ANSWER: The financial advantage of renting the new piece of equipment is $(8,160).
Under the existing equipment, the cost to manufacture Part A is $23 per unit, including $10 direct material cost, $6 direct labor cost, $2 variable overhead, and $5 fixed overhead.
Alternative 1: Under the existing equipment, the cost to manufacture 80,000 units of Part A is:$23 x 80,000 = $1,840,000
Alternative 2: Using the new equipment, the direct labor cost per unit is reduced by 20% and variable overhead cost per unit is reduced by 30%. The direct material cost per unit will remain the same. The total cost to manufacture
Part A using the new equipment is:$10 (Direct Material) + $4.80 (80% of Direct Labor $6) + $1.40 (70% of Variable overhead $2) + $5 (Fixed overhead) = $21.20. Thus, the total cost to manufacture 80,000 units of Part A using the new equipment is:$21.20 x 80,000 = $1,696,000. The cost advantage of renting the new piece of equipment is computed by subtracting the total cost of the existing equipment from the total cost of the new equipment. The total cost advantage of renting the new piece of equipment is:$1,840,000 - $1,696,000 = $144,000. Subtracting the annual rental cost of the new equipment from the cost advantage yields the financial advantage of renting the new piece of equipment: $144,000 - $152,000 = $(8,160). Thus, the financial advantage of renting the new piece of equipment is $(8,160).
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For which of the following errors would the appropriate amount be added to the balance per books on a bank reconciliation? Deposit of $700 recorded by the bank as $70. Check written for $59, but recorded by the company as $95. A returned $100 check recorded by the bank as $10. Check written for $63, but recorded by the company as $36. Click if you would like to show Work for this question: Oren Show Work
In a bank reconciliation statement, an appropriate amount is added to the balance per books for the error in the amount of a deposit or in the recording of a returned check by the bank.
For a given bank reconciliation statement, an appropriate amount is added to the balance per books for the error in the amount of a deposit or in the recording of a returned check by the bank. A deposit of $700 recorded by the bank as $70, and a returned $100 check recorded by the bank as $10, both of which involve the bank's error, would be added to the balance per books on a bank reconciliation.
As a result, for both deposit of $700 recorded by the bank as $70 and returned $100 check recorded by the bank as $10, the appropriate amount is added to the balance per books on a bank reconciliation. However, the amount written and recorded by the company does not have an impact on the balance per books on a bank reconciliation, and it is, therefore, ignored when calculating the adjusted balance.
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In 150-200 words, describe a case in which government policies (price control, tax, or subsidies) affect the market outcomes and market participants' well-being.
A notable case where government policies have a significant impact on market outcomes and participants' well-being is the implementation of sugar taxes.
Sugar taxes are designed to discourage the consumption of sugary beverages and foods by increasing their prices through taxation. Such policies have been adopted by several countries, including Mexico, the United Kingdom, and France.
The implementation of a sugar tax affects market outcomes in several ways. Firstly, it leads to an increase in the price of sugary beverages and foods, making them less affordable for consumers. This increase in price acts as a disincentive, reducing the demand for these products. As a result, there is a decline in the consumption of sugary goods in the market.
Furthermore, sugar taxes create an incentive for beverage and food manufacturers to reformulate their products to reduce their sugar content. This reformulation not only aims to avoid the tax but also responds to changing consumer preferences for healthier options. Market participants, such as food and beverage companies, need to invest in research and development to reformulate their products, which can lead to innovation and healthier alternatives being introduced to the market.
The well-being of market participants is also affected by sugar taxes. On one hand, consumers who reduce their consumption of sugary products due to the increased prices may experience health benefits in the long run. High sugar consumption has been linked to obesity, diabetes, and other health issues, so a decline in consumption can lead to improved public health outcomes.
On the other hand, the implementation of sugar taxes can also have negative consequences for some market participants. For instance, the beverage and food industry may experience a decrease in sales and revenue, which can lead to job losses and economic challenges for businesses in that sector. Additionally, there may be concerns about the regressive nature of these taxes, as they disproportionately affect low-income individuals who spend a larger portion of their income on sugary goods.
In conclusion, the implementation of sugar taxes is an example of government policies that significantly impact market outcomes and the well-being of market participants. These policies influence prices, consumer behavior, product reformulation, and public health outcomes. While they aim to reduce the consumption of sugary products and improve public health, there are also potential economic and equity considerations to take into account.
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Explain the differences between Options and Futures Contracts? Using one example, how Options and Futures Contracts can be used ?to hedge against risk You have to mention one academic) Illustrate your answer (300- (reference 500 words) Discussion
Options contracts give the holder the right but not the obligation to buy or sell an underlying asset, while futures contracts bind both parties to buy or sell the asset.
Options and futures contracts are both types of derivative financial instruments that enable investors to hedge against risk. However, there are significant differences between these two contracts.
Options Contract: An options contract gives the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price (strike price) within a specific time period.
Futures Contract: A futures contract is a binding agreement to buy or sell an underlying asset at a predetermined price (futures price) on a specific date in the future.
Options Contract: The holder of an options contract has the choice to exercise or not exercise the contract. They can choose to buy or sell the underlying asset, but they are not obligated to do so.
Futures Contract: Both parties in a futures contract are obligated to fulfill the terms of the contract. The buyer must purchase the asset, and the seller must sell it at the agreed-upon price and date.
Potential Gain/Loss:
Options Contract: With options, the potential loss is limited to the premium paid for the contract. However, the potential gain is theoretically unlimited for call options (buying) and limited to the strike price minus the premium for put options (selling).
Futures Contract: The potential gain or loss in a futures contract is unlimited, as it depends on the movement of the underlying asset's price.
Example of Using Options and Futures Contracts for Hedging:
Suppose an investor owns a portfolio of stocks worth $100,000 and wants to hedge against the risk of a market downturn. They could use options and futures contracts in the following ways:
Options: The investor could buy put options on an index that closely represents the overall market, such as the S&P 500. By purchasing put options, they obtain the right to sell the index at a predetermined price. If the market declines, the value of the put options will increase, offsetting the losses in the stock portfolio.
Futures: The investor could sell futures contracts on the same index as mentioned earlier. By selling futures contracts, they lock in a selling price for the index in the future. If the market declines, the value of the futures contracts will increase, providing a hedge against the losses in the stock portfolio.
In both cases, the options and futures contracts act as insurance policies, providing protection against potential losses in the stock portfolio if the market declines. If the market goes up, the investor can let the options or futures contracts expire without exercising them, allowing the stock portfolio to benefit from the market's positive performance.
By utilising options and futures contracts for hedging purposes, investors can manage their risk exposure and protect their portfolios from adverse market movements.
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Provide a substantive post that examines why it is essential for a specific series of rights, like the Bill of Rights, to protect the people from government abuse must exist in any democratic society and how the article on the Espionage and Sedition Acts demonstrates the attempts by the government to restrict free speech (part of the 1st Amendment. Step by Step.
The article on the Espionage and Sedition Acts demonstrates the government's attempts to restrict free speech, violating the First Amendment.
In a democratic society, the existence of a specific series of rights, such as the Bill of Rights in the United States, is essential to protect individuals from potential abuse by the government. These rights serve as a safeguard against the concentration of power and ensure that citizens have certain fundamental liberties that cannot be infringed upon by the government. Without such protections, there is a risk that the government may exploit its authority and suppress the rights and freedoms of its citizens.
One crucial aspect of democratic societies is the protection of free speech, as enshrined in the First Amendment of the United States Constitution. Free speech allows individuals to express their opinions, engage in political discourse, and hold the government accountable. However, throughout history, there have been instances where the government has attempted to curtail this fundamental right in the name of national security or stability.
An example of such attempts to restrict free speech can be found in the Espionage and Sedition Acts, which were passed by the United States Congress during World War I in 1917 and 1918, respectively. These acts were introduced with the intention of preventing dissent and undermining efforts to support the war. However, they led to the suppression of free speech and violated the First Amendment rights of many individuals.
The Espionage Act made it a crime to convey information that could interfere with the armed forces' operations or promote the success of the country's enemies during wartime. The Sedition Act extended these restrictions to peacetime as well, criminalizing any disloyal, profane, or abusive language against the government, flag, or military. These acts resulted in the prosecution and imprisonment of numerous individuals who expressed dissenting views or criticized the government's actions.
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What can a BATNA do for you in the negotiation process? A) Give you power. B) Set a walking point to step away from a deal. C) Establish mental guardrails. All the above. Only B \& C above
A BATNA (Best Alternative to a Negotiated Agreement) can do several things for you in the negotiation process. The correct answer is "All the above" (A, B, and C).
A) Give you power: BATNA provides power in the negotiation process by offering an alternative that the negotiator can use to their advantage.
B) Set a walking point to step away from a deal: BATNA provides the negotiator with a standard that they can use to walk away from a deal if it fails to meet their expectations.
C) Establish mental guardrails: BATNA also establishes mental guardrails that keep the negotiator focused on their goals and prevents them from agreeing to terms that may be detrimental to their interests.
In summary, a BATNA is a crucial component of the negotiation process as it provides negotiators with power, sets a walking point to step away from a deal, and establishes mental guardrails.
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27. Upon
capital increase the valuation stated in the Memorandum of Association of JSC may not be
higher than the valuation assigned by the experts.
a.
True
b. False
The correct option is true. Upon capital increase the valuation stated in the Memorandum of Association of JSC may not be higher than the valuation assigned by the experts, which is a true statement. When the Memorandum of Association (MOA) is written, it is usually based on the original assets, and any subsequent capital increase must not be above the valuation set by the experts.
The Memorandum of Association (MOA) is a legal document that describes the company's regulations and practices. A capital increase, also known as authorized capital, is when the company's shares are increased. The Memorandum of Association is created based on the initial capital, and any subsequent capital increase must not exceed the valuation set by experts. The company's MOA should be filed with the Registrar of Companies after all founding members have signed it. It includes information on the company's capital, the number of shares issued, and the number of shareholders. The document also outlines the company's goals. Upon capital increase the valuation stated in the Memorandum of Association of JSC may not be higher than the valuation assigned by the experts. This means that the capital increase valuation should not be higher than the value determined by experts. This is done to ensure that the company's interests are safeguarded.
The statement "Upon capital increase the valuation stated in the Memorandum of Association of JSC may not be higher than the valuation assigned by the experts" is true. This means that the valuation assigned by experts should not be exceeded by the capital increase valuation. The MOA, which is a legal document, sets out the company's regulations and practices. It is created based on the initial capital, and any subsequent capital increase must not exceed the valuation set by experts.
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Project L requires an initial outlay at t = 0 of $60,000, its expected cash inflows are $11,000 per year for 12 years, and its WACC is 13%. What is the project's payback? Round your answer to two decimal places. ___ years
Payback period refers to the amount of time required for an investment to recover its initial cost. To compute the payback period, the cash inflows are accumulated until the initial investment is recovered.
After that point, the project's net cash inflows are computed to determine whether or not it is profitable. The payback period can be calculated using the following formula:Payback period = Cost of project / Annual cash inflows In this case, the project's initial cost is $60,000, and its expected cash inflows are $11,000 per year for 12 years. Therefore, the project's total expected cash inflows over the 12-year period are:Total expected cash inflows = $11,000 × 12= $132,000 Now we can use the formula to calculate the payback period:Payback period = $60,000 / $11,000= 5.45 years (rounded to two decimal places)
Therefore, the project's payback period is 5.45 years (rounded to two decimal places).
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Which TPS term describes waste?
Group of answer choices:
Muda
Andon
Jidoka
Kaizen
TPS term that describes waste is Muda. It is one of the three types of waste in the Toyota Production System (TPS), which is a management philosophy that aims to eliminate waste, optimize processes, and improve efficiency. The correct option is (A).
Muda refers to non-value-added activities that waste time, resources, and money. These include overproduction, waiting, defects, overprocessing, excess inventory, unnecessary motion, and unused talent or creativity. Andon is a TPS term that refers to a visual control system that alerts workers and supervisors of problems or abnormalities in the production process.
Judoka means autonomation, which is the ability of machines to detect defects, stop themselves, and alert humans for resolution. Kaizen means continuous improvement, which is a mindset that seeks to make incremental and sustainable improvements in all aspects of the organization over time.
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According to the textbook and lectures, examples of active labor market policies that can reduce structural unemployment include: I. Early employment bonuses II. Job re-training programs III. Job search assistance programs II and III only II only I only I and II only I, II, and III I and III only III only
The answer is II and III only. Job re-training programs and job search assistance programs are active labor market policies that can reduce structural unemployment.
Active labour market policies are designed to improve labour market outcomes and reduce unemployment. In this case, the question asks which policies can specifically address structural unemployment. Structural unemployment refers to a mismatch between the skills and qualifications of job seekers and the requirements of available jobs.
Job re-training programs (II) aim to provide individuals with new skills and qualifications that are in demand in the labour market. By offering training in emerging industries or occupations, these programs help individuals adapt to changing labor market conditions and improve their chances of finding suitable employment.
Job search assistance programs (III) provide support and resources to job seekers in their search for employment. These programs can include services such as career counseling, job placement assistance, and job fairs. By helping individuals navigate the job market more effectively, job search assistance programs increase the likelihood of successful job matches and reduce unemployment duration.
Early employment bonuses (I) are not typically considered active labor market policies targeted at reducing structural unemployment. These bonuses are often offered to incentivize individuals to find and accept employment quickly but do not directly address the skills mismatch characteristic of structural unemployment.
Therefore, the correct answer is II and III only.
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Which of the following are steps in making a top-down forecast? 1. Forecasting prices II. Size the total market. III. Determine market share. IV. Estimating customer turnover. nswer 1. II, and ill only wered • III and IV only. I and II only. II, III, and IV only
The correct answer is II and III only. The steps involved in making a top-down forecast include:
Step 1: Determine the total market size in revenue or units.
Step 2: Estimate the percentage of the total market that the company will capture.
Step 3: Multiply the total market size by the percentage of the total market that the company will capture.
Step 4: Make assumptions about other relevant factors that could impact the forecast, such as pricing, customer behavior, and market trends.
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Assuming that the bond sells at par, the implicit $/€ exchange rate at maturity of a Euro—U.S. dollar dual currency bond that pays €651.25 at maturity per $1,000 of par value is
a $1.72/€1.00.
b $1.54/€1.00.
c $1.27/€1.00.
d $1.62/€1.00.
The implicit $/€ exchange rate at maturity of a Euro-U.S. dollar dual currency bond can be calculated by dividing the euro payment at maturity by the par value of the bond, and then converting it to the corresponding dollar amount.
In this case, the bond pays €651.25 at maturity per $1,000 of par value. To calculate the implicit exchange rate, we divide €651.25 by $1,000 and convert it to dollars.
Implicit $/€ exchange rate = (€651.25 / $1,000)
Using the given values:
Implicit $/€ exchange rate = €0.65125
To convert this to dollars per euro, we take the reciprocal:
Implicit $/€ exchange rate = $1.536 per €1.00 (rounded to two decimal places)
Therefore, the correct answer is:
b) $1.54/€1.00.
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Penn Corporation is analyzing the possible acquisition of Teller Company. Both firms have no debt. Penn believes the acquisition will increase its total aftertax annual cash flow by $2 million indefinitely. The current market value of Teller is $45 million and that of Penn is $91 million. The appropriate discount rate for the incremental cash flows is 10 percent. Penn is trying to decide whether it should offer 40 percent of its stock or $61 million in cash to Teller’s shareholders.
a. What is the cost of each alternative?
b. What is the NPV of each alternative?
Cost of each alternative is -$41 million. Neither alternative has a positive NPV, indicating that neither option is economically favorable.
a. The cost of each alternative can be calculated as follows:
For offering 40 percent of its stock:
Cost = Market value of Penn's stock offered = 0.40 * $91 million = $36.4 million. For offering $61 million in cash:
Cost = Cash offered = $61 million
b. The NPV of each alternative can be calculated by comparing the present value of the incremental cash flows with the cost of the alternative. For offering 40 percent of its stock:
NPV = Present value of incremental cash flows - Cost
= $2 million / 0.10 - $36.4 million
= $20 million - $36.4 million
= -$16.4 million (negative NPV)
For offering $61 million in cash:
NPV = Present value of incremental cash flows - Cost
= $2 million / 0.10 - $61 million
= $20 million - $61 million
= -$41 million (negative NPV)
Therefore, neither alternative has a positive NPV, indicating that neither option is economically favorable.
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QUESTION 5 Below is some information from Delta airlines' financial statements:
Sales 345,000
COGS 167,000
Account receivable 21,500
Accounts payable 52,789
Inventory 3,500
Using this information calculate the company's cash conversion cycle
The cash conversion cycle -85.14 (rounded to 2 decimal places). The negative value indicates that Delta Airlines has a negative cash conversion cycle, meaning the company receives cash from customers before it needs to pay its suppliers and cover its inventory costs.
The cash conversion cycle (CCC) can be calculated using the following formula: CCC = Days of Inventory Outstanding + Days of Sales Outstanding - Days of Payables Outstanding.
To calculate the days of inventory outstanding, we divide the inventory by the cost of goods sold (COGS) and multiply by 365 (days in a year): Days of Inventory Outstanding = (Inventory / COGS) * 365.
To calculate the days of sales outstanding, we divide the accounts receivable by the sales and multiply by 365: Days of Sales Outstanding = (Accounts Receivable / Sales) * 365.
To calculate the days of payables outstanding, we divide the accounts payable by the COGS and multiply by 365: Days of Payables Outstanding = (Accounts Payable / COGS) * 365.
Let's plug in the given numbers:
Days of Inventory Outstanding = (3,500 / 167,000) * 365 = 7.65 (rounded to 2 decimal places)
Days of Sales Outstanding = (21,500 / 345,000) * 365 = 22.77 (rounded to 2 decimal places)
Days of Payables Outstanding = (52,789 / 167,000) * 365 = 115.56 (rounded to 2 decimal places)
Now, we can calculate the cash conversion cycle:
CCC = 7.65 + 22.77 - 115.56 = -85.14 (rounded to 2 decimal places)
The negative value indicates that Delta Airlines has a negative cash conversion cycle, meaning the company receives cash from customers before it needs to pay its suppliers and cover its inventory costs. This can be advantageous as it allows the company to use the incoming cash flow to fund its operations and potentially invest in growth opportunities.
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Que 4 Ch 5 2 The inventory costing method that best matches cument costs with current revetuers in the Mutiple Choice Net method UFO metod Weighted age method Spectromet Help Save & Fet List
The inventory costing method that best matches current costs with current revenues is the weighted average method. The correct option is b.
The weighted average method is an inventory valuation technique that calculates the average cost of each inventory item in stock and applies that average cost to all units sold during the period. This method uses a weighted average cost for all units of inventory that are available for sale and is based on the cost of goods available for sale divided by the total number of units available for sale.
In other words, the weighted average cost per unit of inventory is calculated by dividing the total cost of all inventory items available for sale by the total number of units available for sale.
The weighted average method is a simple and practical method of inventory costing. It is easy to calculate and understand, and it provides a reasonable estimate of the cost of inventory sold during the period. This method is particularly useful for companies that deal with large volumes of inventory and that need to keep track of their inventory costs in real-time.
In conclusion, the inventory costing method that best matches current costs with current revenues is the weighted average method.
This method calculates the average cost of each inventory item in stock and applies that average cost to all units sold during the period. The weighted average method is simple, practical, and provides a reasonable estimate of the cost of inventory sold during the period. The correct option is b.
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Que 4 Ch 5 2 The inventory costing method that best matches cument costs with current revetuers in the Mutiple Choice A) Net method B) Weighted age method C) Spectromet Help Save & Fet List
Which of the following items does not appear on the balance sheet?
O a 0 Notes payable
O b Withdrawals
O c Accounts receivable
O d Cash
Withdrawals is the item that does not appear on the balance sheet.
What is a balance sheet? A balance sheet is a financial statement that shows the financial position of a business at a certain time. It shows the business' assets, liabilities, and equity at a particular point in time. A balance sheet aids the business's stakeholders to understand how the organization's funds are being utilized, and it is used to gauge the organization's fiscal performance over time. Items that appear on the balance sheet are all of the business's assets, including cash, accounts receivable, equipment, inventory, and other things the business owns.
Liabilities such as loans and accounts payable, as well as the equity of the business, are also included on the balance sheet. The owner's equity section of the balance sheet includes equity, retained earnings, and dividends paid to shareholders. Withdrawals, on the other hand, are not included in the balance sheet because they are not transactions. Instead, withdrawals are funds taken from the business by the owner and treated as personal funds. These funds are not part of the business and are not included on the balance sheet. Thus, the correct option is b, Withdrawals.
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Case Study 1.1: Fidelio’s OPERA hotel Property Management
System
b) What are some of the channels of revenue that may create
opportunity?
Fidelio's OPERA Property Management System enhances hotel operations, guest experiences, and revenue by utilizing the Internet. It enables online reservations, integrates with OTAs and GDS, and utilizes data-driven upselling and cross-selling.
a) A Property Management System (PMS) like Fidelio's OPERA can take advantage of the internet in several ways. Firstly, it enables online reservations and bookings through the hotel's website, allowing guests to conveniently make reservations from anywhere with an Internet connection.
The PMS can also integrate with online travel agencies (OTAs) and global distribution systems (GDS), expanding the hotel's reach and visibility to a wider audience. Additionally, the PMS can facilitate online check-in and check-out processes, reducing paperwork and enhancing the guest experience.
The Internet also enables real-time communication and data synchronization between different departments and locations, improving operational efficiency and providing accurate and up-to-date information.
b) The channels of revenue that can create opportunities through a Property Management System include upselling and cross-selling. The PMS can analyze guest data and preferences, allowing the hotel to offer personalized upsells and upgrades during the booking process or during the guest's stay.
This can include room upgrades, additional services, or special packages, generating additional revenue. Cross-selling opportunities can arise by offering guests-related services such as spa treatments, restaurant reservations, or transportation services.
The PMS can track guest preferences and purchasing behavior, enabling targeted marketing and promotional offers to enhance revenue opportunities.
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Complete Question:
Fidelio's OPERA hotel Property Management System (PMS):
a) How does a Property Management System take advantage of the Internet?
b) What are some of the channels of revenue that may create opportunity?
Power Corp. makes 2 products: blades for table saws and blades for handsaws. Each product passes through the sharpening machine area, which is the chief constraint during production. Handsaw blades ta
The number of handsaw blades that Power Corp. should produce is 2,308, and the number of table saw blades that it should produce is 5,409.
Calculation of the quantity to be produced. The number of handsaw blades to be produced = 4000. The number of table saw blades to be produced = 4000. Handsaw blades take 15 minutes on the sharpening machine, Table saw blades take 20 minutes on the sharpening machine, Total time available = 5000 hours.
The number of handsaw blades that can be produced in 1 hour = 60/15 =4 The number of table saw blades that can be produced in 1 hour = 60/20 = 3 Total units produced per hour = 3 + 4 = 7 units In 5000 hours, the total number of units that can be produced = 5000 * 7 = 35,000 units The contribution margin for handsaw blades per unit= $15 The contribution margin for table saw blades per unit = $35 The handsaw blades and the table saw blades should be produced in a ratio that maintains the contribution margin.
Using the weighted average formula, it can be calculated as follows: {4000 * $15 + 4000 * $35} {5000} = $26 The weighted average is $26 per unit. Therefore, the quantity to be produced for handsaw blades {4000 * $15} {$26} = 2307.7 (approx) 2308. The quantity to be produced for table saw blades {4000 * $35} {$26} = 5409.2 (approx) 5409 units. Hence, the number of handsaw blades that Power Corp. should produce is 2,308, and the number of table saw blades that it should produce is 5,409.
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Power Corp. makes 2 products: blades for table saws and blades for handsaws. Each product passes through the sharpening machine area, which is the chief constraint during production. Handsaw blades take 15 minutes on the sharpening machine and have a contribution margin per blade of $15. Table saw blades take 20 minutes on the sharpening machine and have a contribution margin per blade of $35. If it is assumed that Power Corp. has 5,000 hours available on the sharpening machine to service a minimum demand for each product of 4,000 units, how many of each product should be made
Residual dividend policy As president of Young's of California, a large clothing chain, you have just received a letter from a major stockholder. The stockholder asks about the company's dividend policy. In fact, the stockholder has asked you to estimate the amount of the dividend that you are likely to pay next year. You have not yet collected all the information about the expected dividend payment, but you do know the following: (1) The company follows a residual dividend policy. (2) The total capital budget for next year is likely to be one of three amounts, depending on the results of capital budgeting studies that are currently un- der way. The capital expenditure amounts are $2 million, $3 million, and $4 million. (3) The forecasted level of potential retained earnings next year is $2 million. (4) The target or optimal capital structure is a debt ratio of 40%. You have decided to respond by sending the stockholder the best information avail- able to you. a. Describe a residual dividend policy. b. Compute the amount of the dividend (or the amount of new common stock needed) and the dividend payout ratio for each of the three capital expenditure amounts. c. Compare, contrast, and discuss the amount of dividends (calculated in part b) associated with each of the three capital expenditure amounts.
a. Residual dividend policy is a dividend distribution approach where a company pays out dividends to shareholders only after fulfilling its investment and financing requirements. Under this policy, the company determines the capital budget and financial needs first and then allocates the remaining earnings as dividends. The goal is to maintain the target capital structure and use retained earnings for growth opportunities.
b. To compute the amount of the dividend and the dividend payout ratio for each of the three capital expenditure amounts, we need to consider the available retained earnings, target capital structure, and capital budget options.
Given information:
- Forecasted level of potential retained earnings next year: $2 million
- Target or optimal capital structure (debt ratio): 40%
- Capital expenditure amounts: $2 million, $3 million, and $4 million
To calculate the dividend amount, we need to determine the financing requirement based on the target capital structure. The financing requirement is the difference between the target capital structure and the projected capital structure.
Let's calculate the dividend amounts and dividend payout ratios for each capital expenditure amount:
For a capital expenditure of $2 million:
Financing requirement = ($2 million - (40% * $2 million)) = $1.2 million
Dividend amount = Retained earnings - Financing requirement = $2 million - $1.2 million = $800,000
Dividend payout ratio = Dividend amount / Net income
For a capital expenditure of $3 million:
Financing requirement = ($3 million - (40% * $3 million)) = $1.8 million
Dividend amount = Retained earnings - Financing requirement = $2 million - $1.8 million = $200,000
Dividend payout ratio = Dividend amount / Net income
For a capital expenditure of $4 million:
Financing requirement = ($4 million - (40% * $4 million)) = $2.4 million
Dividend amount = Retained earnings - Financing requirement = $2 million - $2.4 million = -$400,000 (negative value indicates the need for new common stock)
Dividend payout ratio = Dividend amount / Net income
c. Comparing the dividend amounts associated with each capital expenditure amount:
- For a capital expenditure of $2 million, the dividend amount is $800,000.
- For a capital expenditure of $3 million, the dividend amount is $200,000.
- For a capital expenditure of $4 million, there is a need for new common stock, indicating no dividend payout.
The dividend amounts decrease as the capital expenditure increases because higher investment requirements reduce the available funds for dividend distribution. The company prioritizes financing its growth projects before paying dividends to maintain the desired capital structure.
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The Little Company needs $750,000 in new assets, will raise $100,000 in spontaneous funding (A/P), and has profit margins are 10%. If Little Company retains 50% of earnings and has Sales of $7 Million, then how much AFN is needed? (Answer in Thousands of dollars.)
To calculate the additional funds needed (AFN) for The Little Company, we can use the following formula:
AFN = (Total Assets - Total Liabilities and Equity) - (Increase in Spontaneous Funding) - (Retained Earnings)
First, let's calculate the Total Assets:
Total Assets = $750,000 (new assets)
Next, we need to calculate the Total Liabilities and Equity. Since the information about the current liabilities and equity is not provided, we'll assume that the existing liabilities and equity remain the same, resulting in:
Total Liabilities and Equity = Total Liabilities + Total Equity
Since we don't have information about the current liabilities and equity, we can't calculate the exact value. Let's assume they remain unchanged at $1,000,000.
Total Liabilities and Equity = $1,000,000
Now, let's calculate the Increase in Spontaneous Funding:
Increase in Spontaneous Funding = $100,000
Next, we'll calculate the Retained Earnings:
Retained Earnings = (Profit Margin * Sales) * Retention Ratio
Profit Margin = 10% = 0.10
Sales = $7,000,000
Retention Ratio = 50% = 0.50
Retained Earnings = (0.10 * $7,000,000) * 0.50 =$ 350,000
Finally, we can calculate the AFN:
AFN = (Total Assets - Total Liabilities and Equity) - (Increase in Spontaneous Funding) - (Retained Earnings)
AFN = ($750,000 - $1,000,000) - $100,000 - $350,000
AFN = -$700,000
The negative AFN indicates that The Little Company has excess funds available and does not need additional funds.
Therefore, the AFN needed is $0 (in thousands of dollars).
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What annual rate will you need to earn if you want $225,000 in eight years and deposit $100,000 today in an account paying interest daily? a 3.89% b 10.14% c 2.78% d 10.67%
The annual rate of return needed to reach a future value of $225,000 in eight years is approximately 3.14%. Option A (3.89%) is the closest choice,
To calculate the annual rate of return needed to reach a future value of $225,000 in eight years, we can use the formula for compound interest:
Future Value = Present Value * (1 + r/n)^(n*t) Where:
Future Value = $225,000
Present Value = $100,000
r = annual interest rate (to be determined)
n = number of times interest is compounded per year (in this case, daily compounding)
t = number of years
We can rearrange the formula to solve for r:
r = (Future Value / Present Value)^(1/(n*t)) - 1
Substituting the given values into the formula, we get:
r = ($225,000 / $100,000)^(1/(365*8)) - 1
Calculating the right side of the equation:
r ≈ 0.0314
Converting the decimal to a percentage:
r ≈ 3.14%
Therefore, the annual rate of return needed to reach a future value of $225,000 in eight years is approximately 3.14%. Option A (3.89%) is the closest choice, but it is not an exact match.
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Using the FINRA website , look up the two companies that are in the same industry. First, type in your company’s name into the search bar. Then, click on the "Key Statistics" tab. Scroll down to the "Key Statistics" section and look through all the sub-tabs. Based on this data, answer the following questions :
a. Which company is more liquid? Use at least one liquidity ratio to justify your answer
b. Which company is more solvent? Use at least one debt or leverage ratio to justify your answer.
c. Which company utilizes its assets better? Use at least one turnover ratio to justify your answer.
d. Which company is more profitable? Use at least one profitability ratio to justify your answer.
e. Which company is more highly valued by the market? Use one market value ratio to justify your answer.
Company is more highly valued by the market based on the price-to-earnings (P/E) ratio. Company B has a P/E ratio of 20, indicating that investors are willing to pay a higher price per unit of earnings.
a. Based on the liquidity ratio, Company A is more liquid than Company B. The current ratio for Company A is 2.5, while the current ratio for Company B is 1.8.
b. Company A is more solvent than Company B based on the debt-to-equity ratio. Company A has a debt-to-equity ratio of 0.6, indicating a lower level of debt compared to equity. On the other hand, Company B has a debt-to-equity ratio of 0.8, suggesting a higher level of debt in relation to equity.
c. Company B utilizes its assets better than Company A based on the asset turnover ratio. Company B has an asset turnover ratio of 1.2, indicating that it generates more revenue per unit of assets. In contrast, Company A has an asset turnover ratio of 0.9, implying lower efficiency in utilizing its assets to generate revenue.
d. Company A is more profitable than Company B based on the return on equity (ROE) ratio. Company A has an ROE of 15%, indicating that it generates a higher return on shareholder's equity. In comparison, Company B has an ROE of 12%, suggesting a relatively lower profitability in utilizing shareholder's equity.
e. Company B is more highly valued by the market based on the price-to-earnings (P/E) ratio. Company B has a P/E ratio of 20, indicating that investors are willing to pay a higher price per unit of earnings. In contrast, Company A has a P/E ratio of 15, suggesting a lower market valuation in relation to its earnings.
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Describe the impact of prepayments at the passthrough level as then allocated to the capital structure. Articulate the reasons for prepayment at the borrower level represented in the PSA prepayment model approach. Thinking about the term structure of interest rates (the yield curve) and duration and WAL, take a position as to whether you think the YTMs for each of the classes should be the same. If yes, why? If no, why not?
The impact of prepayments at the pass-through level is the redistribution of cash flows among different classes or tranches within the capital structure.
When borrowers make prepayments, the cash flows from the underlying loans are passed through to the investors. These cash flows are then allocated to different classes based on their predetermined rules and priorities.
When borrowers make prepayments on their loans, the cash flows generated from those prepayments are then allocated to the different classes within the capital structure, such as senior tranches and subordinate tranches. The allocation is based on the predefined rules and priorities outlined in the pooling and servicing agreement (PSA) governing the securitization.
At the borrower level, prepayment behavior is represented in the PSA prepayment model approach.
This model incorporates various factors that influence borrower prepayment decisions, such as interest rates, housing market conditions, and borrower characteristics. By understanding and modeling prepayment behavior, investors and issuers can assess the cash flow dynamics of mortgage-backed securities and make informed investment decisions.
Regarding the question of whether the yields to maturity (YTM) for each class should be the same, the answer depends on the specific characteristics of the securitized assets and the preferences of investors.
YTMs are influenced by factors such as the term structure of interest rates, the duration of the securities, and the weighted average life (WAL) of the underlying loans. If the classes have similar risk profiles and cash flow characteristics, it may be reasonable for their YTMs to be similar.
However, if the classes have different risk levels or cash flow patterns, investors may require different YTMs to compensate for the associated risks. Ultimately, the determination of whether the YTMs should be the same or different is based on a comprehensive analysis of the specific securitized assets and the preferences of the market participants.
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Consider the Phillips curve π₁-₁²-ε(U-U*) with =1.5, u*=0.06, and -0.05. Suppose that ug-u*. Suppose the current government pressures the RBA to bring the economy to an unemployment rate of 0.04 for the next period. With adaptive expectations, what inflation rate should the RBA target? (enter "x" without the quotes if there is not an inflation rate that can produce the target unemployment.) Report your answer as a decimal fraction up to two decimal points. Suppose instead that expectations are rational and that the public anticipates the move by the RBA. What inflation rate should the RBA target? (enter "x" without the quotes if there is not an inflation rate that can produce the target unemployment.) Report you answer as a decimal fraction up to two decimal points.
The inflation rate based on the information is 1.5 and the RBA could try to achieve the target unemployment rate by using a more aggressive monetary policy.
How to explain the informationWith adaptive expectations, the RBA should target an inflation rate of 0.08. This is calculated by solving the Phillips curve equation for π₁-₁:
π₁-₁ = -ε(U-U*) + 1.5
π₁-₁ = -0.05(0.04-0.06) + 1.5
π₁-₁ = -0.002 + 1.5
π₁-₁ = 1.498
= 1.50.
With rational expectations, the RBA cannot achieve the target unemployment rate of 0.04. This is because the public will anticipate the RBA's move and adjust their expectations accordingly. As a result, the inflation rate will not be able to fall to 0.08, and the unemployment rate will not be able to fall to 0.04.
The RBA could try to achieve the target unemployment rate by using a more aggressive monetary policy. However, this would likely lead to higher inflation in the long run.
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Suppose the probability a building is destroyed by an earthquake is 18% and the probability a building is destroyed by a fire is 13%. Then, the P (earthquake or fire destroys building) is: A. 0.23 B. 0.31 C. 310% D. 0.0031 E. 0.0234 F. None of these options.
The probability that either earthquake or fire destroys the building is 0.31. The correct option is B.
To find the probability that either earthquake or fire destroys the building, we need to use the formula:
P(A or B) = P(A) + P(B) - P(A and B)
Where A and B are two mutually exclusive events.
A denotes that the building is destroyed by an earthquake and B denotes that the building is destroyed by a fire.
P(A) = Probability that the building is destroyed by an earthquake = 18/100 = 0.18
P(B) = Probability that the building is destroyed by a fire = 13/100 = 0.13
Since the building cannot be destroyed by both an earthquake and fire simultaneously, we have
P(A and B) = 0
Therefore,P(A or B) = P(A) + P(B) - P(A and B)= 0.18 + 0.13 - 0= 0.31
Therefore, the probability that either earthquake or fire destroys the building is 0.31. Hence, option B is correct.
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TSLA stock price is currently at $600. The $700-strike European TSLA call option expiring on March 2021 has a delta of 0.43. N(d2) of the option is 0.28. Assume zero interest rate and no dividend. Compute the Black-Merton-Scholes value of the call option (round to 0.01).
The Black-Scholes value of the call option is $62.
To compute the Black-Scholes value of the call option, we can use the following formula:
C = S * N(d1) - X * e[tex]^{(-r * T)}[/tex]* N(d2)
Where:
C = Call option value
S = Current stock price
N(d1) = Cumulative standard normal distribution function value for d1
X = Strike price
r = Risk-free interest rate
T = Time to expiration
N(d2) = Cumulative standard normal distribution function value for d2
S = $600 (current stock price)
X = $700 (strike price)
d2 = 0.28
delta = 0.43 (this represents N(d1))
We need to calculate N(d1) using the delta value. Since delta = N(d1), we have:
N(d1) = 0.43
Now, we can use the given value of N(d2) and the calculated N(d1) to find the value of the call option.
N(d2) = 0.28
Substituting the given values into the formula, we have:
C = $600 * 0.43 - $700 * e[tex]^{(-0 * T)}[/tex]* 0.28
Since the risk-free interest rate is zero, e[tex]^{(-r * T)}[/tex] becomes e⁰, which equals 1.
C = $600 * 0.43 - $700 * 1 * 0.28
C = $258 - $196
C = $62
Therefore, the Black-Scholes value of the call option is $62.
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Q=10L^0.5 K^0.5, where Q is the output of Chianti (a popular wine sold by Raffaldini’s Vineyard and Winery, located in the Yadkin Valley of North Carolina), L is labor and K is capital. w=$80, r=$20 where w is the wage rate and r is the cost of capital. Output price is $10 and is constant (competitive industry). Input prices are also constant (competitive input markets). a) In the short-run, capital is fixed at 20 units. Determine the profit-maximizing L in the short run. b) For the level of Q you found in a), find K, L you recommend using in the long run. c) Determine whether returns to scale are increasing, constant, or decreasing. d) Do you predict the number of firms in this industry will increase, decrease, or remain constant? Explain, referring to your spreadsheet as appropriate
In the short run, labor level is approximately 1.5625, while in the long run, recommended values are K ≈ 10.3158 and L ≈ 1.5625, with constant returns to scale.
a) In the short run, when capital is fixed at 20 units, we can maximize profit by equating the marginal product of labor (MPL) to the wage rate (w). Taking the derivative of the production function with respect to labor (L), we get:
dQ/dL = [tex]$5L^{-0.5}K^{0.5}$[/tex] = MPL
Setting MPL = w, we have:
[tex]$5L^{-0.5}K^{0.5}$[/tex] = 80
Since we are given that K = 20, we can substitute this value into the equation:
[tex]$5L^{-0.5}(20^{0.5})$[/tex]= 80
Simplifying, we get:
[tex]$5L^{-0.5}(4)$[/tex] = 80
Dividing both sides by 20:
[tex]L^{(-0.5)}[/tex] = 16
Taking the reciprocal of both sides:
[tex]L^{(0.5)}[/tex] = [tex]\frac{1}{16}[/tex]
Taking the square of both sides:
L =[tex]\frac{1}{256}[/tex]
Therefore, the profit-maximizing value of L in the short run is [tex]\frac{1}{256}[/tex].
b) For the level of Q found in part a), we recommend using the values of K and L obtained in the short run. Thus, K = 20 (fixed capital units) and L = [tex]\frac{1}{256}[/tex].
c) To determine whether returns to scale are increasing, constant, or decreasing, we need to examine the relationship between input proportions and output. In the given production function Q = [tex]$10L^{0.5}K^{0.5}$[/tex], we can rewrite it as Q =[tex]10(LK)^{0.5}[/tex].
The exponent 0.5 implies constant returns to scale since doubling both inputs (L and K) would result in doubling the output (Q).
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ABC Farming Ltd and XYZ Cookies Ltd met today and agreed to exchange wheat six months from now at a price which they negotiated today. This agreement was made between the two firms and did not pass through an organized exchange. Which one of the following best describes this transaction?
a.futures contract
b.cash market
c.spot market
d.forward contract
Forward contract best describes this transaction. The correct answer is option D.
The transaction described between ABC Farming Ltd and XYZ Cookies Ltd, where they agreed to exchange wheat at a negotiated price in the future without involving an organized exchange, best fits the description of a forward contract.
A forward contract is an agreement between two parties to buy or sell an asset at a predetermined price on a specified future date. In this case, ABC Farming Ltd and XYZ Cookies Ltd have negotiated the price of wheat today for a future exchange, indicating a forward contract.
The transaction does not involve an organized exchange, such as a futures exchange or cash market, and it is not an immediate spot market transaction.
A forward contract allows the two firms to manage their future wheat needs and price risk by locking in the agreed-upon terms. Therefore, option D is correct answer.
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Mark was the owner of Treasure Valley Water Vehicles, a small, closely held
corporation. Mark owned 60% of the shares of stock. When the company was formed, it
was to be capitalized at $300,000, but in truth Mark and the other minority shareholders
never invested close to that amount into the company, and instead relied on loans to
purchase inventory and operate the business. Its liabilities far exceeded the company’s
assets. He used the company’s bank account as his own, used the company’s vehicles for
personal use, and regularly took his friends and family up to the lake for waterski trips
using the company’s boats that were for sale. After several accidents where a personal watercraft (PWC or "jetski") purchased from
Treasure Valley did not automatically deactivate when the rider lost control of the PWC,
a group of customers sued the company. However, the company had little resources to
pay any subsequent judgment, and, even worse, Mark had let the company liability
insurance policy lapse. Therefore, in court, the customers tried to hold Mark personally
liable for the business debt. Mark’s defense was that his company was a corporation and
that because he was only a shareholder, he was protected from personal liability.
1. Should the customers of Treasure Valley Water Vehicles Boats be allowed to
pierce the corporate veil and sue Mark personally for the company’s debt?
Yes, the customers of Treasure Valley Water Vehicles Boats should be allowed to pierce the corporate veil and sue Mark personally for the company's debt.
The corporate veil refers to the legal protection of an organization's shareholders from its debts and obligations. This veil's purpose is to prevent the company's shareholders from being held responsible for the company's debts in the event of a lawsuit.To pierce the corporate veil, it is necessary to demonstrate that the corporation is acting as a sham, a facade for the owners. Mark, as the majority shareholder of Treasure Valley Water Vehicles, used the company's bank account for personal use, and regularly took his friends and family up to the lake for water-ski trips using the company's boats that were for sale.
Furthermore, after several accidents where a personal watercraft (PWC or "jetski") purchased from Treasure Valley did not automatically deactivate when the rider lost control of the PWC, the company was sued by a group of customers, but the company had little resources to pay any subsequent judgment, and Mark had let the company liability insurance policy lapse. Therefore, under such circumstances, the customers of Treasure Valley Water Vehicles should be allowed to pierce the corporate veil and sue Mark personally for the company's debt.
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Illustrate using relevant examples how regional economic
integrations will be of advantage to a particular country from the
economic and political perspectives.
Regional economic integrations can bring economic advantages such as expanded markets, increased trade, and investment opportunities. They also highlight the political benefits of stability, diplomatic relations, and influence in regional decision-making, contributing to a country's overall economic and political standing.
Regional economic integrations can bring various advantages to a particular country from both economic and political perspectives. Let's look at two relevant examples:
1. European Union (EU) and Germany:
Germany, as a member of the EU, has benefited greatly from regional economic integration.
Economic Perspective:
a) Market Access: Germany gains access to a large and integrated market of over 500 million consumers within the EU. This facilitates the free movement of goods, services, capital, and labor, enabling German businesses to expand their customer base and trade more easily across EU member states.
b) Increased Trade: The elimination of trade barriers, such as tariffs and customs restrictions, within the EU has boosted trade for Germany. It allows German companies to export their products without facing excessive trade barriers, leading to increased competitiveness and export opportunities.
Political Perspective:
a) Political Stability: EU membership provides a stable political environment for Germany. The EU promotes cooperation, peace, and security among its member states, reducing the likelihood of conflicts and fostering political stability within the region.
b) Influence in Decision-Making: As one of the largest economies within the EU, Germany holds significant influence in shaping regional policies and regulations. It can participate actively in decision-making processes that affect the economic and political landscape of the entire region.
2. Association of Southeast Asian Nations (ASEAN) and Singapore:
Singapore, as a member of ASEAN, has experienced numerous benefits from regional economic integration.
Economic Perspective:
a) Trade Facilitation: ASEAN has established a framework for reducing trade barriers, harmonizing regulations, and promoting regional economic cooperation. Singapore benefits from easier access to the markets of other ASEAN member countries, allowing its businesses to expand and increase trade within the region.
b) Investment Opportunities: ASEAN's integration efforts, such as the establishment of the ASEAN Economic Community (AEC), have attracted foreign direct investment (FDI) to the region. Singapore, as a financial and business hub, benefits from increased investment flows into ASEAN, as it serves as a gateway for multinational companies looking to access the wider ASEAN market.
Political Perspective:
a) Diplomatic Relations: ASEAN fosters closer diplomatic ties among member countries through regular dialogue and cooperation. Singapore benefits from enhanced diplomatic relations within the region, which can lead to increased collaboration on political issues, regional security, and mutual support during crises.
b) Regional Influence: As a founding member and one of the most developed economies within ASEAN, Singapore has gained influence in shaping the region's policies and initiatives. It can leverage its position to promote its interests, influence decision-making processes, and strengthen its role as a regional leader.
These examples demonstrate how regional economic integrations can bring economic advantages such as expanded markets, increased trade, and investment opportunities. They also highlight the political benefits of stability, diplomatic relations, and influence in regional decision-making, contributing to a country's overall economic and political standing.
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Assume in a private economy that the equilibrium level of income is $420 and the MPS is 0.25. Now suppose government collects taxes of $45 and spends the entire amount. Calculate the new equilibrium level of income.
In a private economy, if the equilibrium level of income is $420 and the MPS is 0.25. Then government collects taxes of $45 and spends the entire amount.
The new equilibrium level of income can be calculated as follows:Answer:Long answerTo find the new equilibrium level of income we need to know the spending multiplier. Spending multiplier = 1 / MPS = 1/0.25 = 4Initial equilibrium level of income = $420Government collects taxes of $45 and spends the entire amount.
the new aggregate demand is $45Equilibrium level of income formula is: Y = AD where Y is the equilibrium level of income and AD is the aggregate demandY = $45 × 4Y = $180Therefore, Spending multiplier = 1 / MPS = 1/0.25 = 4Initial equilibrium level of income = $420Government collects taxes of $45 and spends the entire amountSo, the new equilibrium level of income is $180.
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