gallon. The bus company accepted delivery of the contract commodity. What was the economic substance of the futures contract
Answer:
The contract produced savings of $3,250
Explanation:
Calculation to determine the economic substance of the futures contract
First step is to calculate the Increased in price of diesel fuel
Increase in diesel fuel price=$3.50/gallon to $3.85/gallon
Increase in diesel fuel price=.35/gallon
Second step is to calculate the amount saved by the firm
Amount saved=$0.35 × 10,000 gallons
Amount saved=$3,500
Now let determine the economic substance of the futures contract
Futures contract economic substance=$3,500 − $250
Futures contract economic substance=$3,250
Therefore the economic substance of the futures contract is $3,250