Answers
Answer:
See the answer and explanation below
Explanation:
A price-taking firm is a firm in a perfectly competitive market where all firms are price takers. That is, no firm in a perfectly competitive can influence the price as only the market determines the price.
The short run supply curve for a price-taking firm refers to the short marginal cost (SMC) curve at and above the shutdown point.
Note: See the attached graph for the shut run supply curve. Also note that point E in the attached graph is the shutdown point.
The shutdown point is the point where the short run marginal cost (SMC) is equal to the average variable cost (AVC) (i.e. where MC = AVC = Shutdown point).
This indicates that the short-run supply curve for a price-taking firm is the part of the SMC curve that lies above AVC curve.
The part of the SMC curve that lies below the AVC or the shutdown point is not part of the short run supply curve of a price-taking firm, because the firm is not engaging in any production at that point.
Therefore, the short run supply curve of a price-taking firm is the increasing portion of the short run MC curve above the shutdown point.
This follows the law of supply which states that more quantity of the product of a firm will be supplied when there is a rise in the market price.
In summary, the short run supply curve of a price-taking firm is the positively-sloped portion of the short-run marginal cost curve
Related Questions
(1 point)
1. Tim is a low-level supervisor, but he runs his department with a heavy hand. He directs his
employees to perform tasks in specific ways, and doesn't often listen to outside ideas. His own
supervisors have to repeatedly remind him not to make major decisions without consulting
them first. What type of authority is Tim attempting to practice?
O individualistic authority
O staff authority
O line authority
O functional authority
Answers
Answer:
a
Explanation:
he doesn't seek opinion from heads that's why
mark me as brainliest pls
Answer:
individualistic authority
Explanation:
Problem 11-5 Sensitivity Analysis and Break-Even [LO1, 3] We are evaluating a project that costs $560,400, has a six-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 80,000 units per year. Price per unit is $38, variable cost per unit is $24, and fixed costs are $680,000 per year. The tax rate is 22 percent, and we require a return of 10 percent on this project. a-1. Calculate the accounting break-even point. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) a-2. What is the degree of operating leverage at the accounting break-even point
Answers
Answer:
a-1. $1,845,714.29
a-2 8.2805
Explanation:
a-1 Calculate the accounting break even point.
At break even point, the net income is 0.
Given the data below as extracted from the information above;
Quantity Q = 80,000 units
Price per unit P = $38
Unit variable cost VC = $24
Fixed costs FC = $680,000
Tax rate = 22%
• Break even point
= Fixed costs / P - VC
= $680,000 / ($38 - $24)
= $680,000 / $14
= 48,571.43
Therefore, accounting break even
= Q × P
= 48,571.43 × $38
= $1,845,714.29
(a-2) What is the degree of operating leverage at the accounting break even point.
Given that;
Fixed costs = $680,00
Asset investment = $560,400
Project life span = 6 years
Depreciation = Asset investment / Project life span
= $560,00 / 6
= $93,400
Please note that at accounting level, the operating cash flow is equal to depreciation,
Operating cash flow = Depreciation = $93,400
Therefore, the degree of operating leverage is;
= 1 + Fixed costs / Operating cash flow
= 1 + $680,000 / $93,400
= 8.2805
In the United States, many agricultural products (such as corn, wheat, and rice) are subsidized. What are the benefits of subsidizing these products? Instructions: You may select more than one answer. .
a) higher prices for consumers and producers
b) lower prices for consumers and producers
c) higher prices for consumers and lower prices for producers
d) lower prices for consumers and higher prices for producers
Answers
Answer:
Correct answer:
b) lower prices for consumers and producers
Explanation:
In United States of America, food is one of the fundamental things which the government guarantee its citizens. Most agricultural products are subsidized by the government both for the farmers (producer) and the citizens (consumers).
The subsidy for the producer could be inform of payment of incentive, giving out agricultural implements and grants. On the other-hand, the subsidy to the consumer could be inform of reduced price of the agricultural food crops.
Canadian logging companies sell timber in the United States. To the U.S., the timber is a(n)_____, and for Canadians, the timber is a(n) _____.
Answers
Answer: import; export
Explanation:
Canadian logging companies sell timber in the United States. To the U.S., the timber is an import, and for Canadians, the timber is an export.
An import is a good that is brought into a country and sold from another country while an export is a good that a country sells to other country. Timber is a export to the United States since it's brought from Canada.
The Baldwin company wants to decrease its plant utilization for Brat by 15%. How many units would need to be produced next year to meet this production goal
Answers
Answer:
1,266 units
Explanation:
A lot of information is missing, but I found a similar question:
current production level = 1,500 unitscurrent plant utilization rate = 96%total plant capacity = 1,500 / 96% = 1,562.5 units
if plant utilization will decrease by 15% ⇒ 96% - 15% = 81%
plant production to meet required production goal = 1,562.5 x 81% = 1,265.625 = 1,266 units
Colgate-Palmolive Company reports the following balances in its retained earnings.
($ millions) 2010 2009
Retained earnings $14,329 $13,157
During 2010, Colgate-Palmolive reported net income of $2,200 million.
a. Assume that the only changes affecting retained earnings were net income and dividends. What amount of dividends did Colgate-Palmolive pay to its shareholders in 2010?
b. This dividend amount constituted what percent of its net income? (Round your answer to one decimal place.)
Answers
Answer:
a. $1,028 million
b. 46.7%
Explanation:
a. Dividends are taken from the retained earnings and net income is added to the retained earnings. The formula for ending retained earnings is;
Ending retained earnings = Opening Retained earnings + Net Income - Dividends
14,329 = 13,157 + 2,200 - Dividends
Dividends = 13,157 + 2,200 - 14,329
Dividends = $1,028 million
b. Dividends as a percentage of income
= 1,028/2,200
= 0.467
= 46.7%
A mother, aged 60, wishes to withdraw monies from her variable annuity to pay for her son's college education. Which statement is true regarding the taxation of the withdrawal?
A. The withdrawal is 100% taxable
B. Any amount withdrawn above the cost basis is taxable
C. Any amount withdrawn above the cost basis is taxable, and is subject to a 10% penalty tax
D. The withdrawal is not subject to tax
Answers
Answer:
Any amount withdrawn above the cost basis is taxable
Explanation:
This woman is above 59½ years at age 60. If she was least than 60, she would be owing a 10% penalty on the taxable amount of this withdrawal. But since she is above this age she has to pay income taxes on the whole taxable amount of the funds she withdrew. Variable annuities would never be taxed the money is withdrawn. Therefore option B is the best answer for This question.
You want to make a one-time deposit today that will increase in value to $100 at the end of this year. Which rate of interest will allow you to deposit the least amount today to reach this goal
Answers
Answer:
The rate of interest is 11.111%
The Deposit should be $90 today.
The future value at the end of this year will be $100.
Explanation:
Future value of $100
Present value of $100 at 11.111% = $100/11.111 = $90
The future value of a deposit today is the value after a period of one year or so periods. The rate of interest produces the discount factor that can calculate the present value of $100. To make a one-time deposit of $90 today will increase in value to $100 using an interest rate of 11.111%.
Hickam Company makes one product, for which it has developed the following standard for labor: each unit should require 1.50 hours at $12/hour. In April, Hickam made 10,000 units, using 1.65 hours per unit at a cost of $11.50 per hour. What is the labor usage variance
Answers
Answer:
$1.8 Unfavourable
Explanation:
Labor usage variance can be calculated by deducting Standard hours from Actual hours and multiplying the result by the standard rate.
DATA
Standard hours = 1.50 hours
Standard rate = $12/hour
Actual hours = 1.65 hours
Actual rate = $11.5/hour
Calculation
LABOUR USAGE VARIANCE = (SH-AH)SR
LABOUR USAGE VARIANCE =(1.5 - 1.65) x $12
LABOUR USAGE VARIANCE = (-0.15) x $12
LABOUR USAGE VARIANCE = $1.8 Unfavourable
In 2019, pastured eggs sold for more than twice the price of cage-free eggs and almost 5 times the price of conventional eggs, making pastured eggs more profitable than the other eggs. Over time, this high price for pastured eggs will likely __________ as more farmers decide to _____________- the perfectly competitive pastured egg market.
a. rise; enter
b. fall; enter
c. rise; exit
d. fall; exit
Answers
Over time the price for the pastured egg is likely to fall as more farmers decide to enter.
What do you mean by perfectly competitive market?The perfect competitive market is a type of market structure which allows multiple companies to sell the same product or service. Example: agricultural product.
As more farmers decide to enter the market, there will be more products sold in the market, so the supply of pastured eggs will become higher, and thus, the prices will fall.
Thus, Option B is the right answer.
To learn more, perfectly competitive market refer: https://brainly.com/question/1748396
#SPJ2
The Vice-President of ACME Corporation, an NYSE listed firm, places an order to buy 10,000 shares of ACME common at the market. 3 months later, ACME stock's price has increased by 20% and the officer places an order to sell. Which statement is TRUE
Answers
Answer: D. The officer must forfeit the profit on the sale
Explanation:
The Vice-president of ACME who is the one attempting to sell is an officer of ACME and as such falls under Rule 144 of the Securities Exchange Act of 1934 as a control person.
This Act is meant to curb market manipulation and so it places restrictions on some activities by officers of a company. One of which is that for the seller to claim any profits on such sales, they would have to had held the stock for at least 6 months so that they do not have a "short swing" profit. If they do so, they are to pay the profits accrued back to the Issuer of the stock so indeed, the officer must forfeit the profit on the sale.
Kim's Bridal Shoppe has 12,400 shares of common stock outstanding at a price of $58 per share. It also has 325 shares of preferred stock outstanding at a price of $88 per share. There are 400 bonds outstanding that have a coupon rate of 7.7 percent paid semiannually. The bonds mature in 39 years, have a face value of $2,000, and sell at 113 percent of par. What is the capital structure weight of the common stock
Answers
Answer:
43.54%
Explanation:
the firm's total market value:
12,400 common stocks x $58 = $719,200325 preferred stocks x $88 = $28,600400 bonds x $2,260 = $904,000total $1,651,800total capital structure weight of common stocks = $719,200 / $1,651,800 = 43.54%
Marigold Corp. issues $220,000, 20-year, 8% bonds at 104. Prepare the journal entry to record the sale of these bonds on June 1, 2020
Answers
Answer:
Selling Price of Bonds = Value of bonds * Issue price / Face price
Selling Price of Bonds = $220,000 * 104/100
Selling Price of Bonds = $228,800
Journal Entry
Date Account Title and Explanation Debit Credit
1 June Cash $228,800
Bond payable $220,000
Premium on bond payable $8,800
(To record issuance of bond)
Working
Premium On Bonds Payable = Selling Price of Bonds - Value of Bonds
= $228,800 - $220,000
= $8,800
When Isaiah Company has fixed costs of $137,750 and the contribution margin is $29, the break-even point is
Answers
Answer:
Break-even point in units= 4,750 units
Explanation:
Giving the following information:
When Isaiah Company has fixed costs of $137,750 and the contribution margin is $29
To calculate the break-even point in units, we need to use the following formula:
Break-even point in units= fixed costs/ contribution margin per unit
Break-even point in units= 137,750 / 29
Break-even point in units= 4,750 units
Carlos wants to purchase a new computer and go to the Caribbean for spring break. The computer is priced at $1,299, and the vacation is priced at $750. He has only $1,537 in his checking account, so he cannot afford to purchase both. After much thought, Carlos buys the computer and writes a check for $1,299. Identify what role mo
Answers
The complete question is:
Carlos wants to purchase a new computer and go to the Caribbean for spring break. The computer is priced at $1,299, and the vacation is priced at $750. He has only $1,537 in his checking account, so he cannot afford to purchase both. After much thought, Brian buys the computer and writes a check for $1,299.
Identify what role money plays in each of the following parts of the story.
Carlos can easily determine that the price of the computer is more than the price of the vacation.
Carlos has $1,537 in his checking account.
Carlos writes a check for $1,299.
Answer:
Carlos can easily determine that the price of the computer is more than the price of the vacation.= Unit of Account
Carlos has $1,537 in his checking account.= Store of value
Carlos writes a check for $1,299.= Medium of Exchange
Explanation:
In this scenario the different functions of money are exhibited. The 3 functions of money are as unit of account, store of value and medium of exchange.
When Carlos determines that the price of the computer is larger than that of price of a vacation money functions as a unit of account. The amount for a computer is $1,299 which is larger than the cost of a vacation ($750)
The money in his account is a store of value from which he can make pitches in the present or in the future.
When he writes the check for the computer, he is exchanging money for the computer. Money acts as a medium of exchange
A customer has purchased 10,000 shares of Fromage stock, a Swiss cheese company. The stock is not traded in the United States. Fromage declares and pays a dividend of 15,000 Swiss Francs, which, when converted to dollars, equals $10,000. Switzerland imposes a 20% withholding tax on dividends repatriated outside its borders. How is the dividend reported on this investor's U.S. tax return
Answers
Answer:
$10,000 of dividends are reported, along with a $2,000 tax credit for monies withheld in Switzerland
Explanation:
As we know that if there is a direct investment in a foreign security, so the foreign country having a tax on dividend send an individual his home country against his will now if this condition arise so the same i.e tax credit should be levy on the same person while filing the U.S tax return
Since $10,000 dividend is received along with it $2,000 would be the tax credit
seigel co. maintains a defined-benefit pension plan for its employees. at each balance sheet date, seigel should report a pension asset / liability equal to the
Answers
Answer: funded status relative to the projected benefit obligation
Explanation:
A defined benefit pension plan is a pension plan type in which the employer promises to pay the worker a lump sum or a pension payment which is based on the earnings history, age and the tenure of service of the worker.
Since Seigel co. maintains a defined-benefit pension plan for its employees. at each balance sheet date, seigel should report a pension asset/liability that will be equal to the funded status relative to the projected benefit obligation.
When selecting the best alternative in a cost-benefit analysis, what are the issues to be considered?
Answers
Answer: Analyse cost, risk with impacts and project benefits.
Explanation:
The best alternative in a cost-benefit analysis situation are the following;
•The cost types should be analyzed
•Potential risk and their impacts should be looking into
•It is recommended to weigh all the risk even when there is a lot of project benefits.
What is the equivalent annual annuity of a project that requires an investment of $50,000 today and is expected to generate free cash flows of $15,000 per year for the next five years? The company’s weighted average cost of capital is 13.1% per year.
Answers
Answer:
$749.57
Explanation:
equivalent annual annuity = (NPV x rate) / [1 - (1 + rate)⁻ⁿ]
using a calculator, the NPV = $2,630rate = 13.1%n = 5equivalent annual annuity = ($2,630 x 0.131) / [1 - (1 + 0.131)⁻⁵] = $344.53 / 0.4596 = $749.57
The equivalent annual annuity is used to compare mutually exclusive projects and determine which yields the highest annual returns.
A company had the following purchases during its first year of operations: Purchases January: 18 units at $128 February: 28 units at $138 May: 23 units at $148 September: 20 units at $158 November: 18 units at $168 On December 31, there were 58 units remaining in ending inventory. These 58 units consisted of 10 from January, 12 from February, 14 from May, 12 from September, and 10 from November. Using the specific identification method, what is the cost of the ending inventory?
Answers
Answer:
$8,584
Explanation:
Cost of ending inventory can be calculated by multiplying the remaining units of the given month by their purchase cost in the following month
DATA
Total remaining units n ending inventory = 58 units
10 from January at $128
12 from February at $138
14 from May at $148
12 from September at $158
10 from November at $168
Calculation
January = 10 x $128 = $1,280
February = 12 x $138 = $1,656
May = 14 x $148 = $2,072
September = 12 x $158 = $1,896
November = 10 x $168 = $1,680
Cost of ending inventory = $8,584
The standard deviation of a portfolio: Multiple Choice is a measure of that portfolio's systematic risk. is a weighted average of the standard deviations of the individual securities held in that portfolio. measures the amount of diversifiable risk inherent in the portfolio. serves as the basis for computing the appropriate risk premium for that portfolio. can be less than the weighted average of the standard deviations of the individual securities held in that portfolio.
Answers
Answer:
sorry i forgot
Explanation:
uestion 5
BROOKLYN LTD has developed a new product and is currently considering the marketing and pricing
policy it should employ for this. Specifically, it is considering whether the sales price should be set at Shs.
15,000 per unit or at the higher level of Shs. 24,000 per unit. Sales volume at these two (2) prices is shown
in the following table:
Sales price Shs. 15,000 per Unit
Forecast Sales volume Probability
20,000
0.1
30,000
0,6
40,000
0.3
Sales price Shs. 24,000 per Unit
Forecast Sales volume Probability
8,000
0.1
16,000
0.3
20,000
0.3
24,000
0.3
Answers
Answer:
BROOKLYN LTD
The selling price should be set at Shs. 15,000. At this price, there are more sales in unit and value than at the selling price of Shs. 24,000.
Explanation:
a) Data and Calculations:
Shs. 15,000 Probability Expected Sales
Forecasted Sales Volume 20,000 10% 2,000
Forecasted Sales Volume 30,000 60% 18,000
Forecasted Sales Volume 40,000 30% 12,000
Total Expected sales 32,000
Total Sales Value = Shs. 480,000,000 (Shs. 15,000 x 32,000)
Shs. 24,000 Probability Expected Sales
Forecasted Sales Volume 8,000 10% 800
Forecasted Sales Volume 16,000 30% 4,800
Forecasted Sales Volume 20,000 30% 6,000
Forecasted Sales Volume 24,000 30% 7,200
Total Expected sales 18,800
Total Sales Value = Shs. 451,200,000 (Shs. 24,000 x 18,800)
If a project has a cost of $10,000, expected net cash flows of $1500 a year for 12 years and you use a discount rate of 6%,
1. What is the following:
a. Payback period (no application of discount rate)
b. Payback period (using discount rate)
c. NPV
d. IRR
2. Should the project be accepted?
3. If another project has a cost of $10,000 and has expected life of 8 years and it will generate $3000 a year should you accept the project if your boss says the cost of capital is 5%?
Answers
Answer:
1a, 6.67 years
b. 8.9 years
c. NPV = $2,575.77
d. IRR = 10.45%
2. it should be accepted
3. it should be accepted.
Explanation:
Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows
Payback period = $10,000 / $1500 = 6.67 years
Discounted payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative discounted cash flows
discounted cash flow in year 1 = $1500 / 1.06 = $1415.09
discounted cash flow in year 2 = $1500 / 1.06^2 = $1,334.99
discounted cash flow in year 3 = $1500 / 1.06^3 = $1,259.43
discounted cash flow in year 4 = $1500 / 1.06^4 = $1,188.14
discounted cash flow in year 5 = $1500 / 1.06 ^5 = $1,120.89
discounted cash flow in year 6 = $1500 / 1.06^6 = $1,057.44
discounted cash flow in year 7 = $1500 / 1.06^7 = $997.59
discounted cash flow in year 8 = $941.12
please check the attached image on how the discounted payback period was calculated
Net present value is the present value of after tax cash flows from an investment less the amount invested.
Internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested
NPV and IRR can be calculated using a financial calculator
Cash flow in year 0 = $-10,000
Cash flow each year from year 1 to 12 = $1,500
I = 6%
NPV = $2,575.77
IRR = 10.45%
The project should be accepted because the NPV is positive, this indicates that the project is profitable. Also, the IRR is greater than the discount rate, so the project should be accepted.
to determine if the project should be accepted, the NPV of the project should be determined.
Cash flow in year 0 = $-10,000
Cash flow each year from year 1 to 8 = $3,000
I = 5%
NPV = $13,165.20
the project should be accepted because the NPV is positive
To find the NPV using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
To find the IRR using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. After inputting all the cash flows, press the IRR button and then press the compute button.
A company uses 40000 pounds of materials for which it paid $2 a pound. The materials price variance was $20000 unfavorable. What is the standard price per pound
Answers
Answer:
Standard price= $1.5
Explanation:
Giving the following information:
A company uses 40000 pounds of materials for which it paid $2 a pound. The materials price variance was $20000 unfavorable.
To calculate the standard price, we need to use the following formula:
Direct material price variance= (standard price - actual price)*actual quantity
-20,000= (standard price - 2)*40,000
-20,000= 40,000standard price - 80,000
60,000/40,000= standard price
standard price= $1.5
Night Shades, Inc. (NSI), manufactures biotech sunglasses. The variable materials cost is $11.13 per unit, and the variable labor cost is $7.29 per unit.Required:a. What is the variable cost per unit?b. Suppose the company incurs fixed costs of $875,000 during a year in which total your answer to 2 decimal places, e.g., 32.16.) production is 190,000 units. What are the total costs for the year?c. If the selling price is $44.99 per unit, does the company break even on a cash basis? I depreciation is $435,000 per year, what is the accounting break-even point?
Answers
Answer:
Explanation:
Giving the following information:
Unitary direct material cost= $11.13
Unitary direct labor cost= $7.29
A.
Total variable cost per unit= 11.13 + 7.29= $18.42
B. Fixed costs= $875,000
Production= 190,000
Total costs= 875,000 + 18.42*190,000= $4,374,800
C.
To calculate the break-even point in units, we need to use the following formula:
Break-even point in units= fixed costs/ contribution margin per unit
Break-even point in units= 875,000 / (44.99 - 18.42)
Break-even point in units= 32,932 units
D. Depreciation= $435,000
Accounting break-even point= (875,000 - 435,000) / 26.75
Accounting break-even point= 16,449 units
The budgeted conversion costs for a just-in-time cell are $244,720 for 3,800 production hours. Each unit produced by the cell requires 45 minutes of cell process time. During the month, 2,100 units are manufactured in the cell. The estimated materials cost is $50 per unit. What would be the journal entry to record the materials purchased on account to produce 2,200 units
Answers
Answer: Debit to Raw and In Process Inventory $ 110,000
Credit to Accounts Payable $ 110,000
Explanation:
Budgeted Conversion Cost = $ 244,720
Total Production hours = 3,800 hours
Material cost per unit = $ 50 per unit
Material purchase for 2,200units (50 x 2,200) = $ 110,000
Journal to record purchase of raw material for 2200 units at $50
Accounts title and explanation Debit Credit
Raw and In process Inventory $ 110,000
Accounts Payable $110,000
The price of oil in the United States has been very volatile over the last 50 years, with the real price of oil showing a few dramatic swings. When did these swings occur, and what can explain them? The first dramatic swing happened in the 1970s when there was a sharp ▼ drop rise in the real price of oil caused by ▼ a large financial crisis the formation of OPEC increased demand from emerging economies . The second swing happened in the 2000s when there was a sharp ▼ rise drop in the real price of oil caused by ▼ increased demand from emerging economies a large financial crisis the formation of OPEC . The most recent swing happened in 2008 when there was a sharp ▼ rise drop in the real price of oil caused by
Answers
Answer:
The first dramatic swing happened in the 1970s when there was a sharp rise in the real price of oil caused by the formation of OPEC.
In 1973, the World saw it's first oil spike when members of the Organization of Oil Exporting Countries (OPEC) being mostly Muslims, decided to punish the Western World for their perceived support of the Israelis in the Yom Kippur War. They placed an embargo on the sale of oil to the West and because they controlled 56% of the then World supply, this was enough to force the price of oil up due to the reduction in demand.
The second swing happened in the 2000s when there was a sharp rise in the real price of oil caused by increased demand from emerging economies.
From the early 2000s to 2008, the price of oil kept rising steadily till it reached around $147.30 in July 2008. This rise in prices was due to increased demand from newly industrialized and emerging nations like China that needed the oil to maintain their rapid growth.
The most recent swing happened in 2008 when there was a sharp drop in the real price of oil caused by a large financial crisis.
By December 2008, the price of oil had fallen to $32 and this was down to the global recession that was ravaging the World known as the Great Recession. As the world saw economic output fall, demand for oil decreased sharply thereby forcing the price of oil to fall dramatically.
A creamery shop sells its special ice cream for $4.50 a quart. It costs them $3.00 a quart to make it. The daily demand for this flavor is normally distributed with a mean of 35 quarts and a standard deviation of 4 quarts. Unsold ice cream is sold each day to a local restaurant at $1.50 per quart. What is the service level and corresponding optimal stocking level?
Answers
Answer and Explanation:
The computation of the service level and the corresponding optimal stocking level is shown below:
Given that
Selling price = SP = $4.50
Cost price = CP = $3.00
So,
Salvage value = V = $1.50
Average daily demand (d) = 35 quarts
The standard deviation of daily demand = 4 quarts
based on the above information
Overage cost = (Co) is
= CP - V
= $3.00 - $1.50
= $1.50
Now
Underage cost= (Cu)
= SP - CP
= $4.50 - $3.00
= $1.50
So,
Service level is
= Cu ÷ (Co + Cu)
= 1.50 ÷ (1.50 + 1.50)
= 1.50 ÷ 3.00
= 0.50
= 50%
Now
At 50 % service level, the value of Z is 0
So,
Optimal stocking level is
= d + Z × standard deviation
= 35 + (0 × 4)
= 35 + 0
= 35 quarts
ABC Co. and XYZ Co. are identical firms in all respects except for their capital structures. ABC is all-equity financed with $475,000 in stock. XYZ uses both stock and perpetual debt; its stock is worth $237,500 and the interest rate on its debt is 10 percent. Both firms expect EBIT to be $53,000. Ignore taxes.
Requried:
a. Rico owns $23,750 worth of XYZ’s stock. What rate of return is he expecting?
b. Suppose Rico invests in ABC Co and uses homemade leverage. Calculate his total cash flow and rate of return.
c. What is the cost of equity for ABC and XYZ?
d. What is the WACC for ABC and XYZ?
Answers
Answer:
ABC Co. and XYZ Co.
a. Rico owns $23,750 worth of XYZ’s stock. What rate of return is he expecting?
Expected Rate of Return = 12.32%
b. Suppose Rico invests in ABC Co and uses homemade leverage. Calculate his total cash flow and rate of return.
Cash flow from ABC Co. = 11.16% of $23,750 = $2,650.50
Cash outflow from homemade leverage = 10% of $11,875 = $1,187.50
Total cash flows = $1,463 ($2,650.50 - $1,187.50)
Rate of return = $1,463/$11,875 x 100 = 12.32%
c. What is the cost of equity for ABC and XYZ?
Cost of Equity for ABC Co. = Expected Return on Equity
= $53,000/$475,000 x 100
= 11.16%
Cost of Equity for XYZ Co. = Expected Return on Equity
= $29,250/$237,500 x 100
= 12.32%
d. What is the WACC for ABC and XYZ?
WACC for ABC = Cost of Equity = 11.16%
WACC for XYZ = Weighted Cost of Equity + Weighted Cost of Debt
= 11.16% x 50% + 10% x 50%
= 0.0558 + 0.05
= 0.1058
= 10.58%
Explanation:
ABC:
Equity = $475,000
Expected EBIT = $53,000
Returns on Equity = $53,000/$475,000 x 100 = 11.16%
XYZ:
Equity = $237,500
Debt = $237,500
Interest on Debt = 10% = $23,750
EBIT = $53,000
Return for Equity = $29,250 ($53,000 - 23,750)
Return on Equity = $29,250/$237,500 x 100 = 12.32%
RICO is assumed to leverage debt for his shares in ABC Co. to the tune of 50% just as the debt leverage in XYZ Co.
ABC's and XYZ's costs of equity are equal to the expected returns on the equities expressed percentages of the equities.
ABC's and XYZ's WACC or Weighted Average Costs of Capital are the weighted cost of equity plus the weighted cost of debt respectively.
When the Federal Reserve buys long term MBS and Treasury securities from banks and announces its intention to keep buying these assets in large quantities for a long time the effect on commercial banks is to increase the value of fixed income securities that are not sold and at the same time to lower the interest spread between new loans originated and the cost of financing these loans. True False
Answers
Answer:
True
Explanation:
Since, Federal reserve purchased long term MBS in order to pay the less market interest rate and this will cause a rise in the amount of income i.e fixed securities. Also, due to less market interest rate, the financing cost is less and at the same time interest spread is narrower as it provides more liquidity
Therefore the given statement is true