Answer:
Allowable unit cost of a hydraulic valve using the target costing model = 52.4
Explanation:
Given that:
Simon Corporation manufactures hydraulic valves. The product life of a valve is 4 years.
Target average profit margin for Simon 20.00%
The company does not expect the manufacturing cost to vary over the next 4 years
Estimated sales volume and the unit selling price of the valve for the next 4 years is given below:
Year Sales volume (units) Unit selling price
Year 1 40,000 $80.00
Year 2 50,000 $75.00
Year 3 35,000 $50.00
Year 4 25,000 $45.00
The objective is to determine the allowable unit cost of a hydraulic valve using the target costing model.
The Cost for each unit selling price can be calculated as:
= unit selling price - (Target average profit margin × unit selling price)
For Year 1
= $80.00- (0.2 × $80.00)
= $80.00 - $16.00
= $64.00
For Year 2
= $75.00 - ( 0.2 × $75.00)
= $75.00 - ( $15.00)
= $60.00
Year 3
= $50.00 - (0.2× $50.00)
= $50.00 - $10.00
= $40.00
Year 4
= $45.00 - (0.2 × $45.00)
=$45.00 - $9.00
= $36.00
Year Sales volume Unit Cost Cost per Unit
(units) selling price
Year 1 40,000 $80.00 $64.00 $2560000
Year 2 50,000 $75.00 $60.00 $3000000
Year 3 35,000 $50.00 $40.00 $1400000
Year 4 25,000 $45.00 $36.00 $900000
Total: 150000 $7860000
Allowable unit cost = Total cost/Total number of unit cost
Allowable unit cost = $7860000/150000
Allowable unit cost = 52.4
Margaret’s car loan statement said that she would pay $7,683.20 in interest for a 5-year loan at an interest rate of 9.8%. Assuming this is an example of simple interest, how much did Margaret borrow to buy the car?
Answer: $15680
Explanation:
Principal = Unknown
Time = 5 years
Rate = 9.8%
Simple interest = $7683.20
Simple interest= PRT/100
7683.20 = (P × 9.8 × 5)/100
7683.20 = 49P/100
Cross multiply
768320 = 49P
P = 768320/49
Principal = $15680
Margaret borrowed $15680 to buy the car.
February 1, 2018, Salisbury Company purchased land for the future factory location at a cost of $112,000. The dilapidated building that was on the property was demolished so that construction could begin on the new factory building. The new factory was completed on November 1, 2018. Costs incurred during this period were: Item Amount Demolition dilapidated building $2,000 Architect Fees $11,250 Legal Fees - for title search $1,450 Interest During Active Construction Period $5,025 Real estate transfer tax $975 Construction Costs $605,000 Using this information, how much should be recorded as the cost of the land?
Answer:
The cost of the land should be recorded as $108,350
Explanation:
Land cost = $112,000
Demolition dilapidated building = $2,200
Legal fees - title search = $1,450
Cost of land = Land cost - Demolition dilapidated building - Legal fees - title search
Cost of land = $112,000 - $2,200 - $1,450
Cost of land = $108,350
Job applicants generally face two kinds of interviews: screening interviews and hiring interviews. You will be better prepared if you know what to expect". An interview:_________If you want to ensure that you pass a screening interview, ______What can you expect in a one-on-one interview? a. You will be asked specific questions if the person is from human resources b. You will be asked general questions if the person is from human resources c. You will be asked specific questions that are job related if the person is the hiring manager d. You will be asked general questions if the person is the hiring manager e. You will sit down with the company representative and talk about the job.
Answer:
Correct Answer:
c. You will be asked specific questions that are job related if the person is the hiring manager
Explanation:
In job interview, when the job applicant reaches the stage of screening interview, it was expected that he or she should give their best in-order to get the job.
During the one-on-one interview, the applicant would be asked specific questions that are related to job such as his previous work experience, his expected contributions to the job when hired etc. This would help the hiring manager to decide if the applicant is the best candidate fit for the job.
Think of two methods used to improve productivity in business. Discuss your reasons for choosing these methods
Answer:
Actually we have 2 method of launching a product. First simultaneously which isn't the best way. Second is sequentially in one market after anther. And this method seems to be more useful than others.
Answer:
Planning is the first one because I believe this can improve productivity in everything. Giving employees a schedule of what they day should look like is a great idea to give them an idea on what their time distribution should be. It also makes their day less stressful without having to worry about unexpected jobs that need to be done and overall should make them more productive through a workday. Having a organized process is another great attribute to improve productivity. This will allow a clean process in creating your products and service and keep everything in place.
Explanation:
Say the marginal tax rate is 30 percent and that government expenditures do not change with output. Say also that the economy is at potential output and that the deficit is $200 billion.Required:a. What is the size of the cyclical deficit?b. What is the size of the structural deficit?c. How would your answers to a and b change if the deficit was still $200 billion but output was $200 billion below potential?d. How would your answers to a and b change if the deficit was still $200 billion but output was $100 billion above potential?
Answer:
a. The Cyclical deficit refers to the deficit arising from the difference between the potential output and the actual output.
The question assumes that the economy is producing at potential which means actual output equals potential output.
Cyclical Deficit = Tax rate * ( Potential Output - Actual Output)
Cyclical Deficit = 0.3 * 0
Cyclical Deficit = $0
b. Structural deficit occurs even when the economy is at potential because it refers to Government deficits that happen when the economy is experiencing normal activity.
Structural Deficit = Actual deficit - Cyclical deficit
Structural Deficit = 200 billion - 0
Structural Deficit = $200 billion
c. Output is $200 billion below potential
Cyclical Deficit = Tax rate * ( Potential Output - Actual Output)
Cyclical Deficit = 0.3 * 200
Cyclical Deficit = $60 billion
Structural Deficit = Actual deficit - Cyclical deficit
Structural Deficit = 200 billion - 60
Structural Deficit = $140 billion
d. Output is $100 billion above potential
Cyclical Deficit = Tax rate * ( Potential Output - Actual Output)
Cyclical Deficit = 0.3 * -100 as actual is above potential
Cyclical Deficit = -$30 billion
Structural Deficit = Actual deficit - Cyclical deficit
Structural Deficit = 200 billion - (-30)
Structural Deficit = $230 billion
On June 13, the board of directors of Siewert Inc. declared a 2-for-1 stock split on its 120 million, $1 par, common shares, to be distributed on July 1. The market price of Siewert common stock was $35 on June 13. Prepare a journal entry that summarizes the declaration and distribution of the stock split if it is not to be effected in the form of a stock dividend. What is the par per share after the split
Answer:
Siewert Inc.
Journal Entry:
Memo: This is note that the stock has been split 2-for-1 and the number of common shares increased to 240 (120 x 2) million.
No journal entry is required for a split of 2-for-1 shares. What is required is a memo that indicates that the shares have been split.
The par value is now $0.50 ($1/2)
Explanation:
When the directors of Siewert Inc. declare a stock split, it does not require any journal entry. Instead, a memo is required to describe the declaration and the new number of shares that are now authorized if this has increased, and outstanding. The 2-for-1 split means that stockholders who held 1 share before will now be entitled to 2 shares. This doubling of the number of shares will affect the par value of the shares, causing it to divide by 2. For example, Siewert Inc.'s par value of common shares was $1 before the declaration of the split. After the split, the par value will change to $0.50 or half. This split will also affect the market price of the shares as investors are likely to reduce the current market price to about half of its prevailing price.
The firm has a target debt-equity (D/E) ratio of 0.76. Its cost of equity is 15.3 percent, and its pretax cost of debt is 9 percent. What is the WACC given a tax rate of 21 percent
Answer:
11.76%
Explanation:
The computation of the Weighted average cost of capital (WACC) is shown below:
= Weightage of debt × cost of debt × ( 1 - tax rate)+ (Weightage of common stock) × (cost of common stock)
= (0.76 ÷ 1.76 × 9%) × ( 1 - 21%) + (1 ÷ 1.76 × 15.3%)
= 3.07% + 8.69%
= 11.76%
Hence, the WACC is 11.76%
We simply multiplied the weight of capital stucture with its cost
rancis Inc.'s stock has a required rate of return of 10.25%, and it sells for $87.50 per share. The dividend is expected to grow at a constant rate of 6.00% per year. What is the expected year-end dividend, D1
Answer:
$3.72
Explanation:
Francis incorporation stock has a required rate of return of 10.25%
The stock is sold at $87.50 per share
The growth rate is 6% per year
Therefore, the expected dividend can be calculated as follows
= Po(rs-g)
= $87.50(10.25%-6%)
= $87.50×4.25
= $3.72
Hence the expected year end dividend is $3.72
Moe has entered into a contract with Larry. Subsequently, Moe assigns his rights in that contract to Curly. Which of the following would not prevent that assignment? Multiple Choice The assignment would violate public policy matters. The contract contains an anti-assignment clause. Larry protests the assignment and demands that Moe not make the assignment. The assignment would materially alter Larry's duties and cause an increased burden or risk to Larry.
Answer:
Larry protests the assignment and demands that Moe not make the assignment.
Explanation:
An assignment is defined as the transfer of the responsibility of performing a task or contract to another person.
In this instance Moe is trying to assign the contract he has with Larry to Curly.
Curly will now take responsibility for the execution of the contract.
Assignment is allowed if performance of the task is assured, and the other party has no grounds to object if performance will not be affected.
The situation where the assignment will not be prevented is when Larry protests the assignment and demands that Moe not make the assignment.
However the assignment can be prevented if there is an anti-assignment clause, violate public policy, or materially alter Larry's duties and cause an increased burden or risk to Larry.
Strategic management is about formulating strategies that align an organizations internal capabilities with external opportunities while avoiding or minimizing threats. How effective has Mark Parker been as a strategic so far
Answer:
Mark Parker has been very effective as a strategist for the following reasons:
Explanation:
He has been able to keep Nike's brand equity. His policies on HR has generated an effect which translated to increased motivation for his employees to commit to the attainment of the company's objectivesA strategist must be able to make plans and execute them. Nike's strategy is a customer-centric one. Mark was able to, regardless of the economy, ensure that Nike's products were consumer-centric and that the business units in charge of each aspect of Nike's operations were able to deliver their best.
Cheers!
DHL express deals with :
a) Air freight of goods
b) petroleum products
c) motorcycle company
d) import and export good
Answer:
DHL express deals with:
d)import and export good
he carrying value of Blossom’s net identifiable assets, including the goodwill, at year-end is $855,000. Prepare Cullumber’s journal entry, if necessary, to record impairment of goodwill.
Answer:
Goodwill Impairment (Debit)
Goodwill (Credit)
Explanation:
In case goodwill is impaired, then the entry to record this impairment will be Goodwill Impairment Debit and Goodwill Credit.
By crediting the Goodwill, the account will be reduced. This shows that the business is currently worth less than is accounted for. The Goodwill account is reduced to identify this difference.
The Impairment loss is an expense and must be reflected in the income statement. Therefore, while we reduce Goodwill amount from balance sheet. We record the expense on the income statement, which would mean that the current year profit amount will be reduced.
The capitalized cost of $10,000 every 5 years forever, starting now at an interest rate of 10% per year, is closest to
Answer:
$15,000Explanation:
Capitalized cost = Initial cost + Interest.
Initial cost = Principal - $10,000
Interest = Principal * Rate * Time/100
Given Principal = $10,000
Rate (in %) = 10%
Time (in years) = 5 years
Interest = 10,000*10*5/100
Interest = $5000
Capitalized cost = Initial cost + Interest.
Capitalized cost = $10,000+$5,000
Capitalized cost = $15,000
Hence the capitalized cost of $10,000 every 5 years forever, starting now at an interest rate of 10% per year, is closest to $15,000
Schwartzkopf Co. purchased for $2,088,000 property that included both land and a building to be used in operations. The seller's book value was $294,000 for the land and $986,000 for the building. By appraisal, the fair value was estimated to be $826,355 for the land and $2,023,145 for the building. At what amount should Schwartzkopf report the land and the building at the end of the year?
Answer:
Cost allocated to land=$605,520
Cost allocated to building=$1,482,480
Explanation:
Calculation for the amount that Schwartzkopf should report the land and the building at the end of the year
A. Calculation for Cost allocated to land
Using this formula
Cost allocated to land=Fair value of land/
Fair value of building and land×Cost
Let plug in the formula
Cost allocated to land=$826,355/($2,023,145+$826,355)×$2,088,000
Cost allocated to land=$826,355/$2,849,500×$2,088,000
Cost allocated to land=0.29×$2,088,000
Cost allocated to land=$605,520
Therefore the Cost allocated to land will be $605,520
B. Calculation for Cost allocated to building
Using this formula
Cost allocated to building=Fair value of land/
Fair value of building and land×Cost
Let plug in the formula
Cost allocated to building=$2,023,145/$2,023,145+$826,355)×$2,088,000
Cost allocated to building=$2,023,145/$2,849,500×$2,088,000
Cost allocated to building=0.71×$2,088,000
Cost allocated to building=$1,482,480
Therefore Cost allocated to building will be $1,482,480
Net income (in millions) $150 Shares outstanding (in millions) 300 Stock price $30.00 What is the price-earnings ratio (to the nearest whole number)?
Answer:
60
Explanation:
price-earnings ratio = price / earnings per share
earnings per share = net income / shares outstanding = $150 / 300 = $0.50
$30 / $0.50 = 60
Concord Corporation had 2020 net income of $809,000. During 2020, Concord paid a dividend of $2 per share on 60,500 shares of preferred stock. During 2020, Concord had outstanding 215,000 shares of common stock.
Required:
Compute Concord's 2020 earnings per share.
Answer:
$3.2 per share
Explanation:
Earnings per share = Net income - (preferred stock shares × dividend paid] ÷ Outstanding shares of common stock
= [($809,000 - ( 60,500 × $2 per share)] ÷ 215,000
= [$809,000 - ( $121,000)] ÷ 215,000
= $809,000 - $121,000 ÷ 215,000
= $688,000 ÷ 215,000
= $3.2 per share
You are considering buying a perpetuity contract from your insurance company that will pay you $500 annually where the payment will grow by 3% each year. Using a discount rate of 9%, the most you should be willing to pay for this contract is closest to:
Answer:
Maximum Amount Payable = $8333.33
Explanation:
Perpetual Annuity Payment = $500
Growth Rate = 3%
Discount Rate = 9%
Maximum Amount Payable = Present Value of Perpetual Annuity
Present Value of Perpetual Annuity = Perpetual Annuity Payment / (Discount rate - Growth rate)
Maximum Amount Payable = $500 / (0.09 - 0.03)
Maximum Amount Payable = $500 / 0.06
Maximum Amount Payable = $8333.33
Suppose we have the following information for 2008: Potential output: $17 trillion Actual output: $16 trillion Actual Deficit: $ 500 billion Tax Rate: 15% What is the structural deficit in 2008
Answer:
The structural budget in 2008 is $350 billion
Explanation:
Actual deficit = Government spending - Tax Revenue Collection
i.e Actual deficit = G-T
T = (Tax rate) (Actual output)
$500 billion = G - (0.15)($16 trillion)
$500 billion = G - 2400 billion
G = $500 billion + 2400 billion
G = $2900 billion
Thus, Government spending is $2900 billion
Structural deficit = G - T'
T' = (Tax rate)(Potential output)
T' = (0.15)(17000 billion)
T' = $2550 billion
Structural deficit = G - T'
Structural deficit = $2900 billion - $2550 billion
Structural deficit = $350 billion
Thus, the structural budget in 2008 is $350 billion
Under the Securities Act of 1933, signatures will be obtained by which of the following persons involved in an underwriting?
I. Chief Executive Officer of the issuer
II. Chief Financial Officer of the issuer
III. Accountants of the issuer
IV. Lawyers of the issuer
a. I and II
b. III and IV
c. I, II, III
d. I, II, III, IV
Answer: d. . I, II, III, IV
Explanation:
The Securities Act of 1933 was put in place in order to ensure that the investors get adequate information regarding the securities that are being sold to the public and to also prevent fraud and deceit.
Under the Securities Act of 1933, signatures will be obtained by the Chief Executive Officer of the issuer, Chief Financial Officer of the issuer, the accountants of the issuer and the lawyers of the issuer.
On November 7, Mura Company borrows $370,000 cash by signing a 90-day, 8%, $370,000 note payable. 1. Compute the accrued interest payable on December 31. 2. & 3. Prepare the journal entry to record the accrued interest expense at December 31 and payment of the note at maturity on February 5.
Answer:
At 31 December, the Interest for 54 days accrues as follows :
Interest expense $17,740 (debit)
Note Payable $17,740 (credit)
On payment February 5, the Interest expense will be capitalized in the Note Payable as follows :
Note Payable $407,473 (debit)
Cash $407,473 (credit)
Explanation:
AT, November 7, When Mura Company borrows the money :
Cash $370,000 (debit)
Note Payable $370,000 (credit)
At 31 December, the Interest for 54 days accrues as follows :
Interest expense $17,740 (debit)
Note Payable $17,740 (credit)
Interest expense calculation = $370,000 × 8% × 54/90
= $17,740
At February 5, the interest for 60 days accrues as follows :
Interest expense $19,733 (debit)
Note Payable $19,733 (credit)
Interest expense calculation = $370,000 × 8% × 60/90
= $19,733
On payment February 5, the Interest expense will be capitalized in the Note Payable as follows :
Note Payable $407,473 (debit)
Cash $407,473 (credit)
Note Payable Calculation = $370,000 + $19,733 + $17,740
$407,473
For the following investments, identify whether they are: Trading debt securities. Available-for-sale debt securities. Held-to-maturity debt securities. None of the above. Each case is independent of the other.
(a) A bond that will mature in 4 years was bought 1 month ago when the price dropped. As soon as the value increases, which is expected next month, it will be sold.
(b) 10% of the outstanding stock of Farm-Co was purchased. The company is planning on eventually getting a total of 30% of its outstanding stock.
(c) Bonds were purchased in December of this year. The bonds are expected to be sold in January of next year.
(d) Bonds that will mature in 5 years are purchased. The company would like to hold them until they mature, but money has been tight recently and they may need to be sold.
(e) Preferred stock was purchased for its constant dividend. The company is planning to hold the preferred stock for a long time.
(f) A bond that matures in 10 years was purchased. The company is investing money set aside for an expansion project planned 10 years from now.
Answer:
(a) A bond that will mature in 4 years was bought 1 month ago when the price dropped. As soon as the value increases, which is expected next month, it will be sold. - Trading Debt Securities
Trading debt securities such as these are held only for a short time before they are sold with the goal being short term profit.
(b) 10% of the outstanding stock of Farm-Co was purchased. The company is planning on eventually getting a total of 30% of its outstanding stock. - None of the Above
This is an Equity Investment.
(c) Bonds were purchased in December of this year. The bonds are expected to be sold in January of next year. - Trading Debt Securities
Like the bond in (a), this is being held for a short while only and then it will be sold so it is a Trading debt security.
(d) Bonds that will mature in 5 years are purchased. The company would like to hold them until they mature, but money has been tight recently and they may need to be sold. - Available-for-sale debt securities
Available for sale debt securities are to be sold before maturity and therefore have no certain selling time. The bond above has no selling time as it might be sold at any point so it is an Available-for-sale debt security.
(e) Preferred stock was purchased for its constant dividend. The company is planning to hold the preferred stock for a long time. - None of the above.
This is an Equity investment as well.
(f) A bond that matures in 10 years was purchased. The company is investing money set aside for an expansion project planned 10 years from now. - Held-to-maturity debt securities.
Held to Maturity bonds are bought with no intention of selling and the company hopes to hold them till they mature like this bond which will be held for 10 years.
Over the last ten years productivity grew faster in Oceania than in Freedonia and the population and total hours worked remained the same in both countries. It follows that:
a. real GDP per person must be higher in Oceania than in Freedonia.
b. real GDP per person grew faster in Oceania than in Freedonia.
c. the standard of living must be higher in Oceania than in Freedonia.
d. All of the above are correct.
Answer:
it's d. All are correctamundo
Just how strong the competitive pressures are from substitute products depends on: Select one: a. Whether the available substitutes are products or services b. The speed with which buyer needs and expectations are changing c. Whether attractively priced substitutes are readily available and the ease with which buyers can switch to substitutes d. Whether the producers of substitutes have ample budgets for new product R
Answer: c. Whether attractively priced substitutes are readily available and the ease with which buyers can switch to substitutes
Explanation:
Substitute products are the product that can be used in place of another identical product e.g butter and margarine.
Just how strong the competitive pressures are from substitute products depends on whether attractively priced substitutes are readily available and the ease with which buyers can switch to substitutes.
The following information is available for Blossom Corporation for 2020.1. Depreciation reported on the tax return exceeded depreciation reported on the income statement by $124,000. This difference will reverse in equal amounts of $31,000 over the years 2021–2024.2. Interest received on municipal bonds was $9,300.3. Rent collected in advance on January 1, 2020, totaled $64,200 for a 3-year period. Of this amount, $42,800 was reported as unearned at December 31, 2020, for book purposes.4. The tax rates are 40% for 2020 and 35% for 2021 and subsequent years.5. Income taxes of $297,000 are due per the tax return for 2020.6. No deferred taxes existed at the beginning of 2020.Requried:Prepare the income tax expense section of the income statement for 2020.
Answer:
first we must determine taxable income = due income taxes / tax rate = $297,000 / 0.4 = $742,500
interest received on municipal bonds $9,300
unearned rent revenue = $42,800
deferred tax asset = $42,800 x 0.4 = $17,120
total pretax financial income = $742,500 + $9,300 + $124,000 - $42,800 = $833,000
deferred tax liability = $124,000 x .4 = $49,600
Income tax expense section
For the year ended December 31, 2020
Total pretax financial income $833,000
Income tax expense:
Income taxes $297,000Deferred tax liability $49,600Deferred tax asset -$17,120 -$329,480Net income $503,520
"A registered representative is a 15% participant in an investment club formed by members of the local Elks Club. The Elks Club investment club has opened a securities account at ABC Brokerage. The account wishes to buy an IPO being offered by an underwriter. Which statement is TRUE?"
Answer: D. The account is prohibited from buying the new issue
Explanation:
The options to the question are:
A. The account can buy the issue without restriction
B. The account can buy the issue if the branch manager approves
C. The account can buy the issue if the registered representative agrees not to share in the profit on the position
D. The account is prohibited from buying the new issue.
From the question, we are informed that a registered representative is a 15% participant in an investment club formed by members of the local Elks Club and that the Elks Club investment club has opened a securities account at ABC Brokerage.
We are further told that the account wishes to buy an IPO being offered by an underwriter, out of the options that were given, the correct option is that account is prohibited from buying the new issue.
A customer wishes to place an order to short 50,000 shares of ABC stock. The average daily trading volume (ADTV) in ABC stock is 40,000 shares. The representative:________.
A. should place the order
b. cannot place the order because the order size exceeds the ADTV.
c. should inform the client that the firm may not be able to borrow the stock.
d. sholud inform the client that the order can only be executed on an up-bid.
Answer:
c. should inform the client that the firm may not be able to borrow the stock.
Explanation:
Since it is mentioned that there is a short of 50,000 shares of ABC stock and the average daily trading volume is 40,000 shares that represent the trading of the stock is less i.e short
According to the SHO regulation, when the stock is sold has short than the dealer should track the shares i.e to be borrowed also find out the shares i.e to be delivered by the settlement by considering the documents
Now in this case, the shares i.e be borrowed find to be tougher also the tracking is not possible
Therefore the customer would not able to short the stock
Pattison Corporation is a service company that measures its output by the number of customers served. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes. Fixed Element per Month Variable Element per Customer Served Revenue $5,500 Employee salaries and wages $46,300 $1,000 Travel expenses $ 500 Other expenses $32,500 When the company prepared its planning budget at the beginning of May, it assumed that 20 customers would have been served. However, 17 customers were actually served during May. The activity variance for "Travel expenses" for May would have been closest to:
Answer:
Pattison Corporation
Activity Variance for "Travel expenses" for May would have been closest to:
$1,500 Favorable
Explanation:
Data and Calculations:
Fixed Element Variable Element per
per Month Customer Served
Revenue $5,500
Employee salaries
and wages $46,300 $1,000
Travel expenses $ 500
Other expenses $32,500
The Travel Expenses Activity Variance = Actual cost minus budgeted cost
= $8,500 - $10,000
= $1,500 Favorable
Actual travel expenses = ($500 x 17)
= $8,500
Budgeted travel expenses = ($500 x 20)
= $10,000
Pattison Corporation's activity variance for Travel Expenses for the month of May is the difference between the actual travel expenses and the budgeted travel expenses. The budgeted expenses are based on budgeted number of customers served in May while the actual expenses are based on actual number of customers served in May.
M&C Merchants is offering $2.5 million of new securities to the general public. Which SEC regulation governs this offering?
Answer:
Regulation A
Explanation:
Owen expects to receive at the end of next year from a trust fund. If a bank loans money at an interest rate of , how much money can he borrow from the bank on the basis of this information?
Answer: a) $18,605
Explanation:
The amount he can borrow today will be an amount that when grown at a rate of 7.5% per year will equal $20,000 in a year.
20,000 = Amount + ( Amount * rate * time)
20,000 = Amount + (7.5% * Amount)
2,000,000 = 1.075 * Amount
Amount = $18,605
uppose a Starbucks tall latte cost $4.00 in the United States, 5.00 euros in the euro area and $2.50 Australian dollars in Australia. Nominal exchange rates are .80 euros per dollar and 1.4 Australian dollars per U.S. dollar. Where does purchasing power parity hold
Answer: Nether Australia or Europe
Explanation:
Purchasing power parity is a notion that states that prices of the same or similar goods should have the same price across the world after adjusting for exchange rate differences.
If the price of a tall latte in the U.S. is $4,00, it should be the same price in Europe and Australia after exchange rate adjustments.
$4.00 in Euro is: $4.00 in Australian dollars is:
= 4 * 0.8 = 4 * 1.4
= €3.20 = $5.60
Purchasing power parity does not hold in wither countries because the prices of the lattes are not equal to the $4.00 in the U.S. after adjustments for exchange rates.