Answer:
$180,000
Explanation:
Reserves is the total amount of a bank's deposit that is not given out as loans
There are two types of reserves
required reservesexcess reservesRequired reserves is the percentage of deposits required of banks to keep as reserves by the central bank
Required reserves = reserve requirement x deposits
0.05 x $200,000 = $10,000
Excess reserves is the difference between reserves and required reserves
$190,000 - 10,000 = $180,000
Before month-end adjustments are made, the February 28 trial balance of Neutral Milk Hotel contains revenue of $7,000 and expenses of $4,400. Adjustments are necessary for the following items: Depreciation for February is $1,800. Revenue recognized but not yet billed is $2,700. Accrued interest expense is $700. Revenue collected in advance that is now recognized is $2,500. Portion of prepaid insurance expired during February is $400.InstructionsCalculate the correct net income for Neutral Milk Hotel’s Income Statement for February.
Answer: $4,900
Explanation:
Net income will be:
= (Revenue + Revenue recognized but not yet billed + Revenue collected in advance that is now recognized) - Expenses - Depreciation - Accrued interest expense - Portion of prepaid insurance for the month
= (7,000 + 2,700 + 2,500) - 4,400 - 1,800 - 700 - 400
= $4,900
The following information was taken from Charu Company's balance sheet: Fixed assets (net) $860,000 Long-term liabilities 200,000 Total liabilities 600,000 Total stockholders’ equity 250,000 Determine the company's (a) ratio of fixed assets to long-term liabilities and (b) ratio of liabilities to stockholders' equity. If required, round your answers to one decimal place. a. Ratio of fixed assets to long-term liabilities fill in the blank 1 b. Ratio of liabilities to stockholders' equity
Answer:
A. 4.3
B. 2.4
Explanation:
(a) Calculation to determine ratio of fixed assets to long-term liabilities
Using this formula
Ratio of fixed assets to long-term liabilities =Fixed assets (net)/Long-term liabilities
Let plug in the formula
Ratio of fixed assets to long-term liabilities= $860,000 /$200,000
Ratio of fixed assets to long-term liabilities=4.3
Therefore Ratio of fixed assets to long-term liabilities is 4.3
(b) Calculation to determine ratio of liabilities to stockholders' equity
Using this formula
Ratio of liabilities to stockholders' equity=Liabilities/Total stockholders’ equity
Let plug in the formula
Ratio of liabilities to stockholders' equity=$600,000 /$250,000
Ratio of liabilities to stockholders' equity=2.4
Therefore ratio of liabilities to stockholders' equity is 2.4
Find the EAR in each of the following cases (Use 365 days a year. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.): Stated Rate (APR) Number of Times Compounded Effective Rate (EAR) 9.4 % Quarterly % 18.4 Monthly 14.4 Daily
Answer and Explanation:
The computation of the effective annual rate in each of the following cases is shown below;
a. For quarterly
Effective annual rate = (1+0.094 ÷ 4)^4 - 1
= 9.74%
b. For monthly
Effective annual rate = (1+0.184 ÷ 12)^12 - 1
= 20.03%
c. For daily
Effective annual rate = (1+0.144 ÷ 365)^365 - 1
= 15.49%
In this way it should be calculated and measured
Waggoner Company has a cash balance of $44,000 on April 1. The company is required to maintain a cash balance of $25,000. During April expected cash receipts are $174,000. Expected cash disbursements during the month total $200,800. During April the company will need to borrow:____.
a. $2,500.b. $3,500.c. $4,000.d. $6,000.
Answer: $7,800
Explanation:
The amount that the company needs to borrow can be found using the formula:
= Opening balance + Cash receipts - Cash to be maintained - Cash disbursement
= 44,000 + 174,000 - 25,000 - 200,800
= -$7,800
Amount to be borrowed is the shortfall of $7,800
Consider the case of a good with external benefits. If you plant trees in front of your house, the neighborhood is more attractive, and trees create shade, provide oxygen, and a home for birds and squirrels. Thus, the benefits to society are greater than the benefits to you. If the planting of trees is a private choice, you will plant too few trees relative to the socially optimal quantity, because the private value to you is less than the social value.
1. Which of the following would not help to correct this problem?
a. Subsidize consumer purchases of trees to plant.
b. Tax homeowners who plant trees.
c. Subsidize nurseries that sell trees for planting.
d. Have the government provide trees to homeowners.
e. All of the above would help to correct the problem.
2. If the government pays for a program to increase the planting of trees, who will win and lose from the program?
Answer:
1. b. Tax homeowners who plant trees.
2. Win - society and consumer
Loose - tax payers and producers.
Explanation:
1. a). If the good creates a positive externalities, then the [tex]\text{private benefits from the good are less than the social benefits}[/tex] from the good.
In the context, the following would not help to correct the problem :
Taxing the homeowners who plant the trees.
If the government taxes or takes some money form the people or the house owners who plant trees in their neighborhood will discourage the people to plant the trees and would not help in correcting the problem.
2. If the government pays for the program that helps to increase the planting the trees, then,
the one who will win from this program is : society and the consumers
the one who will loose : tax payers and the producers as the government would impose more tax in order to fuel the project.
15.The following information is available for an economy. On the basis of information calculate:
1. Domestic income and 2.National income?
Page 3 of 3
Items crore
Wages 10,000
rent 5000
interest 400
dividend 3000
mixed income 400
undistributed profit 200
social security contribution 400
corporate profit tax 400
net factor income from abroad 1000
how goal succession takes place? Explain the condition responsible for goal succession
Answer:Goal succession refers to the situation where the new or modified goals are incorporated or substituted for the existing one in such a manner that they do not change the spirit of the existing goals. The new goals are such that individuals or the organisation are willing to state publicly.
Explanation:
Answer:
Goal succession refers to the situation where the new or modified goals are incorporated or substituted for the existing one in such a manner that they do not change the spirit of the existing goals. The new goals are such that individuals or the organisation are willing to state publicly.
An investor prefers to invest in companies that have high operating leverage. How can this be accomplished if the investor also requires a portfolio beta of 1.0?
A. Invest 50% in cyclical stocks and 50% in firms with high operating leverage
B. Invest 50% in a market index fund and 50% in firms with high operating leverage
C. Finance part of the portfolio with borrowing
D. Invest a portion of the portfolio in U.S. Treasury securities
Answer:
B
Explanation:
Systemic risk are risk that are inherent in the economy. They cannot be diversified away. They are also known as market risk. examples of this risk include recession, inflation, and high interest rates. Investors should seek compensation for systemic risk. Systemic risk is measured by beta. The higher beta is, the higher the systemic risk and the higher the compensation demanded for by investors
Market index fund is riskless and would have a beta of 1
by investing half in a riskless and half in a risky asset. beta would be equal to 1
Time series are particularly useful to track variables such as revenues, costs, and profits over time. Time series models help evaluate performance and make predictions. Consider the following and respond in a minimum of 175 words: Time series decomposition seeks to separate the time series (Y) into 4 components: trend (T), cycle (C), seasonal (S), and irregular (I). What is the difference between these components
Answer:
Trend (T): This is a secular trend, which refers to the movement across time.
Cycle (C): These are cyclical swings that correspond to seasonal but not periodical variations.
Seasonal (S): These are seasonal shifts represented by seasonal variations.
Irregular (I): These are irregular variations, which are a different type of nonrandom cause of series variations.
Explanation:
A time series is a collection of data points that have been indexed (or listed or graphed) in chronological sequence.
The difference between the components can explained as follows:
Trend (T): This is a secular trend, which refers to the movement across time. A trend in data is a pattern that demonstrates the movement of a series to progressively higher or lower values over time. To put it another way, a trend can be seen when the time series has a rising or decreasing slope. A trend usually lasts for a short period of time before dissipating; it does not occur again.
Cycle (C): These are cyclical swings that correspond to seasonal but not periodical variations. The term cycle refers to recurring fluctuations in time series that persist longer than a year, sometimes up to 15 or 20 years. In terms of amplitude and length, these variations aren't regular. The majority of business time series show some form of cyclical or oscillatory fluctuation.
Seasonal (S): These are seasonal shifts represented by seasonal variations. Seasonal fluctuation may be present in time series data. Seasonal variation, often known as seasonality, refers to cycles that occur on a regular basis over time. Seasonal variation refers to a recurring pattern within each year, though it can also refer to patterns that repeat across any specified period.
Irregular (I): These are irregular variations, which are a different type of nonrandom cause of series variations. The polar opposite of a regular time series is an irregular time series. The data in the time series is organized in a chronological order, however measurements may not occur at regular intervals. The operator may produce unexpected or suboptimal results if the time series is erratic.
Suppose that a price floor is set in the market for oranges, raising the price from $1.05 per pound to $1.10 per pound of oranges. The sum of which two areas represents the lost social surplus (deadweight loss) from this price floor?
Answer and Explanation:
To calculate deadweight loss, we need to know the initial price and quantity as well as the new price and quantity.
Assume at initial price $1.05, quantity is 300 oranges
At new price $1.10, quantity is 200 oranges
Deadweight loss = 0.5×(P2-P1)×(Q1-Q2)
= 0.5×(1.10-1.05)×(300-200)
Deadweight loss= 0.5×0.05×100
Deadweight loss= 2.5
Major U.S. airlines have responded to the coronavirus pandemic by reducing the number of flights per day, thus reducing capacity. When demand decreases, it is important for airlines to cut capacity from both a cost and revenue perspective.
a. True
b. False
Answer:
A
Explanation:
Mabbe Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 800 units and of Product B is 600 units. There are three activity cost pools, with estimated costs and expected activity as follows:
Activity Cost Pools Estimated Overhead Cost Expected Activity
Product A Product B Product C
Activity 1 $17460 600 600 1200
Activity 2 $19987 1700 600 2300
Activity 3 $29884 400 120 520
The activity rate for Activity 2 is closest to: __________
a. $29.274
b. $33.311
c. $11.764
d. $8.69
Answer:
d. $8.69
Explanation:
Activity rate for Activity 2 = Estimated Overhead Cost / Expected Activity
Activity rate for Activity 2 = $19,987.00 / 2300
Activity rate for Activity 2 = $8.69 per activity
XYZ uses a single plantwide predetermined overhead rate based on MHs. It estimated the following data:
Total MHs 40,000
Total fixed MOH cost $ 344,000
Variable MOH per MH $ 3.90
Recently, Job M759 was completed. It required 60 MHs. The overhead applied to Job M759 is closest to:______ (Round your intermediate calculations to 2 decimal places.)
a. $516
b. $234
c. $750
d. $984
Answer:
See below
Explanation:
Given the above information, the overhead applied to job M759 is computed as;
= Variable MOH per MH × Required MH
Given that:
Variable MOH per MH = $3.90
MH = 60 MHs
Hence,
Overhead applied to job M759
= $3.90 × 60
= $234
Develop a production plan and calculate the annual cost for a firm whose demand forecast is fall, 10,000; winter, 8,000; spring, 7,000; summer, 12,000. Inventory at the beginning of fall is 500 units.
Answer: Hello your question is incomplete attached below is the complete question
answer :
production plan ( attached below )
Total annual cost = $416,600
Explanation:
Given data of the question:
Demand forecast
Fall = 10,000 , winter = 8,000 , spring = 7,000, summer = 12,000 .
Number of workers = 30, Cost of hiring = $100,
The beginning inventory = 500, Laying cost = $200,
Inventory holding cost = $5/unit, backorder cost = $10/unit, Straight time cost = $5/hr , Overtime cost = $8/hour, productivity = 0.5 unit/worker hours
season days = 6
number of units produced by a(1) worker in 1 season = 0.5 * 8 * 60 = 240unit
∴ number of units produced by 30 workers = 240 * 6 = 7200 units
use the given data to develop a production plan using excel worksheet.
Production plan of firm ( attached below )
Total Annual cost =SUM( G12:G17 ) = ( 2000 + 4000 + 2000 + 23000 + 336,000 + 49600 ) = $416,600
Classify each of the following items as a final good or service or an intermediate good or service, and identify which is a component of consumption expenditure, investment, or government expenditure on goods and services. A. Upper A new limousine for the president B. New airplanes bought by United Airlines C. Upper A textbook bought by a student D. Packing boxes bought by Amazon
Answer:
final good government expenditure
final goods investment
final good ; consumption expenditure
intermediate good ; investment
Explanation:
A final good is a good that is consumed directly by consumers e.g. the textbooks bought by a student does not need to go through further production before it is suitable for use by the student.
An intermediate good is a good that is used in the production of the final good. e.g. the packing boxes bought by amazon will be used in packaging the final good demanded by consumers.
Consumption spending includes spending by households on goods and services. Consumption spending includes :
spending on durables - e.g. laptop
spending on nondurables - e.g. clothes, food
spending on services - e.g. payment of hospital bill
the purchase of a textbook by a student is an example of consumption spending on durable goods
Investment - It includes purchases of goods and services made by businesses in the production of goods and services
the airplane purchased by the airline would be used to provide services for airline customers. Also, the packing boxes bought by Amazon would be used in delivering goods to customers
Government spending - It includes government consumption expenditure and gross investment. The purchase of a new limousine for the president is an example of consumption expenditure
An error in the physical count of goods on hand at the end of a period resulted in a $10,000 overstatement of the ending inventory. The effect of this error in the current period is (use the COGS equation for the Periodic System):__________
A. Cost of Goods Sold: Understated, and Net Income: Understated
B. Cost of Goods Sold: Overstated, and Net Income: Overstated
C. Cost of Goods Sold: Understated, and Net Income: Overstated
D. Cost of Goods Sold: Overstated, and Net Income: Understated
Answer:
C. Cost of Goods Sold: Understated, and Net Income: Overstated
Explanation:
The cost of goods can be defined as the amount that a business has to pay in other for them to get an inventory. the net income can be defined as the amount of money that is left from COGS and other expenditures that does not include taxes and payments of interest. Overstating the inventory causes the total amount of earnings to be overstated for that accounting period. while the cost of good sold would be understated
which of the following constitutes an implicit cost to company A
A. property taxes
B. Payments of wages to its office workers
C. raw material costs paid by company A to the supplier B
D. value of the land owned by the company A
Answer:
Implicit cost to company A is:
D. value of the land owned by the company A
Explanation:
Implicit costs to company A will refer to the cost of resources already owned by the firm, which the company could have put to some other use. A good example is the value of the land owned by the company. This land could be put to another use, yielding some rent. It could also be sold outright. Its cost becomes implicit when the company uses it in its business. The land is not being held for sale.
Assume that you are a loan officer of a bank. A local church is seeking a $4 million, 20-year loan to construct a new classroom building. Church officers submit a comprehensive financial report that was audited by a reputable CPA firm. In summary form (the actual statement showed details), the church’s statement of revenues and expenditures indicated the following (in millions):
Revenues from dues and contributions .... $1.8
Revenues from other sources ....... 0.2
Total revenues ............. $2.0
Less: total expenditures .......... 2.0
Excess of revenues over expenditures .... $0.0
The church's balance sheet reported assets, mainly cash and investments (at market value), of $0.2 million. In addition, a note to the financial statements indicated that equipment is approximately $3 million. The church has no outstanding debt.
a. Is there any information in the financial statements that would make you reluctant to approve the loan? If so, indicate and explain.
b. Is there any other financial information of the type likely to be reported in a conventional annual report that you would like to review prior to making a loan decision? If so, indicate and explain.
c. Is there any other information, of any type, that you would like to review prior to making a loan decision? If so, indicate and explain.
d. Comment on the inherent limitations of the financial statements of this church, or any comparable not-for-profit organization, as a basis for making loan decisions.
Answer:
Explanation:
a.
There is little information on how funds are used or how much money is spent to manage the church. The financial statements have been prepared incorrectly.
Interpretation:
While drafting the financial accounts, the church committed many errors. The church's revenue is equivalent to its daily operations operating expenditures. They have approximately $3 million in funding assets that they do not owe any money on.
It may be deduced that the church is attempting to preserve asymmetric information, and therefore it will be better to justify its sources of income and use of money in order to determine whether they can or they cannot pay the debt.
b.
The revenue from various channels must be detailed in the yearly report so that the loan officer may make an informed judgment.
Interpretation:
Since payments and contributions account for 90% of revenue and revenue from other sources accounts for 10%, it's surprising how the church earns money in other ways as stated on the income statement. As a result, it's important to understand what other potential revenue streams the church has before approving the loan.
c.
The officer in charge of the loan should check the church's book records to make sure and guarantee that there are no outstanding loans. This situation necessitates a thorough examination and assessment.
Interpretation:
The church has $3 million worth of equipment. The church's expenses, on the other hand, are equivalent to the church's income. As a result, it's unclear how the church acquired the equipment without taking out a loan. As a result, the church must be urged to produce a full breakdown of its expenses, which may be thoroughly and fully studied to see whether there are any financing charges that the church is attempting to hide in its yearly reports.
d.
There is no direct or primary source of income for the church. It solely makes money from charity donations.
Interpretation:
The church's only sources of income are fundraisers and charitable donations. It also doesn't possess any significant revenue streams. Because the church is attempting to conceal numerous possible pieces of information, this may be a case of micro-management by the proprietors, and so these issues should be considered by the officer in charge of the loan before accepting the loan.
Distribution network is not required for
product.
O Standardised
O Durable
O Unstandardised
O Perishable
Answer:
O Perishable
Explanation:
In the case of the perishable goods, the distrubution network is not required because the perishable goods are those goods that are consumed instantly such as vegetables, fruits
But on the other hand, the goods that are durable, standardised and non-standardised required the distribution network
Therefore the last option should be relevant
Assuming purchase costs are rising, determine which of the statements below are correct regarding the cost of goods sold under FIFO, LIFO and weighted average cost flow methods.A. Companies using FIFO will report the highest gross profit and net income. B. Companies using FIFO will pay higher taxes than companies using LIFO, assuming all else
being equal. C. Weighted average cost of goods sold will be between FIFO and LIFO costs of goods sold. D. Companies using FIFO will report the smallest cost of goods sold.E. Companies using LIFO will report the smallest cost of goods sold.
Answer:
A
B
C
D
Explanation:
LIFO means last in first out. It means that it is the last purchased inventory that is the first to be sold.
FIFO means first in, first out. It means that it is the first purchased inventory that is the first to be sold
Weighted average cost method calculates the cost of goods sold as the weighted average of cost of inventory
In periods of rising prices, later purchased goods would have a higher price. As a result, LIFO would report a lower net income while companies using FIFO would report the highest gross profit and net income.
Because of the high net income reported under FIFO, tax paid would be the highest too
George Company has the opportunity to purchase an asset that costs $40,000. The asset is expected to increase net income by $10,000 per year. Depreciation expense will be $5,000 per year. Based on this information the payback period is:
Answer:
2 years 8 months.
Explanation:
The payback period is the length of time that it takes for the future cash flows to equal the amount of initial investment.
We use cashflows instead of net income in payback calculation. Therefore, add back the depreciation expense.
Yearly Cash flow will thus be $15,000 ($10,000 + $5,000)
Payback Period :
$40,000 = $15,000 (Year 1) + $15,000 (Year 2 )+ $10,000/$15,000 x 12 (Year 3)
This gives a payback period of 2 years 8 months
An investment that costs $28,000 will produce annual cash flows of $5,600 for a period of 6 years. Further, the investment has an expected salvage value of $3,300. Given a desired rate of return of 10%, what will the investment generate?
Answer:
-1764
Explanation:
Given the cost of investment = $28000
Annual cash flow = $5600
Time period = 6 years
Salvage value = $3300
Interest rate = 10%
Net gain from the investment and its present value = Annuity (P/A, r, n) + Salvage value (P/F, r, n) - investment
= 5600 (P/A, 10%, 6) + 3300 (P/F, 10%, 6) - 28000
= 5600 x 4.355 + 3300 x 0.56 - 28000
= -1764
Maintenance costs for pollution control equipment on a call for an s are expected to be $180,000 now and another $70,000.03 years from now. assume that the company uses a real interest rate of 9% per year and the inflation rate average is 3% per year. What is the equivalent annual cost of the equipment?
Answer:
Annual cost = −64,083
Explanation:
Present maintenance costs = $180000
Maintenance costs after three years = $70000
Real interest rate = 9%
Inflation rate = 3%
Inflation adjusted interest rate, r = 0.09 + 0.03 + (0.09)(0.03) = 12.27% per year
Annual cost = −180,000(A/P,12.27%,5) –70,000(P/F,12.27%,3)(A/P,12.27%,5)
Annual cost = −180,000(0.27927)–70,000(0.70666)(0.27927)
Annual cost = −64,083
企業が有利子負債を持っていると、（）から資本コストが安くなる。
1. 配当成長効果
2. リスク低減効果
3. 課税効果
4. 節税効果
5. 割引抑制効果
Answer:
this word is not in english plz write in english
The financial statements of the Bramble Corp. report net sales of $473850 and accounts receivable of $56000 and $25000 at the beginning of the year and the end of the year, respectively. What is the accounts receivable turnover for Bramble?
Answer:
the accounts receivable turnover for Bramble is 5.85 times
Explanation:
The computation of the account receivable turnover ratio is shown below
the account receivable turnover ratio is
= Net sales ÷ (Beginning account receivable + ending account receivable) ÷ 2
= $473,850 ÷ ($56,000 + $25,000)
= 5.85 times
Hence, the accounts receivable turnover for Bramble is 5.85 times
How can an oligopoly cause market failure
Answer:
Market failure due to Oligopoly
Inefficiency, instability and indeterminacy brought about by oligopoly may result in a market crash. The firm's supremacy is established as the capacity is established more and more, but little is produced in order to create artificial barrier to entry.
Mayer Instrumentation sold a depreciable asset for cash of $300,000. The original cost of the asset was $1,200,000. Mayer recognized a gain of $45,000 on the sale. What was the amount of accumulated depreciation on the asset at the time of its sale
Kubin Company’s relevant range of production is 30,000 to 35,000 units. When it produces and sells 32,500 units, its average costs per unit are as follows: Average Cost per Unit Direct materials $ 9.00 Direct labor $ 6.00 Variable manufacturing overhead $ 3.50 Fixed manufacturing overhead $ 7.00 Fixed selling expense $ 5.50 Fixed administrative expense $ 4.50 Sales commissions $ 3.00 Variable administrative expense $ 2.50 Required: 1. For financial accounting purposes, what is the total amount of product costs incurred to make 32,500 units? 2. For financial accounting purposes, what is the total amount of period costs incurred to sell 32,500 units? 3. For financial accounting purposes, what is the total amount of product costs incurred to make 35,000 units? 4. For financial accounting purposes, what is the total amount of period costs incurred to sell 30,000 units? (For all requirements, do not round intermediate calculations.)
Answer:
Kubin Company
1. Total amount of product costs incurred to make 32,500 units:
= $846,250
2. The total amount of period costs incurred to sell 32,500 units:
= $290,000
3. The total amount of products costs incurred to make 35,000 units:
= $892,500
4. The total amount of period costs incurred to sell 30,000 units:
= $282,500
Explanation:
a) Data and Calculations:
Relevant production range = 30,000 to 35,000 units
Actual production and sales = 32,500 units
Average Costs per Unit:
Direct materials $ 9.00
Direct labor $ 6.00
Variable manufacturing overhead $ 3.50
Fixed manufacturing overhead $ 7.00 $25.50
Fixed selling expense $ 5.50
Fixed administrative expense $ 4.50
Sales commissions $ 3.00
Variable administrative expense $ 2.50
1. Total amount of product costs incurred to make 32,500 units:
Direct materials $ 9.00
Direct labor $ 6.00
Variable manufacturing overhead $ 3.50
Fixed manufacturing overhead $ 7.00
Total product cost per unit $25.50
Total product costs:
Variable costs = $601,250 ($18.50 * 32,500)
Fixed costs = 245,000 ($7.00 * 35,000)
Total product = $846,250
2. The total amount of period costs incurred to sell 32,500 units:
Fixed selling expense $ 5.50 * 35,000 = $192,500
Sales commissions $ 3.00 * 32,500 = 97,500
Total period costs = $290,000
3. The total amount of products costs incurred to make 35,000 units:
= $892,500 (35,000 * $25.50)
4. The total amount of period costs incurred to sell 30,000 units:
Fixed selling expense $ 5.50 * 35,000 = $192,500
Sales commissions $ 3.00 * 30,000 = 90,000
Total period costs = $282,500
Doug Datner had an eclectic background. He completed his law degree from the University of Virginia, then went to work for a technology start-up in Dubai. After the start-up was purchased by a larger corporation, affording Doug a hefty sum of money, Doug and his spouse returned to the United States. While working with an architect and a designer to build their dream home, they realized that there was not a provider of high-quality custom-made door and window hardware at a reasonable price point in the United States. Even though Doug had no experience in the field, he decided to start a business manufacturing high-quality custom-made door and window hardware. He named the company Hardware House Doug and his wife cleared space in their newly constructed garage, designed several basic prototypes, and hired a metalwork expert to replicate their prototypes. They decided to have a few designs in catalog as one component of their business, but have the capability to alter those designs to provide designers with custom hardware. The first few years were tough. Business was steady enough to hire a second metalwork expert, but cash flow challenges often made Doug worry whether he would be able to pay his metalwork experts on time. Still, the Hardware House had gained a number of consistent clients, and was able to move into an old warehouse space and expand operations. Ten years later, Hardware House has nearly 100 employees. While the majority of the employees work in manufacturing, there are also employees in marketing, design, accounting, and human resources. Doug structured the business to limit his liability in case of lawsuit, but still managed to maintain the business without sharing ownership.
Which of the following is an advantage Doug should expect by sharing ownership with others?
a. Gaining access to all of the distribution of profits.
b. Access to additional knowledge and expertise.
c. Additional freedom from government regulation.
d. Enhanced control to make decisions immediately
e. Greater degree of secrecy
Answer: b. Access to additional knowledge and expertise.
Explanation:
One of the advantages of opening a limited company be it private or public, is the additional knowledge that the other shareholders would bring on board.
In the case of a private company, the new shareholders would be from various backgrounds and would have knowledge on how to grow the business and in the case of a public company, the Board of Directors are usually drawn from various industries and so will put their experience from those industries into the company thereby giving it an edge.
Based on your understanding of the involvement of investment banks in an IPO, complete the following statements. If the investment bank guarantees the sale of the securities, the issue is___________ . The investment bank must pay the issuing firm within ________days of the official start of the offering. If more than one stock offering investment bank is involved in the IPO, the deal is referred to as ___________stock offering.
After the SEC approves the registration statement for the IPO, the biggest responsibility for the issuing company and the investment bank becomes ensuring that the determined number of securities is sold and the firm is able to raise the intended amount. The IPO team-including the investment bankers, senior management team, lawyers, and investor relations team-conducts various activities. Which of the following statements are true about the activities involved in the IPO process?
a. The investment banker estimates the potential demand for the securities by recording the number of shares that each investor is willing to buy. This is called book-building.
b. The IPO team goes on a roadshow, making presentations to institutional investors selected by the underwriter.
c. If investors are willing to purchase more shares than are available, the IPO is considered to be oversubscribed.
d. During the roadshow, the IPO team can divulge additional information to institutional investors that is not given in the registration statement to lure the institutional investors.
Answer:
a. If the investment bank guarantees the sale of the securities, the issue is underwritten. The investment bank must pay the issuing firm within 4 days of the official start of the offering. If more than one stock offering investment bank is involved in the IPO, the deal is referred to as underwriter syndicate stock offering.
b. True Statements.
a. The investment banker estimates the potential demand for the securities by recording the number of shares that each investor is willing to buy. This is called book-building.
b. The IPO team goes on a roadshow, making presentations to institutional investors selected by the underwriter.
c. If investors are willing to purchase more shares than are available, the IPO is considered to be oversubscribed.
Book building is a process that allows investment banks to estimate the potential demand for the shares by finding out the number of shares that investors are willing to buy.
They do this after going on a roadshow where they essentially advertise the IPO to institutional investors. If these investors are willing to buy more shares that is available, they are oversubscribing.