Financial management is the process of planning, organizing, directing and controlling an organization's financial resources to achieve its goals and objectives.
The basics of financial management involve managing various financial activities such as budgeting, forecasting, cash flow management, investment management, risk management, and financial reporting. In this essay, we will discuss each of these activities in detail.
Budgeting:
Budgeting is the first step in financial management. It involves the process of creating a plan that outlines an organization's financial goals and objectives for a specific period. A budget can be created for different periods, such as monthly, quarterly or annually. The purpose of budgeting is to allocate financial resources to different departments or projects within the organization and to control expenses. Creating a budget requires a thorough analysis of historical financial data, market trends, and business goals.
Forecasting:
Forecasting involves predicting future financial outcomes based on past performance and current trends. It is an essential component of financial management because it helps organizations anticipate potential risks and opportunities. Financial managers use forecasting techniques such as regression analysis, trend analysis, and time series analysis to make accurate predictions about revenue, expenses, and cash flow.
Cash Flow Management:
Cash flow management involves optimizing the inflows and outflows of cash within an organization to ensure that it has adequate liquidity to meet its financial obligations. Cash flow management includes activities like managing accounts receivable, accounts payable, inventory, and investments. Financial managers use tools like cash flow statements and ratios to monitor cash flow and identify potential issues before they become critical.
Investment Management:
Investment management is the process of managing an organization's financial assets to achieve the highest possible returns while minimizing risk. Financial managers must analyze investment options and select the ones that align with the organization's financial goals and risk tolerance. They also need to monitor the performance of investments regularly and adjust their strategies accordingly.
Risk Management:
Risk management involves identifying and mitigating potential financial risks that could impact an organization's financial stability. Financial managers use risk management techniques such as diversification, hedging, and insurance to manage risks. They also need to monitor and assess potential risks regularly and take proactive measures to reduce exposure to them.
Financial Reporting:
Financial reporting involves the preparation of financial statements that provide information about an organization's financial position, performance, and cash flows. Financial reports are essential for stakeholders like investors, creditors, regulators, and employees to make informed decisions about the organization. Financial managers must ensure that financial reports comply with accounting standards and regulations and provide accurate and transparent information to stakeholders.
In conclusion, financial management is a critical component of organizational success. It involves managing various financial activities such as budgeting, forecasting, cash flow management, investment management, risk management, and financial reporting. Effective financial management requires financial managers to have a thorough understanding of financial principles, accounting standards, and regulations, as well as strong analytical skills and strategic thinking abilities. By effectively managing financial resources, organizations can achieve their goals and objectives and ensure long-term financial stability.
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suppose the government imposes an excise tax on a good. which of the following statements is true about the tax incidence on buyers and sellers of the good?
When the government imposes an excise tax on a good, the tax incidence on buyers and sellers of the good will be determined by the relative elasticity of supply and demand. Therefore, the statement that is true about the tax incidence on buyers and sellers of the good is that the burden of the tax will be borne primarily by the group that is less elastic in their response to price changes.
In other words, the party that has a more inelastic demand or supply curve will pay a larger share of the tax. This is because the more inelastic party is less able to adjust their behavior in response to price changes caused by the tax. They are therefore more likely to absorb the extra cost associated with the tax. For example, if the supply of a good is highly elastic (i.e., producers are highly responsive to price changes), and the demand for the good is relatively inelastic (i.e., consumers are less responsive to price changes), then the burden of the tax will fall mostly on the consumers. They will pay a higher price for the good, even though the supply of the good has not decreased significantly.
On the other hand, if the demand for a good is highly elastic (i.e., consumers are highly responsive to price changes), and the supply of the good is relatively inelastic (i.e., producers are less responsive to price changes), then the burden of the tax will fall mostly on the producers. They will receive a lower price for the good, even though the demand for the good has not decreased significantly. Therefore, the tax incidence on buyers and sellers of the good will depend on the elasticity of supply and demand, and the more inelastic party will pay a larger share of the tax.
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Commercial cookery/ Kitchen:
One of the functions performed by managers in the Hospitality and Events industry is planning.
a. Provide a description of the planning process.
b. Provide two (2) examples of organisational plans and their benefits to an organisation.
Planning is an essential function performed by managers in the Hospitality and Events industry. It involves the process of setting goals, determining actions to achieve those goals, and allocating resources effectively.
The planning process in the Hospitality and Events industry involves several steps. Firstly, managers identify the organization's goals and objectives, such as increasing revenue, improving customer satisfaction, or expanding into new markets. They then analyze the current situation, including market trends, competition, and internal resources. Based on this analysis, managers develop strategies and action plans to achieve the goals. These plans outline the specific tasks, timelines, and resource requirements. Two examples of organizational plans in the Hospitality and Events industry are marketing plans and staffing plans. A marketing plan outlines the strategies and tactics to promote the organization's products or services. It includes elements such as target market analysis, marketing channels, advertising campaigns, and budget allocation. Implementing a marketing plan can enhance brand visibility, attract customers, and increase sales.
A staffing plan focuses on workforce management and determines the number of employees, their roles, and schedules needed to meet operational demands. It considers factors like peak seasons, special events, and employee skill requirements. Having a well-defined staffing plan ensures adequate staffing levels, promotes efficiency, and improves customer service. Both organizational plans contribute to the overall success of an organization by providing a structured approach to achieve goals, optimizing resource allocation, and aligning actions with the organization's strategic direction. They enable managers to make informed decisions, track progress, and adapt to changing circumstances effectively.
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Commercial cookery/ kitchen:
Provide one (1) example of when you would use the following forms of recognition and reward when leading a team.
a. Acknowledging good performance of an individual
b. Acknowledging good performance of the whole team
c. Incentive initiatives
d. Informal acknowledgement
e. Presenting awards
f. Documenting in a formal report to management
Various forms of recognition and reward can be utilized when leading a team in a commercial cookery/kitchen setting. Examples include acknowledging good performance of an individual or the whole team, implementing incentive initiatives, providing informal acknowledgement, presenting awards, and documenting in a formal report to management.
a. Acknowledging good performance of an individual: One example of when this form of recognition and reward can be used is when a chef consistently demonstrates exceptional culinary skills and produces high-quality dishes. Acknowledging their individual performance by praising their creativity, attention to detail, and ability to consistently meet or exceed standards can boost their motivation and job satisfaction.
b. Acknowledging good performance of the whole team: When the entire kitchen team successfully executes a complex catering event or achieves outstanding customer satisfaction scores, acknowledging their collective effort and teamwork is crucial. Recognizing the team's accomplishment through a verbal acknowledgment during a staff meeting or sending a congratulatory email can reinforce their sense of unity and encourage them to continue working collaboratively.
c. Incentive initiatives: In a kitchen setting, incentive initiatives can be used to motivate the team to achieve specific goals. For instance, implementing a monthly "Chef of the Month" program where the chef who receives the most positive customer feedback or achieves the highest sales is rewarded with a gift card or a special recognition can foster healthy competition and drive performance improvement.
d. Informal acknowledgement: Informal acknowledgement can be utilized on a daily basis to recognize individuals or the team for their efforts and accomplishments. This can be as simple as offering verbal praise, a high-five, or a thank-you note for going above and beyond their regular duties. These small gestures of appreciation can have a significant impact on employee morale and motivation.
e. Presenting awards: Presenting awards, such as "Most Creative Dish" or "Team Player of the Month," can be used during special occasions or annual events to recognize outstanding achievements. This formal recognition not only rewards exceptional performance but also serves as a source of inspiration for others to strive for excellence.
f. Documenting in a formal report to management: When leading a team, documenting their achievements and contributions in a formal report to management can be beneficial. For example, if the team successfully implements a cost-saving initiative or achieves significant improvements in food quality, documenting these accomplishments and presenting them to management showcases the team's value and may lead to additional recognition, promotions, or opportunities for the team members. By effectively utilizing these forms of recognition and reward, leaders in a commercial cookery/kitchen environment can create a positive and motivating work culture, fostering individual and team growth and success.
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Assume the consumer is currently operating at point G. Given the budget constraint shown, the consumer would be able to realize more total utility by choosing point ________ , all other things held equal.
Group of answer choices
K
I
H
J
Point I.To determine the point that allows the consumer to realize more total utility, we need to identify the point on the budget constraint where the consumer can maximize their utility.
Point I represents a combination of goods that lies on the highest possible indifference curve given the budget constraint.
At point G, the consumer is not maximizing their utility because there are points on the budget constraint where a higher level of utility can be attained. Moving from point G to point I allows the consumer to increase their utility without violating the budget constraint.
At point I, the consumer can afford a combination of goods that provides a higher level of utility compared to point G, given the same budget constraint. Therefore, the consumer would be able to realize more total utility by choosing point I.
By choosing point I, the consumer can maximize their utility given the budget constraint. This decision allows them to attain a higher level of satisfaction and make the most out of their available resources.
In conclusion, the consumer operating at point G can realize more total utility by choosing point I, all other things held equal. Point I represents the optimal combination of goods that maximizes the consumer's utility within the given budget constraint.
By choosing point I, the consumer can achieve a higher level of utility compared to point G. This is because point I lies on a higher indifference curve, indicating a higher level of satisfaction for the consumer. It represents the most preferred combination of goods that can be attained within the budget constraint.
The decision to choose point I allows the consumer to allocate their limited resources in a way that maximizes their overall satisfaction. It signifies an efficient use of the available budget, ensuring that the consumer obtains the highest possible utility given their constraints.
Therefore, by selecting point I, the consumer can optimize their utility and make the most favorable consumption choice within the given budget constraint.
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An open-end fund has a net asset value of $17.70 per share. It is sold with a front-end load of 5%. What is the offering price?
The offering price of the open-end fund, including the front-end load, is $18.63 per share. The net asset value (NAV) per share represents the value of the fund's assets divided by the number of shares outstanding.
In this case, the NAV is $17.70 per share. When a front-end load is applied, it is deducted from the offering price to cover sales charges and other expenses. The front-end load is typically expressed as a percentage of the offering price. To calculate the offering price, we need to add the front-end load to the NAV per share. In this scenario, the front-end load is 5%. To determine the load amount, we multiply the NAV by 5% (0.05), which equals $0.885 per share. Adding this load amount to the NAV of $17.70 per share gives us an offering price of $18.585 per share. However, it's important to note that offering prices are often rounded to two decimal places for simplicity. Therefore, the final offering price, after rounding, would be $18.63 per share. This is the price at which the open-end fund would be sold to investors, inclusive of the front-end load.
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Green Company had the following transactions during 2021, its first year in business: January 2 Issued 23,000 shares of $25 par common stock for $69 per share. April 3 Issued 3,000 shares of $80 par preferred stock for $140 per share. October 6 Purchased 1,100 shares of treasury stock for $16 per share. December 9 Reissued 140 shares of treasury stock for $51 per share. In addition, Green Company had $744,000 of net income for the year and during the year, declared and distributed a cash dividend of $170,000 Required: Prepare the stockholders' equity section of the December 31, 2021, balance sheet. Note: In the final answer, use "Additional Pald-in Capital" to combine all the additional Paid-In Capital accounts. Green Company Stockholders' Equity December 31 6 [Choose one Total Stockholders' Equity
Green Company is an entity that had a number of transactions in the year 2021. As a result of these transactions, the stockholders' equity section of the December 31, 2021, balance sheet has to be prepared.
The transactions made by Green Company in 2021 are as follows: January 2: The company issued 23,000 shares of $25 par common stock for $69 per share.
Therefore, the amount of common stock that was issued was $25 × 23,000 = $575,000. The additional paid-in capital of the company was also raised by the company.
This amount is $69 × 23,000 - $575,000 = $782,000. April 3: The company issued 3,000 shares of $80 par preferred stock for $140 per share.
As a result, the amount of preferred stock that was issued was $80 × 3,000 = $240,000. The additional paid-in capital for this amount is $140 × 3,000 - $240,000 = $120,000.
October 6: The company purchased 1,100 shares of treasury stock for $16 per share. Therefore, the cost of treasury stock purchased is $16 × 1,100 = $17,600.
December 9: The company reissued 140 shares of treasury stock for $51 per share. The company's treasury stock account will be reduced by the amount of stock reissued, which is 140 shares.
As a result, the stock will be reissued to the public.
This reissue is worth $51 × 140 = $7,140. As a result of these transactions, the company's equity accounts will be adjusted to reflect the change in the stockholders' equity section.
The balance sheet will show the following stockholders' equity section at the end of the year: Common Stock ($25 par, 23,000 shares issued and outstanding) 575,000 Preferred Stock ($80 par, 3,000 shares issued and outstanding) 240,000 Additional Paid-in Capital 902,000 Treasury Stock (1,100 shares at cost) (17,600) Retained Earnings 344,600 Total Stockholders' Equity $2,044,000 Therefore, the total stockholders' equity for Green Company is $2,044,000. Answer:Additional Paid-in Capital = 902,000Total Stockholders' Equity = $2,044,000
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Given a relatively steep and a relatively flat short-run aggregate supply curve, which curve would support the case for nonactivist policy? Why?
The relatively steep short-run aggregate supply (SRAS) curve would support the case for nonactivist policy.
A relatively steep SRAS curve indicates that the economy's output level is sensitive to changes in aggregate demand. In this case, even small changes in aggregate demand can lead to significant shifts in output and prices. Nonactivist policy refers to a hands-off approach by the government or central bank, where they do not intervene actively to stabilize the economy.
With a steep SRAS curve, the economy is more self-adjusting, meaning that it can naturally and quickly respond to changes in demand. Price and wage flexibility is higher, allowing the economy to reach equilibrium without the need for active policy interventions.
Nonactivist policy would be favored in this scenario as the economy can adjust on its own, reducing the need for government intervention.
On the other hand, a relatively flat SRAS curve suggests that the economy is less responsive to changes in aggregate demand. Output levels are less sensitive to fluctuations in demand, and the economy may experience more prolonged periods of unemployment or inflation. In such a case, activist policies may be necessary to stimulate or stabilize the economy.
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What was the practical problem with Black and Scholes’
equations?
The practical problem with Black and Scholes' equations is that the model relies on several unrealistic assumptions that do not hold true in real-world situations.
What is the Black and Scholes Model? The Black-Scholes model is a mathematical framework for calculating the value of a stock option. The model was developed by Fischer Black, Myron Scholes, and Robert Merton in 1973. The Black-Scholes model is a widely used tool in finance for pricing options and other derivatives, as well as for managing risk.
What is the practical problem with Black and Scholes equations? The practical problem with Black and Scholes' equations is that the model relies on several unrealistic assumptions that do not hold true in real-world situations. The model assumes that the underlying stock price follows a random walk, which means that it moves randomly and unpredictably over time. This assumption does not reflect the fact that stock prices are affected by a wide range of factors, including company performance, economic conditions, and geopolitical events.
The model also assumes that there are no transaction costs or taxes associated with trading the underlying stock or the option itself. This is not the case in real-world situations, where there are often costs and taxes associated with buying and selling securities. The Black-Scholes model also assumes that the market is always liquid, which means that there are always buyers and sellers willing to trade at any given time. This is not always the case in real-world situations, where markets can become illiquid and it can be difficult to find a buyer or seller at a reasonable price. In conclusion, while the Black-Scholes model is a useful tool for pricing options and managing risk, it is important to recognize its limitations and take them into account when applying the model in real-world situations.
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Describe a performance review template for training in
a luxury hotel.
A performance review template for training in a luxury hotel may include sections such as employee information, training objectives, performance assessment, skills development, feedback, and future goals.
1. Employee Information: This section includes the employee's name, position, department, and the period covered by the review.
2. Training Objectives: This section outlines the specific training objectives and goals set for the employee during the review period. It may include areas such as customer service, communication skills, product knowledge, and leadership development.
3. Performance Assessment: Here, the employee's performance is evaluated based on predetermined criteria. This can include areas like adherence to hotel standards, customer satisfaction, teamwork, and problem-solving skills. The assessment may use a rating scale or provide space for written comments.
4. Skills Development: This section focuses on the employee's training and development activities during the review period. It can include details of training programs attended, certifications obtained, and additional skills acquired.
5. Feedback: Both positive feedback and areas for improvement are provided in this section. It highlights the employee's strengths and acknowledges their contributions, while also identifying areas where further development or improvement is needed.
6. Future Goals: This section encourages the employee to set future goals and objectives for their training and career growth. It can include action plans, training needs, and aspirations for personal and professional development.
The performance review template serves as a structured framework to assess the employee's performance, provide constructive feedback, and plan for their ongoing training and development in a luxury hotel setting. It ensures consistency in evaluating employees and promotes continuous improvement within the organization.
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Recognized technology businesses and startups across the world are developing business analysis
tools and approaches that give seamless analytics solutions to help enterprises derive meaningful
insights from the data they collect. Today's state-of-the-art analytical tools for business are jam-
packed with sophisticated capabilities that make data gathering, analysis, and presentation in real-
time a breeze, allowing businesses to see trends and patterns in massive datasets and develop new business analytics models.
Q: Identify and analyze any five Business Analytics tools used by the organizations. Your answer should
provide discussions on the Key Features of the tools and their benefits to the organization.
In addition to the previously described business analytics technologies, organizations can use automated reporting, self-service predictive analytics, and other capabilities to streamline and improve the analysis process.
Businesses analyse and assess quantitative and qualitative data using business analytics tools, which provide integrated analytics solutions that enable businesses to generate valuable insights from the data they collect.
Business analytical tools are used in supply chain management, service life cycle management, enterprise resource planning, and customer relationship management.
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Crane Curtin borrowed $32,200 on July 1, 2022. This amount plus accrued interest at 10% compounded annually is to be repaid on July 1, 2027. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) How much will Crane have to repay on July 1, 2027? (Round answer to 2 decimal places, e.g. 25.25.) Amount to be repaid on July 1, 2027:
Crane Curtin will have to repay approximately $51,849.90 on July 1, 2027, including the borrowed amount and accrued interest.
To calculate the amount Crane Curtin will have to repay on July 1, 2027, we need to consider the borrowed amount and the accrued interest. The borrowed amount is $32,200.
To determine the accrued interest, we can use the compound interest formula:
[tex]A = P(1 + r/n)^{(nt)[/tex]
where A is the final amount, P is the principal (borrowed amount), r is the interest rate, n is the number of times the interest is compounded per year, and t is the number of years.
In this case, the interest rate is 10% (0.10) and it is compounded annually (n = 1). The time period is 5 years (from July 1, 2022, to July 1, 2027).
Plugging in the values into the formula, we get:
[tex]A = 32,200(1 + 0.10/1)^{(1*5)}[/tex]
[tex]= 32,200(1.10)^5[/tex]
Using the factor table provided, we find that [tex](1.10)^5[/tex] is approximately 1.61051. Multiplying this by the principal amount, we have:
A = 32,200 * 1.61051
= $51,849.90.
Therefore, Crane Curtin will have to repay approximately $51,849.90 on July 1, 2027.
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If the above entries are not recorded on November 30, 2020, what is the effect on the income statement and the balance sheet? (Enter all value as positive values. Round intermediate and the final answers to 2 decimal places. Select "No effect" in case of no effect on Income statement and Balance sheet.) Effect Amount Description The income statement would be On the balance sheet, liabilities would be On the balance sheet equity would be On the balance sheet assets would be Analysis Component: If the above entries are not recorded on November 30, 2020, what is the effect on the income statement and the balance sheet? (Enter all value as positive values. Round intermediate and the final answers to 2 decimal places. Select "No effect" in case of no effect on Income statement and Balance sheet.) Description The income statement would be Effect Amount On the balance sheet, liabilities would be On the balance sheet, equity would be On the balance sheet, assets would be Analysis Component: If the above entries are not recorded on November 30, 2020, what is the effect on the income statement and the balance sheet? (Enter all value as positive values. Round intermediate and the final answers to 2 decimal places. Select "No effect" in case of no effect on Income statement and Balance sheet.) Description The income statement would be Effect Amount On the balance sheet, liabilities would be On the balance sheet, equity would be On the balance sheet, assets would be Analysis Component: If the above entries are not recorded on November 30, 2020, what is the effect on the income statement and the balance sheet? (Enter all value as positive values. Round intermediate and the final answers to 2 decimal places. Select "No effect" in case of no effect on Income statement and Balance sheet.) Description The income statement would be Effect Amount On the balance sheet, liabilities would be On the balance sheet, equity would be On the balance sheet, assets would be
The effect on the income statement and the balance sheet if the entries are not recorded on November 30, 2020, is as follows:
Description
The income statement would be affected. Effect Amount
The effect on the income statement would be no effect.
On the balance sheet, liabilities would be affected.
Effect Amount
The effect on the balance sheet would be a decrease of $100 in liabilities.
On the balance sheet, equity would be affected.
Effect Amount
The effect on the balance sheet would be a decrease of $100 in equity.
On the balance sheet, assets would be affected.
Effect Amount
The effect on the balance sheet would be a decrease of $100 in assets.
Analysis Component
The income statement would not be affected as these entries are balance sheet items. The liabilities, equity, and assets would decrease by $100 each. This is because these are the accounts that were debited in the entries. If these entries are not recorded, the company's total liabilities, equity, and assets will not reflect the true picture. This will affect the financial ratios that are calculated using these figures, such as the debt-to-equity ratio, current ratio, and return on assets.
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The normal selling price is $20.00 per unit. The company’s
capacity is 118,800 units per year. An order has been received from
a mail-order house for 2,300 units at a special price of $17.00 per
uni
Delta Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 91,200 units per year is: Direct materials. $ 1.90 $
The $28,290 financial gain from accepting the special order.
Given
Special selling price = $17
Special unit = 2300
Direct materials = $1.9
Direct labor = $2
Variable manufacturing overhead = $0.8
Required to calculate the financial advantage (disadvantage) of accepting the special order =?
calculate the revenue from the special order:
Special order revenue = Number of units in the special order * Special price per unit
Special order revenue = 2,300 units * $17.00 per unit = $39100
Cost of producing units for special order = (Direct materials + Direct labor + Variable manufacturing overhead) * Number of units in the special order
Cost of producing units for special order = ($1.90 + $2.00 + $0.80) * 2,300 units
= $4.7 x 2300 = $10,810
Now we can calculate the financial advantage or disadvantages:
Financial advantage (disadvantage) = Special order revenue - Cost of producing units for special order
Financial advantage = $28,290
the company should accept the special order because this gives a financial gain of $28,290 by accepting the special order.
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Your Question seems incomplete most probably your complete question was:
Delta Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 91,200 units per year is Direct materials. $ 1.90 $ 2.00 Direct labor Variable manufacturing overhead $ 0.80 Fixed manufacturing overhead $ 4.05 Variable selling and administrative expense $ 1.20 Fixed selling and administrative expense $ 1.00 The normal selling price is $20.00 per unit. The company's capacity is 118,800 units per year. An order has been received from a mail-order house for 2,300 units at a special price of $17.00 per unit. This order would not affect regular sales or the company's total fixed costs. Required: 1. What is the financial advantage (disadvantage) of accepting the special order?
How many years will it take for $500 to grow to $1,078.52 if it's invested at 8 percent compounded annually?
The number of years it will take for $500 to grow to $1,078.52 at 8 percent compounded annually is:
(____________________________enter your response here) years. (Round to one decimal place.)
It will take approximately 8.0 years for $500 to grow to $1,078.52 at an annual interest rate of 8 percent compounded annually.
To calculate the number of years it will take for an investment to grow from $500 to $1,078.52 at an annual interest rate of 8 percent compounded annually, we can use the formula for compound interest:
A = P(1 + r/n)^(n*t)
Where:
A = Final amount (1,078.52 in this case)
P = Principal amount (500)
r = Annual interest rate (8% or 0.08)
n = Number of times the interest is compounded per year (assuming once annually, n = 1)
t = Number of years
We need to solve for t in this equation. Rearranging the formula, we get:
(1,078.52) = 500(1 + 0.08/1)^(1*t)
Dividing both sides by 500:
2.15704 = (1.08)^t
Taking the logarithm of both sides (base 10 or natural logarithm doesn't matter):
log(2.15704) = log((1.08)^t)
Using logarithm properties, we can bring down the exponent:
log(2.15704) = t * log(1.08)
Now, solving for t:
t = log(2.15704) / log(1.08)
Calculating this value, we get:
t ≈ 8.0 years
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a. Depreciation on the company's equipment for the year is computed to be $14,000. b. The Prepaid Insurance account had a $8,000 debit balance at December 31 before adjusting for the costs of any expired coverage. An analysis of the company's insurance policies showed that $1,590 of unexpired insurance coverage remains. c. The Supplies account had a $470 debit balance at the beginning of the year, and $2,680 of supplies were purchased during the year. The December 31 physical count showed $555 of supplies available. d. One-third of the work related to $15,000 of cash received in advance was performed this period. e. The Prepaid Rent account had a $5,100 debit balance at December 31 before adjusting for the costs of expired prepaid rent. An analysis of the rental agreement showed that $3,510 of prepaid rent had expired. f. Wage expenses of $6,000 have been incurred but are not paid as of December 31. Prepare adjusting journal entries for the year ended December 31 for each separate situation. View transaction list Prepare adjusting journal entries for the year ended December 31 for each separate situation. View transaction list Journal entry worksheet < 1 2 3 4 5 6 Depreciation on the company's equipment for the year is computed to beli $14,000. Note: Enter debits before credits.
The adjusting journal entries for the year ended December 31 are as follows:
a. Debit Depreciation Expense $14,000, and credit Accumulated Depreciation $14,000.
b. Debit Insurance Expense $6,410 ([$8,000 - $1,590]), and credit Prepaid Insurance $6,410.
c. Debit Supplies Expense $2,595 ([$470 + $2,680 - $555]), and credit Supplies $2,595.
d. Debit Unearned Revenue $5,000 ([$15,000 / 3]), and credit Revenue $5,000.
e. Debit Rent Expense $3,510, and credit Prepaid Rent $3,510.
f. Debit Wage Expense $6,000, and credit Accrued Wages $6,000.
To adjust the accounts for the year-end, we need to make the following adjusting journal entries for each situation:
a. Depreciation Expense: Since the depreciation on the company's equipment for the year is $14,000, we debit Depreciation Expense for $14,000 and credit Accumulated Depreciation for $14,000 to record the depreciation expense for the year.
b. Prepaid Insurance: The Prepaid Insurance account has a $8,000 debit balance before adjustment, but there is $1,590 of unexpired insurance coverage remaining. To adjust for this, we debit Insurance Expense for $6,410 ([$8,000 - $1,590]) and credit Prepaid Insurance for $6,410 to recognize the expired insurance coverage.
c. Supplies: The Supplies account has a $470 debit balance at the beginning of the year, and $2,680 of supplies were purchased during the year. However, the physical count at December 31 shows that only $555 of supplies are available. We need to adjust the account by debiting Supplies Expense for $2,595 ([$470 + $2,680 - $555]) and crediting Supplies for $2,595 to reflect the actual supplies used.
d. Unearned Revenue: One-third of the work related to $15,000 of cash received in advance was performed this period. To adjust for this, we debit Unearned Revenue for $5,000 ([$15,000 / 3]) and credit Revenue for $5,000 to recognize the revenue earned.
e. Prepaid Rent: The Prepaid Rent account has a $5,100 debit balance at December 31, but $3,510 of prepaid rent has expired based on the rental agreement. We adjust the account by debiting Rent Expense for $3,510 and crediting Prepaid Rent for $3,510 to record the expired prepaid rent.
f. Accrued Wages: Wage expenses of $6,000 have been incurred but are not paid as of December 31. To account for the unpaid wages, we debit Wage Expense for $6,000 and credit Accrued Wages for $6,000.
By making these adjusting journal entries, the accounts are properly adjusted to reflect the correct amounts at the end of the year.
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All other factors remaining equal, a firm's price/earnings ratio would decrease if there is,
a. an equal decrease in price per share and earnings per share
b. a decrease in investor risk aversion
c. an increase in growth opportunities
d. a decrease in net profit margin
All other factors remaining equal, a firm's price/earnings ratio would decrease if there is:d. a decrease in net profit margin.
What is price/earnings ratio?The price/earnings ratio is derived by dividing the stock price per share by the earnings per share of the firm. It is a valuation indicator that illustrates how much money investors are prepared to part with for every dollar of earnings from a firm.
A company's profitability is diminishing when the net profit margin of the business declines. This may happen for a number of reasons, including rising expenses, declining income, or operational inefficiencies.
Therefore the correct option is c.
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An investment adviser is under the fiduciary responsibility to disclose all material facts in any:
An investment adviser is under the fiduciary responsibility to disclose all material facts in any agreement between them and their clients.
What is an investment adviser?
An investment adviser is an individual or a firm that provides investment advice or makes investment recommendations to their clients. They also manage investment portfolios for their clients.A fiduciary is an individual or organization that acts in the best interests of another person or organization. An investment adviser is considered a fiduciary because they are expected to act in the best interests of their clients.Disclosure of all material facts in any agreement is important for an investment adviser so that their clients can make informed decisions about their investments. By doing so, the adviser is fulfilling their fiduciary responsibility to act in the best interests of their clients.
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Davis Corporation made a gain of $500,000 on the sale of equipment which is reported on the current year’s income statement, but is deferred for tax purposes for 3 years. Davis’ tax rate is 40 percent. Which of the following journal entries is recorded by Davis in the current year?
Group of answer choices:
Income Tax Expense—Deferred 200,000
Deferred Income Tax Liability 200,000
Income Tax Expense—Deferred 500,000
Income Tax Payable 500,000
Income Tax Expense—Deferred 500,000
Deferred Income Tax Liability 500,000
Deferred Income Tax Liability 200,000
Income Tax Expense—Deferred 200,000
Income Tax Expense—Deferred 200,000
Cash 200,000
Income Tax Expense—Deferred 200,000Deferred Income Tax Liability 200,000The deferred tax liability is the $500,000 gain multiplied by the tax rate of 40 percent, or $200,000.
When a company reports on the income statement a gain or loss from a transaction that has no tax effect, they must recognize any deferred tax liabilities or assets. The deferred tax liabilities or assets reflect the difference between the tax basis of assets and liabilities and their carrying value for financial reporting purposes. These are required to be recognized in the financial statements for temporary differences. These temporary differences may be deferred tax liabilities or deferred tax assets. Davis Corporation made a gain of $500,000 on the sale of equipment which is reported on the current year's income statement, but is deferred for tax purposes for 3 years. Davis' tax rate is 40 percent. The following journal entry will be recorded by Davis in the current year. Income Tax Expense—Deferred 200,000Deferred Income Tax Liability 200,000The deferred tax liability is the $500,000 gain multiplied by the tax rate of 40 percent, or $200,000. The entry is a deferred tax entry because the tax will be paid in a future year.
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according to the systematic risk principle, the reward for bearing risk is based on which one of the following types of risk?a.expectedb.diversifiablec.unsystematicd.firm specifice.systematic
According to the systematic risk principle, the reward for bearing risk is based on systematic risk. So, option e is correct.
Systematic risk, also known as non-diversifiable or market risk, refers to the risk that cannot be eliminated through diversification because it affects the entire market or a particular segment of it. It is associated with factors such as macroeconomic conditions, geopolitical events, interest rates, and overall market trends.
The systematic risk principle states that investors should be rewarded for taking on systematic risk as it cannot be diversified away. In other words, investors should expect a higher return for bearing the risk that is inherent in the overall market or a specific market segment.
On the other hand, diversifiable risk, also known as unsystematic or specific risk, is the risk that can be eliminated or reduced through diversification.
It is associated with factors that are specific to individual assets, such as company-specific events, management decisions, or industry-specific risks. Diversifiable risk can be mitigated by creating a well-diversified portfolio that includes a mix of assets from different sectors or industries.
However, the systematic risk principle emphasizes that the reward for bearing risk is primarily based on the systematic risk component. Investors should be compensated for the risk they take on that cannot be diversified away.
Therefore, the correct answer is (e) systematic.
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6 1 point Exactly one year ago, an investor made an investment in investment in Braodcom (AVGO). At that time, the current risk-free rate was 0.85%, the beta for AVGO was 1.1, and the market risk premium was estimated at 6.9%. Over the year, the realized return for AVGO was 7.86%. What was the risk-adjusted return (alpha) for AVGO over the year? Enter your answer in decimal form out to four decimals. For example, you would enter .1050 (for 10.5%).
The risk-adjusted return (alpha) for AVGO over the year is 0.0569.What is risk-adjusted return (alpha)?Alpha is the excess return on an investment compared to the market's return.
A positive alpha implies that an investment has outperformed its benchmark or the expected rate of return, while a negative alpha implies that an investment has underperformed or lagged its expected rate of return. The risk-adjusted return or alpha accounts for risk and is a risk-adjusted measure.How to calculate the risk-adjusted return (alpha) for AVGO over the year?The formula for calculating the risk-adjusted return (alpha) for AVGO over the year is given by,Alpha = R - [Rf + Beta(Market Risk Premium)]Where,R = Realized return of AVGO = 7.86%Rf = Risk-free rate = 0.85%Beta = Beta for AVGO = 1.1Market Risk Premium = 6.9%Now, substituting the given values in the formula,Alpha = 7.86% - [0.85% + 1.1(6.9%)]Alpha = 0.0569 or 5.69%
Therefore, the risk-adjusted return (alpha) for AVGO over the year is 0.0569.
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Draw and describe any five Flow-Chart symbols. 6.2 Draw and describe the six Process-Chart symbols 6.3 Consider the following process: A batch of raw material is off-loaded at a receiving bay and is then transported to a sampling inspection area where it is subjected to a 10% random sample inspection. If the material is found to contain no defects, then it is sent to raw material warehousing but if it is found to have any non-conformances then the entire batch is subjected to 100% inspection at the supplier's cost.
The 5 Flowchart symbols are as follows:
Process: A rectangle shape that represents a process or activity.
Decision: A diamond shape that shows a decision point in a process, with "yes" and "no" or other binary choices.
Input/output: A parallelogram that shows data being entered into or extracted from a process.
Terminator: A rounded rectangle that represents the start or end of a process.
Connector: A small circle that shows a point where a process splits off into two or more paths.
Process chart symbols:
Operation: The circle shows a process being performed.
Transportation: An inverted triangle represents the movement of products between two locations.
Inspection: A square shape represents an inspection or quality check.
Delay: A "T" shape represents a pause in the process due to a delay in equipment, materials, or people.
Storage: A horizontal rectangle represents a storage area or location for materials or products.
Movement: An arrow represents the flow of materials or products from one process to another.
A batch of raw material is off-loaded at a receiving bay and then transported to a sampling inspection area where it is subjected to a 10% random sample inspection.
If the material has no defects, it is sent to raw material warehousing. However, if it contains any non-conformances, then the whole batch is subjected to 100% inspection at the supplier's expense.
The flowchart symbol used for "process" can be used to represent the receiving bay and the sampling inspection area. The inspection area could be a diamond-shaped decision symbol with "yes" and "no" outputs.
The symbol used for storage represents the raw material warehousing. The diamond symbol used for decision can represent the point where non-conforming materials are sent back for a 100% inspection at the supplier's cost.
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Bullying can also take place when a boss yells dictates constantly at workers because that is what he is supposed to do as his job.
a. True
b. False
The given statement "Bullying can also take place when a boss yells dictates constantly at workers because that is what he is supposed to do as his job." is true.
It is correct to say that bullying can happen in the workplace when bosses keep yelling and dictating instructions to employees relentlessly.What is workplace bullying?Bullying in the workplace is behavior that harms, hurts, or humiliates someone physically, emotionally, or socially. The victim suffers both mental and physical pain as a result of bullying. Such actions can have a serious impact on an individual's mental health and can lead to anxiety and depression. In fact, studies suggest that the mental health of victims of workplace bullying can deteriorate to the point that they develop severe mental health problems such as post-traumatic stress disorder, depression, and anxiety.
The majority of workplace bullying is perpetrated by a person in authority over their target. This individual may be a boss, supervisor, or another authority figure. Such actions frequently have a negative impact on an individual's career growth, as well as their job satisfaction. It is the responsibility of the employers to ensure the safety of their employees. They should provide them with a workplace free of violence, intimidation, and harassment, so they can work with peace and reach their full potential.
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Identify commodity risk, currency risk and credit risk Section II (30%) (c) But only hedge 2 risks which are commodity risk and credit risk To make recommendations on which derivative instruments (for example, options, futures, etc.) to use to implement any hedges that you have recommended in part (b) above. Once again, you MUST explain your recommendations (i.e. justify the choice of the derivative instrument).
Commodity risk: It is the risk of losses due to changes in the value of commodities such as crude oil, grains, or metals. Commodity risk is the danger of a change in the price of a raw material or item that affects the operations or the money flows of a business.
Currency risk: It is the possibility of financial losses that can occur when there is a fluctuation in exchange rates between two countries. It is the risk that the currency will fluctuate and result in losses for the investor. It is faced by people involved in international business.
Credit risk: It is the possibility of financial losses that may result from the default of a borrower on a debt. Credit risk refers to the possibility that a borrower will default on a debt obligation. Credit risk can be managed by reducing the exposure to an individual counterparty, counterparty type, or region of the world.
What are derivative instruments?Derivative instruments are securities that derive their value from an underlying asset. Derivatives can be used to hedge risks in other assets such as commodities, equities, or currencies. Some of the derivative instruments that can be used to hedge commodity and credit risks are:
Forward Contracts: Forward contracts are agreements to buy or sell a specific asset at a specific price on a specific date in the future. These are negotiated directly between the buyer and the seller and are not traded on an exchange.
Options: An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a specific date in the future. Options can be used to hedge commodity and credit risk.
Futures: Futures are standardized contracts that obligate the buyer to purchase an underlying asset at a specific price on a specific date in the future. Futures can be used to hedge commodity and credit risk.
The use of derivative instruments depends on the risk exposure of the business and the liquidity of the derivatives. Hedging commodity risk and credit risk can be achieved using futures and options. Hedging using derivatives helps to reduce the risk exposure of the business and helps to manage the risk effectively.
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Riku spent the summer interning at a glass factory, and was working with last year's financial statements. He found that the cash flow to stockholders was $14,643 last year. The company also had $39,214 in net capital spending and operating cash flow of $56,200. Given that the company began last year with $6,198 in net working capital and ended the year with $8,493, what was the firm's cash flow to creditors?
The firm's cash flow to creditors is -$14,691.
To calculate the cash flow to creditors, we need to consider the changes in net working capital (NWC), net capital spending, and operating cash flow.
Net Working Capital (NWC) = Ending Net Working Capital - Beginning Net Working Capital
NWC = $8,493 - $6,198
NWC = $2,295
Cash Flow to Creditors = Net Capital Spending + Change in Net Working Capital - Operating Cash Flow
Cash Flow to Creditors = $39,214 + $2,295 - $56,200
Cash Flow to Creditors = -$14,691
Therefore, the firm's cash flow to creditors is -$14,691. This negative value indicates that the company had a net outflow of cash to its creditors during the year, meaning it paid more to creditors (e.g., interest, loan repayments) than it received from them.
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Thus, understanding functional and dysfunctional conflict requires not only that identify the type of conflict; we also need to know A) didactic conflict.
B) intragroup conflict. C) intergroup conflict. D) who it is occurring with. E) where it occurs.
To understand functional and dysfunctional conflict, it is important to consider various factors, including the type of conflict, the parties involved, and the context in which it occurs.
In addition to the options you provided, let's explore the factors that contribute to understanding conflict:
A) Didactic conflict: Didactic conflict refers to conflicts that arise due to differences in knowledge, understanding, or opinions. It occurs when individuals or groups hold differing perspectives or beliefs and engage in intellectual debates or discussions to resolve the conflict. Understanding whether a conflict is based on differences in knowledge or understanding can help in assessing its functional or dysfunctional nature.
B) Intragroup conflict: Intragroup conflict occurs within a group or team, involving conflicts among members who share a common goal or objective. This type of conflict can arise due to differences in opinions, interests, or approaches to achieving the group's goals. Assessing whether conflict is occurring within a group can provide insights into its potential impact on group dynamics and performance.
C) Intergroup conflict: Intergroup conflict involves conflicts between different groups or teams. It arises when there are disagreements, competition, or conflicts of interest between groups with distinct identities or affiliations. Understanding whether conflict is occurring between different groups can help determine its functional or dysfunctional nature and its potential impact on collaboration or cooperation.
D) Parties involved: Identifying the parties involved in the conflict is crucial for understanding its dynamics. Conflict can occur between individuals, within a group, between different groups, or even at broader societal levels. Recognizing the specific individuals or groups involved allows for a deeper analysis of their relationships, interests, power dynamics, and potential for constructive resolution.
E) Context of occurrence: The context in which conflict occurs is also significant. Conflict can emerge in various settings such as workplaces, communities, families, or even international relations. Each context brings its own set of norms, values, power structures, and constraints that can influence the nature and consequences of the conflict. Understanding the context helps in assessing the potential impact and appropriate strategies for managing or resolving the conflict.
In summary, to understand functional and dysfunctional conflict, it is essential to consider the type of conflict, the parties involved, and the context in which it occurs. This holistic understanding provides insights into the causes, dynamics, and potential outcomes of the conflict, enabling effective management and resolution strategies.
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1. What mistakes did Deans Foods make? Explain.
2. Ideas and areas for Dean Foods to diversify and expand its
food and beverage line of products?
1. Dean Foods' mistakes included lack of diversification, overreliance on traditional dairy, failure to adapt to consumer preferences for plant-based alternatives. 2. To diversify, Dean Foods can explore plant-based alternatives, introduce functional beverages and health-conscious options.
Dean Foods made critical mistakes that contributed to its downfall. Firstly, the company focused heavily on traditional dairy products and failed to diversify its offerings. This made them vulnerable to shifts in consumer preferences, particularly the rising demand for plant-based alternatives. Additionally, Dean Foods struggled with financial mismanagement, accumulating significant debt that became unsustainable.
These factors, combined with declining sales and loss of market share, led to the company filing for bankruptcy in 2019. To avoid such mistakes, companies should continuously assess market trends, diversify their product lines, and adapt to changing consumer preferences to remain competitive in the industry.
To diversify and expand its product line, Dean Foods could capitalize on the growing demand for plant-based alternatives by offering a range of non-dairy milk options, plant-based yogurts, and other dairy substitutes. This would enable them to tap into a rapidly expanding market and cater to consumers seeking healthier and sustainable options.
Additionally, they could venture into the functional beverage space, introducing products with added health benefits or targeting specific consumer segments, such as sports drinks or energy beverages. Furthermore, exploring organic and health-conscious product offerings would align with the increasing consumer focus on wellness. To expedite their diversification efforts, Dean Foods could consider partnerships or acquisitions with established brands in these segments, leveraging their expertise and existing customer base to accelerate market entry and expansion.
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Consider the most constrained resource you have: Your time. The bottleneck is 24 hours (the amount you – and everyone else – has in any given day). After considering time spent sleeping, eating, and working, you are left with eight hours per week of extra time, which you may spend working as a CPA or playing the piano.
As a CPA, your potential earnings per hour are $125.00, while as a pianist your potential earnings per hour are $55.00. The variable cost per direct labor hour of your time is $25.00.
With a goal is to maximize your earnings, it would be more advantageous to allocate your extra time towards working as a CPA rather than playing the piano.
Consideration in for the decision makingTo make a decision regarding how to allocate your extra time between working as a CPA or playing the piano, you can consider the potential earnings and variable costs associated with each option.
As a CPA
Potential earnings per hour: $125.00
Variable cost per hour: $25.00
As a pianist
Potential earnings per hour: $55.00
Variable cost per hour: $25.00
the net earnings per hour for each option
CPA net earnings per hour = Potential earnings per hour - Variable cost per hour
= $125.00 - $25.00
= $100.00
Pianist net earnings per hour = Potential earnings per hour - Variable cost per hour
= $55.00 - $25.00
= $30.00
From these calculations, you can see that as a CPA, your net earnings per hour would be $100.00, while as a pianist, your net earnings per hour would be $30.00.
Based on net earnings per hour, working as a CPA would be more financially lucrative compared to playing the piano.
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Total assets turnover 1.5 36.5 days Days sales outstanding Inventory turnover ratio Fixed assets turnover Current ratio Gross profit margin on sales: 4 5 2.5 20.00% Also suppose that Royal Inc has the following balance sheet: Balance Sheet Assets Liabilities Cash Current Liabilities Accounts receivable Long-term debt $120,000 Inventories Common stock Fixed assets Retained earnings $110,000 Total assets $500,000 Total Liabilities and equity Sales Cost of goods sold Given the value of total assets turnover, along with the level According to the video, total assets turnover is equal to of total assets given, this means that Royval's sales must be $525,000.00 Real Anne 305 According to the video, DSO (days sales outstanding) can be written as with the level of sales you already calculated, this means that Rayval's recevables must be Given the value of DSO, along According to the video, the inventory ratio can be written as equal to with the level of sales you already calculated, this means that Rayval's inventories must be Given the value of the inventory ratio, along According to the video, the fixed asset turnover ratio can be written as This means that Royval has fixed assets of According to the video, cash can be written as total assets minus fixed assets, inventories, and accounts receivable. This yields a value of cash of for Royval. Plugging in the value for current assets According to the video, the current ratio can be written as and the value of the current ratio yields a value of current liabilities of approximately According to the video, the value of total assets is equal to the value of total liabilities and equity. Given In the video, total liabilities and equity is equal to the level of total liabilities and equity, as well as retained earnings, current liabilities and the level of long-term debt, solving for Royval's common stock yields Given the gross profit margin and the level According to the video, gross profit margin can be written as of sales you have already calculated, this means that Royval has a cost of goods sold of
Here, we are given: Total assets turnover = 1.536.5 days DSO Inventory turnover ratio Fixed assets turnover Current ratio Gross profit margin on sales = 4 : 5 : 2.5 : 20.00% Balance Sheet Assets Liabilities Cash Current Liabilities Accounts receivable.
Long-term debt$120,000 Inventories Common stock Fixed assets Retained earnings$110,000 Total assets $500,000 Total Liabilities and equity Sales Cost of goods sold We are to find: Value of sales Value of receivables Value of inventories Value of fixed assets Value of cash Value of current liabilities Value of common stock Value of cost of goods sold Solution:
Total assets turnover = Sales/Total assets
Sales = Total assets × Total assets turnover
Sales = $500,000 × 1.5
Sales = $750,000
DSO = Accounts receivable / (Sales/365)
Accounts receivable = (DSO × Sales) / 365
Accounts receivable = (36.5 × $750,000) / 365
Accounts receivable = $75,342.47
Inventory turnover ratio = Cost of goods sold / Inventory Inventory
= Cost of goods sold / Inventory turnover ratio Inventory
= $750,000 / 5
Inventory = $150,000
Fixed assets turnover = Sales / Net fixed assets1.5
= $750,000 / Net fixed assets
Net fixed assets = $500,000
Cash = Total assets - (Fixed assets + Inventories + Accounts receivable)
Cash = $500,000 - ($110,000 + $150,000 + $75,342.47)Cash = $164,657.53
Current ratio = Current assets / Current liabilities1.5 = Current assets / Current liabilities
Current liabilities = Current assets / 1.5
Current liabilities = $250,000 / 1.5
Current liabilities = $166,666.67
Total assets = Total Liabilities and equity
Total Liabilities and equity = $500,000
Retained earnings = Total Liabilities and equity - (Common stock + Current liabilities + Long-term debt)
$110,000 = $500,000 - (Common stock + $166,666.67 + Long-term debt)
Common stock + Long-term debt = $223,333.33Cost of goods sold = Sales - Gross profit
Gross profit margin on sales = Gross profit / Sales20%
= Gross profit / $750,000
Gross profit = $150,000
Cost of goods sold = $750,000 - $150,000
Cost of goods sold = $600,000
Hence, the required values are as follows:
Value of sales = $750,000
Value of receivables = $75,342.47
Value of inventories = $150,000
Value of fixed assets = $500,000
Value of cash = $164,657.53
Value of current liabilities = $166,666.67
Value of common stock = $112,666.67
Value of cost of goods sold = $600,000
Sales = $750,000.
Receivables = $75,342.47
Inventories = $150,000
Fixed assets = $500,000
Cash = $164,657.53
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Omicron Technologies has $50 million in excess cash and no debt. The firm expects to generate additional free cash flows of $40 million per year in subsequent years and will pay out these future free cash flows as regular dividends. Omicron's unlevered cost of capital is 10% and there are 10 million shares outstanding. Omicron's board is meeting to decide whether to pay out its $50 million in excess cash as a special dividend or to use it to repurchase shares of the firm's stock.
1. Assume that omicron uses the entire 60 million to repurchase shares. What is the amount of the regular yearly dividends in the future
2. Assume that you own 2500 shares of Omicron stock and that Omicron uses the entire $50 million to pay a special dividend. Suppose you are unhappy with Omicron's decision and would prefer that Omicron used the excess cash to repurchase shares. How many shares do you have to buy in order to undo the special cash dividend that Omicron paid?
3. Demonstrate that in part b), after buying the shares, you will receive the same amount of dividend as if Omicron has decided to use $50 million to repurchase shares.
Given that Omicron Technologies has $50 million in excess cash and no debt; 1. the amount of the regular yearly dividends in the future is $4.26 per share. 2. 10 million shares have to buy in order to undo the special cash dividend that Omicron paid. 3. After buying the shares, you will receive the same amount of dividend as if Omicron has decided to use $50 million to repurchase shares.
1. Regular yearly dividends in the future:
The amount of the regular yearly dividends in the future when Omicron uses the entire $60 million to repurchase shares can be calculated as follows:
The total number of shares of the firm is 10 million shares outstanding. The price of each share can be calculated by dividing the total market capitalization of the firm (which equals the amount of excess cash plus the present value of future free cash flows discounted at the unlevered cost of capital) by the total number of shares of the firm. The market capitalization of the firm is the present value of future free cash flows plus the excess cash available, i.e., 60 + 40 / 0.10 = $1000 million.
Therefore, the price of each share will be:
Price of each share = Market capitalization / Total number of shares
= $1000 million / 10 million shares
= $100 per share
Now, if the entire $60 million excess cash is used to repurchase shares, then the total number of shares outstanding would be reduced by:$60 million / $100 per share = 600,000 shares.
Therefore, the total number of shares outstanding would be:
10 million - 600,000 shares = 9.4 million shares and the regular yearly dividend in the future would be:
$40 million / 9.4 million shares = $4.26 per share.
2. The number of shares to buyIn this case, Omicron decides to pay a special dividend of $50 million. This means that the total amount of cash paid out is:
Cash paid out = $50 million
Therefore, the total market capitalization of the firm after the payment of the special dividend would be:$1000 million - $50 million = $950 million
If the entire $50 million excess cash were used to repurchase shares, the price of each share would be:
$50 million / 10 million shares = $5 per share
To undo the special cash dividend, we need to increase the market capitalization of the firm to $1000 million, which can be done by repurchasing shares worth:
$1000 million - $950 million = $50 million
The number of shares that can be repurchased with $50 million can be calculated by dividing the amount of cash available by the price of each share:
$50 million / $5 per share = 10 million shares
Therefore, we need to buy 10 million shares to undo the special cash dividend that Omicron paid.
3. The amount of dividend received.
To demonstrate that after buying the shares, you will receive the same amount of dividend as if Omicron has decided to use $50 million to repurchase shares, we can calculate the total amount of dividends paid out in both cases. If Omicron uses $50 million to pay a special dividend, the amount of dividend per share would be:
$50 million / 10 million shares = $5 per share
If Omicron uses $50 million to repurchase shares, the price of each share would be $5 per share, and the total number of shares outstanding would be:
$50 million / $5 per share = 10 million shares
The total amount of dividends paid out, in this case, would be:
$40 million / 10 million shares = $4 per share x 10 million shares = $40 million
Therefore, the total amount of dividends paid out in both cases is the same.
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Recently, Air Liquide signed a long-term contract with Yan’an Energy and Chemical Co., a subsidiary of Yanchang Petroleum Group—one of China’s largest firms engaged in oil and natural gas exploration and production as well as oil refining. The new contract specifies that Air Liquide invest approximately 80 million euros in two air separation units (ASUs), which will supply air gases for Yan’an’s production of plastics. Air Liquide is a French multinational firm that supplies industrial gases to a wide range of industries, including chemical manufacturers. Why is a long-term contract preferable to a spot exchange or vertical integration between Yan’an and Air Liquide?
**A long-term contract is preferable over a spot exchange or vertical integration between Yan'an and Air Liquide for several reasons:**
1. **Supply stability and reliability:** With a long-term contract, Yan'an can ensure a stable and reliable supply of air gases from Air Liquide for their plastics production. This eliminates the risk of sudden disruptions or price fluctuations associated with spot exchanges. It provides Yan'an with the confidence of a consistent supply over an extended period.
2. **Risk mitigation:** Long-term contracts allow both parties to mitigate risks associated with market volatility. By locking in a fixed price and terms for an extended duration, both Yan'an and Air Liquide can hedge against potential market fluctuations, including changes in gas prices or supply disruptions. This provides stability and predictability for their respective operations and financial planning.
3. **Expertise and specialization:** Air Liquide specializes in the production and supply of industrial gases, while Yan'an focuses on oil refining and plastics production. By entering into a long-term contract, Yan'an can leverage Air Liquide's expertise and experience in the production and delivery of air gases, ensuring high-quality supply tailored to their specific requirements. It allows each party to focus on their core competencies while benefiting from a mutually beneficial partnership.
4. **Capital efficiency:** Opting for a long-term contract and relying on Air Liquide's existing infrastructure and expertise eliminates the need for Yan'an to invest significant capital in establishing their own air separation units. This allows Yan'an to allocate their resources to other critical areas of their business, such as expanding their refining capabilities or investing in research and development.
In summary, a long-term contract between Yan'an and Air Liquide provides supply stability, risk mitigation, specialized expertise, and capital efficiency. It ensures a reliable and consistent supply of air gases for Yan'an's plastics production while allowing both companies to focus on their core competencies and optimize their operations.
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