Answers
Answer: $19,800
Explanation:
The Monopolist will produce at a quantity where Marginal Revenue equals Marginal cost.
From the exhibit, that quantity is shown to be 1,100.
At that quantity, the average total cost incurred is $18.
Total Cost
= Average total cost * quantity
= 18 * 1,100
= $19,800
Related Questions
Which of the following most closely approximates the conditions of monopolistic competition?
a. The market for Grade A sorghum (milo), which is characterized by many firms producing a homogeneous product.
b. The market for jumbo aircraft, where one major domestic firm competes with one major foreign firm.
c. A cable television service. where a licensed supplier competes with firms offering satelite service.
d. The restaurant industry, which is characterized by many firms producing differentiated products in an industry with free cntry and exit.
e. The tobacco market which is characterized by a few firms producing a differentiated product with difficult entry.
Answers
Answer:
d. The restaurant industry, which is characterized by many firms producing differentiated products in an industry with free entry and exit.
Explanation:
A monopolistic competition is when there are many firms selling differentiated products in an industry. A monopoly has characteristics of both a monopoly and a perfect competition. the demand curve is downward sloping. it sets the price for its goods and services. there are little to no barriers to entry or exit of firms into the industry
examples of monopolistic competition are restaurants.
a. The market for Grade A sorghum (milo), which is characterized by many firms producing a homogeneous product. this is an example of a pure competition
b. The market for jumbo aircraft, where one major domestic firm competes with one major foreign firm. This is an example of a duopoly
e. The tobacco market which is characterized by a few firms producing a differentiated product with difficult entry. this is an example of an oligopoly
An FHA-insured loan in the amount of $157,500 at 5.5% for 30 years closed on July 17. The first monthly payment is due on September 1. Using a 360-day year and assuming that interest is being paid for the day of closing, what was the amount of the interest adjustment the buyer had to make at the settlement? Real Estate
Answers
Answer:
$336.88
Explanation:
Interest adjustment refers to a one time interest payment that must be paid by the buyer for the accrued interest between the day when the sale was closed and the end of the month. In this case, we are told to use a 360 day year, that means that all months will have 30 days. Therefore, the number of days of July will be 14, not 15.
total interest for 14 days = $157,500 x 5.5% x 14/360 = $336.875 = $336.88
An investment project has annual cash inflows of $4,200, $5,300, $6,100, and $7,400, and a discount rate of 14 percent. If the initial cost is $7,000, the discounted payback period for these cash flows is ________ years. If the initial cost is $10,000, the discounted payback period for these cash flows is_______years. If the initial cost is $13,000, the discounted payback period for these cash flows is_______years. (Round your answers to 2 decimal places. (e.g., 32.16))
Answers
Answer:
An investment project has annual cash inflows of $4,200, $5,300, $6,100, and $7,400, and a discount rate of 14 percent. If the initial cost is $7,000, the discounted payback period for these cash flows is ___2_____ years. If the initial cost is $10,000, the discounted payback period for these cash flows is___3____years. If the initial cost is $13,000, the discounted payback period for these cash flows is__4_____years. (Round your answers to 2 decimal places. (e.g., 32.16))
Explanation:
a) Data and Calculations:
Annual cash inflows of
Cash Inflow Discount Factor PV Running Total
Year 1 $4,200 0.877 $3,683.40 $3,683.40
Year 2 $5,300 0.769 4,075.70 7,759.10
Year 3 $6,100 0.675 4,117.50 11,876.60
Year 4 $7,400 0.592 4,380.80 16,257.40
b) An investment project's discounted payback period is the number of years it takes for an investment to recover its costs. It is the period when the project's discounted cash inflows equals the project's discounted cash outflows. It is another version of the payback period that uses discounted cash flows.
In an econometric model, the dependent variable is Group of answer choices unrelated to the independent variables. the behavior one is trying to explain. unchanging across subsamples. also known as the residual. always the wage.
Answers
Answer:
the behavior one is trying to explain
Explanation:
The dependent variable is the variable that is being explained by the independent variable.
For example
Di = x + x1 + x2 + x3
Di = demand for ice cream = dependent variable
where x1 = price
x2 = taste
x3 = income
Compute the annual dollar changes and percent changes for each of the following accounts. (Round percent change to one decimal place.)
2015 2014
Short-term investments $ 380,168 $ 239,377
Accounts receivable 102,276 105,903
Notes payable 0 93,973
Answer the table below.
Horizontal Analysis-Calculation of Percent Change
Choose Numerator: / Choose Denominator
Percent Change = /
2015 2014 Dollar Change Percent Change
Short-term investments $ 378,398 $237,313 %
Accounts receivable 100,704 104,650 %
Notes payable 0 91,913 %
Answers
Answer and Explanation:
The computation of annual dollar changes and percent changes for each of the following accounts is shown below:-
Particulars 2015 2014 Changes in dollar Percent change
a b c = (a - b) d = c ÷ b
Short term
investments $380,168 $239,377 $140,790 58.82%
Accounts
receivable $102,276 $105,903 -$3,627 -3.42%
Notes
payable 0 $93,973 -$93,973 -100%
Other things held constant, which of the following alternatives would increase a company's cash flow for the current year?
a. Increase the number of years over which fixed assets are depreciated for tax purposes.
b. Pay down the accounts payables.
c. Reduce the days' sales outstanding (DSO) without affecting sales or operating costs.
d. Pay workers more frequently to decrease the accrued wages balance.
e. Reduce the inventory turnover ratio without affecting sales or operating costs.
Answers
Answer:
The answer is C
Explanation:
Cash flow improves if days' sales outstanding is reduced without affecting sales or operating cost. This tells us that the number of days it takes to receive goods sold on credit is reduced. Cash flow will be immensely improved because customers are not defaulting and they are paying as soon as possible. The correct answer is option C.
Option B is wrong because paying payables down will not allow the money paid out to be used for other purposes. The firm is not utilizing the period of payable days.
Option D is wrong because paying workers more frequently reduces cash.
"An unaffiliated investor wishes to sell a large amount of "144" shares. This person can do so, without being subject to the Rule 144 volume limitations, after holding the securities for:"
Answers
Answer: 6 months
Explanation:
The Securities and Exchange Commission (SEC) of the United States uses Rule 144 to control and regulate sales transactions involving restricted, unregistered, and control securities.
When an unaffiliated investor to a company whose stock falls under Rule 144 wishes to sell them, they are indeed not bound by volume limitations if they sell after the holding period requirement of 6 months has been met.
This means that from the day the unaffiliated investor purchases and fully pays for the shares, they cannot sell them until 6 months from that very day have elapsed.
Edwards Electronics recently reported $11,250 of sales, $5,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had no amortization charges, it had $3,500 of bonds that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 35%. How much was its net cash flow?
Answers
Answer: $4032.85
Explanation:
The following can be derived based on the information in the question:
Sales = $11,250
Less: operating cost = $5,500
Less: depreciation = $1,250
Operating income = $4500
Operating income = $4500
Less: Interest charges = $218.75
Taxable income = $4281.25
Taxable income = $4281.25
Less: Taxes = $1498.4
Net income = $2782.85
Net cash flow = Net Income + Depreciation
= $2782.85 + $1250
= $4032.85
N.B:
Interest charges= 6.25% × $3500
= 0.0625 × $3500
= $218.75
Taxes = 35% × $4281.25
= 0.35 × $4281.25
= $1498.4
The Sandhill Company issued $330,000 of 9% bonds on January 1, 2017. The bonds are due January 1, 2022, with interest payable each July 1 and January 1. The bonds were issued at 99. Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Sandhill Company records straight-line amortization semiannually.
Answers
Answer:
the journal entry to record the issuance:
January 1, 2017, bonds are issued at a discount
Dr Cash 326,700
Dr Discount on bonds payable 3,300
Cr Bonds payable 330,000
discount amortization per coupon payment = $3,300 / 10 payments = $330
the journal entry to record the first coupon payment:
July 1, 2017, first coupon payment
Dr Interest expense 15,180
Cr Cash 14,850
Cr Discount on bonds payable 330
the journal entry to record accrued interest:
December 31, 2017, accrued interest
Dr Interest expense 15,180
Cr Interest payable 14,850
Cr Discount on bonds payable 330
In 1993, Novak Company completed the construction of a building at a cost of $2,500,000 and first occupied it in January 1994. It was estimated that the building will have a useful life of 40 years and a salvage value of $76,000 at the end of that time.
Early in 2004, an addition to the building was constructed at a cost of $625,000. At that time, it was estimated that the remaining life of the building would be, as originally estimated, an additional 30 years, and that the addition would have a life of 30 years and a salvage value of $25,000.
In 2022, it is determined that the probable life of the building and addition will extend to the end of 2053, or 20 years beyond the original estimate.
Required:
a. Using the straight-line method, compute the annual depreciation that would have been charged from 1994 through 2003.
b. Compute the annual depreciation that would have been charged from 2004 through 2022.
Answers
Answer:
A. $60,600
B. $80,600
Explanation:
Depreciation expense for the year can be calculated as follows
Requirement A
Cost =2,500,000
Less: Salvage value =76,000
Useful life = 40 years
Annual depreciation from 1994 through 2003
Depreciation expense = (cost - salvage value ) / useful life
Depreciation expense = (2,500,000 - 76,000) / 40
Depreciation expense = $60,600 per year
Requirement B
Cost = 2,500,000
Add: Addition = 625,000
Total cost = 3,125,000
Less: Accumulated depreciation = 606,000
Book value (3,125,000 - 606,000) =2519000
Less: Salvage value( 76000+25000 ) = 101,000
Useful life = 30 years
Annual depreciation = (cost - salvage value ) / useful life
Annual depreciation = (2519000 - 101000) / 30
Annual depreciation = $80,600
A 15-year annuity pays $1,300 per month, and payments are made at the end of each month. The interest rate is 10 percent compounded monthly for the first six years and 8 percent compounded monthly thereafter. What is the present value of the annuity
Answers
Answer:
162075.97 dollars.
Explanation:
The time period of annuity = 15 years
Annuity amount = $1300 per month
The interest rate for the first six-year = 10%
Monthly interest rate = 10% / 12 = 0.83%
Thus number pf periods = 6 * 12 = 72
Interest rate for another 9 years = 8%
Monthly interest rate = 8% / 12 = 0.67%
Number of period = 8 * 12 = 96
Use the below formula to find the present value of the annuity.
[tex]\text{Present value of annuity} =\frac{A(1-(1+r)^{-n})}{r} \\\\= \frac{1300(1-(1+0.0083)^{-72})}{0.0083} + \frac{1300(1-(1+0.0067)^{-96})}{0.0067} \\= 162075.97 dollars.[/tex]
Caspion Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 2.5 kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the next five months is as follows:
August 30,600 units
September 18,800 units
October 31,800 units
November 26,500 units
December 29,000 units
The company wants to maintain monthly ending inventories of Jurislon equal to 17% of the following month's production needs. On July 31, this requirement was not met since only 10,400 kilograms of Jurislon were on hand. The cost of Jurislon is $19 per kilogram. The company wants to prepare a Direct Materials Purchase Budget for the next five months.
The total cost of Jurislon to be purchased in August is:
a) $1,438,310
b) $1,407,710
c) $1,415,700
d) $1,484,210
Answers
Answer:
I think it's (B)
I hope that's right
feels energized coming to work and loves her office environment. She feels comfortable asking fellow workers for help, and they are more than happy to oblige. The team even has dinners together every Thursday after work. What aspect of the company is Kristin happy with
Answers
Answer:
a. Organization culture
Explanation:
Organization culture refers to the working culture in an organization in which the employees behavior, rules, regulations, procedures, policies, plans are applied
Other than this, it also involves incentive schemes, flexible time, cab service, medical insurance, and other perks
Since in the given situation, she feels energized and lover her office environment also they have team dinners on every Thursday after work
So this represents the organization culture
Skysong Importers provides the following pension plan information. Fair value of pension plan assets, January 1, 2017 $2,177,000 Fair value of pension plan assets, December 31, 2017 2,559,000 Contributions to the plan in 2017 309,000 Benefits paid retirees in 2017 359,000 From the data above, compute the actual return on the plan assets for 2017. Actual Return on Plan Assets for 2017 is:
Answers
Answer:
$432,000
Explanation:
The computation of the actual return on the plan assets for the year 2017 is shown below:
Fair Value of plan as Dec 31,2017 $2,559,000
Less:
Fair Value of plan as Jan 1 , 2017 (-$2,177,000)
Increase in fair value $382,000
Less:-Contributions to the plan -$309,000
Add: Benefits to paid to retiree $359,000
Actual return on plan assets for 2017 $432,000
Odeletta Corporation is considering an investment of in a land development project. The investment will yield cash inflows of per year for five years. The company uses a discount rate of 9%. What is the net present value of the investment?
Answers
Answer: $337,800
Explanation:
Cashflow is constant so is an annuity.
The Present value of the Investment;
= Present Value of Cashflow - Investment cost
= (220,000 * Present value interest factor of an annuity, 5 years, 9% ) - 518,000
= (220,000 * 3.89) - 518,000
= 855,800 - 518,000
= $337,800
Regatta, Inc., has six-year bonds outstanding that pay an 8.25 percent coupon rate. Investors buying the bond today can expect to earn a yield to maturity of 6.875 percent. How much will you be willing to pay for Regatta's bond today? Assume annual coupon payments. (Do not round intermediate computations. Round your final answer to the nearest dollar.)
Answers
Answer:
$1,065.76
Explanation:
Years to maturity = 6
Coupon rate = C=8.25%
Annual coupon = $1,000 * 0.0825 = $82.50
Current market rate = i = 6.875%
Present value of bond = 82.5 * PVIFA(6.875%,6) + 1,000 * PVIF(6.875%,6)
Present value of bond= 82.5 * 4.7850 + 1,000 * 0.6710
Present value of bond= 394.7625 + 671
Present value of bond= 1065.7625
Present value of bond= $1,065.76
Which of the following are examples of interest rate futures contracts?
a. Corporate bonds
b. Treasury bonds
c. Eurodollars
d. T Bonds and Eurodollars
e. Corporate bonds and Treasury Bonds
f. Bitcoin Index futures
g. None of the above.
Answers
Answer:
Option D, T Bonds and Eurodollars , is the right answer.
Explanation:
Option D is correct because the future contract or interest rate future is the instruments that pay or offer the interest. However, the contract is an agreement on which buyer and seller are agreed for the future delivery of any interest that the asset bears. However, this contract gives the offer to the buyer and seller to lock the price of the asset that bears the interest in a future date. Moreover, this instrument is not a market traded instrument, these are the instrument used for a cash settlement. Thus, the same can be seen with option D. thus it is correct.
If antitrust laws did not prohibit efforts to restrict competition in markets, then:________
A. attempts at collusion with rival firms would probably often fail.
B. all firms in the economy would earn negative economic proht in the long run.
C. all firms in the market would earn zero economic profit in the long run.
D. no firms would attempt to collude on price and/or quantity.
E. attempts at collusion with rival firms on price and or/quantity would succeed all the time.
Answers
Answer:
A. attempts at collusion with rival firms would probably often fail.
Explanation:
An antitrust law can be defined as a statute or legal framework developed by the federal and state government of the United States of America, which regulates the actions and conducts of business entities so as to protect end users (customers) from predatory business activities and to boost competitiveness among businesses.
In the United States of America, an example of an antitrust law is the Sherman Act of 1890.
Generally, if antitrust laws did not prohibit efforts to restrict competition attempts at collusion with rival firms would probably often fail.
Collusion can be defined as an illegal, secret and uncompetitive agreement between rivalry parties in attempt to destroy the market equilibrium through actions such as illegal-pricing.
You are considering purchasing stock in Canyon Echo. You feel the company will increase its dividend at 4.1 percent indefinitely. The company just paid a dividend of $3.20 and you feel that the required return on the stock is 10.3 percent. What is the price per share of the company's stock?
Answers
Answer:
Price of stock = $53.73
Explanation:
The Dividend Valuation Model is a technique used to value the worth of an asset. According to this model, the worth of an asset is the sum of the present values of its future cash flows discounted at the required rate of return.
The model is given as
P = D×(1+g)/(r-g)
P- price, D- dividend payable now , r -cost of equity, g - growth rate in dividend
DATA:
P= ?
D- 3.20
g- 4.1%
r-10.3%
Price of stock = 3.20× 1.041/(0.103-0.041) = 53.73
Price of stock = $53.73
Delegating greater authority to subordinate managers and employees A. creates a more horizontal or flatter organization structure with fewer management layers and usually acts to shorten organizational response times. B. usually slows down decision-making because so many more people are involved and it takes longer to reach a consensus on what to do and when to do it. C. can be a de-motivating factor because it requires people to take responsibility for their decisions and actions without being financially compensated. D. is very, very risky and should be avoided at all costs. E. enhances greater cross-unit coordination and aids the capture of strategic fit benefits across unrelated businesses.
Answers
Answer:
A. creates a more horizontal or flatter organization structure with fewer management layers and usually acts to shorten organizational response times.
Explanation:
A horizontal organizational structure can be defined as the most flexible, where there is the greatest delegation of authority to manager and subordinate employees, that is, this is a less hierarchical and less bureaucratic structure, as employees have greater autonomy to make decisions.
The main advantages of the horizontal organizational structure are the formation of multifunctional teams, where a greater conception of innovative ideas can emerge to solve problems and achieve the company's goals and objectives, in addition to reducing organizational response time and employee motivation, which they feel more engaged at work due to the less bureaucracy of processes.
Laurel, Inc., and Hardy Corp. both have 8 percent coupon bonds outstanding, with semiannual interest payments, and both are currently priced at the par value of $1,000. The Laurel, Inc., bond has five years to maturity, whereas the Hardy Corp. bond has 16 years to maturity. a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of each bond
Answers
Answer:
Laurel bond will decrease by 7.72%
Hardy bond will decrease by 15.8%
Explanation:
current bond price $1,000
interest rate 8%
Laurel bond matures in 5 years, 10 semiannual payments
Hardy bonds matures in 16 years, 32 semiannual payments
if market interest increases to 10%
Laurel bond:
$1,000 / (1 + 5%)¹⁰ = $613.91
$40 x 7.7217 (annuity factor, 5%, 10 periods) = $308.87
market price = $922.78
% change = -7.72%
Hardy bond:
$1,000 / (1 + 5%)³² = $209.87
$40 x 15.80268 (annuity factor, 5%, 32 periods) = $632.11
market price = $841.98
% change = -15.8%
Martha did not like her job as a receptionist, so she quit and is looking for one that better suits her artistic talents. Ting Pei would like to work, but employers are not willing to hire him because he does not speak English. Martha is ______ unemployed and Ting Pei is ______ unemployed.
Answers
Answer:
frictionally; structurally
Explanation:
Frictional unemployment is a type of unemployment which occurs when a person is unemployed between the period between which she leaves her job and finds another one.
Structural unemployment is a type of unemployment which occurs due to the difference in the skills of the workers available in the economy and the skills which are required by the employers.
The skill required here is the ability to speak English and Pei doesn't possess this skill.
Which of the following policy actions do the authors propose to offset the negative consequences of rising income inequality? Choose one or more:________. A. modestly lower average tax rates B. modestly higher average tax rates C. a relatively modest boost in the historical growth rate of government redistributive transfers D. a relatively modest drop in the historical growth rate of government redistributive transfers
Answers
Answer: B. modestly higher average tax rates.
C. a relatively modest boost in the historical growth rate of government redistributive transfers.
Explanation:
The policy actions that authors propose to offset the negative consequences of rising income inequality are modestly higher average tax rates and the relatively modest boost in the historical growth rate of government redistributive transfers.
"An investor has sold short stock worth $80,000 in a margin account, depositing the Regulation T margin requirement. If the market value of the stock falls to $65,000, what is the SMA in the account?"
Answers
Answer:
$15000.
Explanation:
The worth of stock that the investor sold = $80000
The fall in the market value of the stock = $65000
Since the value of the stock falls to $65000. thus, the SMA in the account can be calculated by eliminating the decreased amount from the stock value. Therefore, the SMA in the account will be 80000-65000 = $15000
Prepare the journal entry to record Regis’s employer payroll taxes resulting from the January 8 payroll. Regis’s state unemployment tax rate is 5.4% of the first $7,000 paid to each employee. The federal unemployment tax rate is 0.6%.
Answers
Answer:
1a.
FICA-Social Security 5,369.20
FICA-Medicare 1,255.70
FUTA 519.60
SUTA 4,676.40
1B.
Dr Office salaries expense 25,760.00
Dr Sales salaries expense 60,840.00
Cr FICA—Social sec. taxes payable 5,369.20
Cr FICA—Medicare taxes payable 1,255.70
Cr Employee fed. inc. taxes payable 12,760.00
Cr Employee medical insurance payable 1,440.00
Cr Employee union dues payable 780.00
Cr Salaries payable 64,995.10
2.
Dr Payroll taxes expense 11,820.90
Cr FICA—Social sec. taxes payable 5,369.20
Cr FICA—Medicare taxes payable 1,255.70
Cr State unemployment taxes payable 4,676.40
Cr Federal unemployment taxes payable 519.60
Explanation:
1a. Calculation for the amounts for each of these four taxes of Regis Company.
REGIS Company’s:
Tax January 8 earnings
Subject to tax ×Tax Rate= Tax Amount
FICA-Social Security
86,600× 6.20%= 5,369.20
FICA-Medicare 86,600×1.45%= 1,255.70
FUTA 86,600×0.60%=519.60
SUTA 86,600× 5.40% =4,676.40
1B. Preparation of the journal entry to record Regis Company's January 8 employee payroll expenses and liabilities
Jan 8
Dr Office salaries expense 25,760.00
Dr Sales salaries expense 60,840.00
Cr FICA—Social sec. taxes payable 5,369.20
Cr FICA—Medicare taxes payable 1,255.70
Cr Employee fed. inc. taxes payable 12,760.00
Cr Employee medical insurance payable 1,440.00
Cr Employee union dues payable 780.00
Cr Salaries payable 64,995.10
2. Preparation of the journal entry to record Regis's employer payroll taxes resulting from the January 8 payroll
Jan 8
Dr Payroll taxes expense 11,820.90
(5,369.20+1,255.70+4,676.40+519.60)
Cr FICA—Social sec. taxes payable 5,369.20
Cr FICA—Medicare taxes payable 1,255.70
Cr State unemployment taxes payable 4,676.40
Cr Federal unemployment taxes payable 519.60
Calculation for the amount Subject to tax
Office salaries $25,760
Sales salaries $60,840
Subject to tax=$86,600
On April 1, Larken Corp. pays $36,000 for 3 years of rent. The transaction is appropriately recorded as prepaid rent. The adjusting entry on December 31, of the same year, will require a (Select all that apply.)
Answers
Answer:
DR Prepaid rent
CR Rent expense
Explanation:
Based on the information given about Larken Corp in which we were been told that Larken Corp pays the rent amount of $36,000 for conservatively 3 years.
Hence since the transaction that occured is recorded as prepaid rent, this means that the adjusting entry on December 31 will be:
DR Prepaid rent
CR Rent expense
Which one of the following situations is most likely to occur today for a stock that went down in price yesterday?
A) The stock has no predictable price-change pattern.
B) The stock has a 30% chance of decreasing in price.
C) The stock will decrease in price.
D) The stock will increase in price.
Answers
The valuation calculating the present value of a future cash flow to determine its value today is called __________ valuation.
Answers
Answer:
Discounted cash flow(DCF).
Explanation:
This is explained to be an investment analysis model which is seen to calculate the value of investment on the basis of its future value. Thus evaluation model is seen to be discounted back to a present value in which time value of money is been used as a factor and is been put into consideration. It is also explained that investment’s worth is equal to the present value of all projected future cash flows. Cases directs us to see that boards are seen to subtract the amount spent on the investment from the present value of future cash flows to calculate the net present value of the investment. Therefore, they can easily sum how much the investment will make in today’s dollars and compare it with the cost of the investment.
If the risk-free interest rate is 8% per year, what must be the price of a 3-month put option on P.U.T.T. stock at an exercise price of $90
Answers
Answer:
(a) The price of a 3-month put option on P.U.T.T. stock at an exercise price of $90 is $5.28.
(b) The stock price will have to move in either direction by $12.24 for you to make a profit on your initial investment when time value of money is NOT taken into consideration. However, Therefore, the stock price will have to move in either direction by $12.52 for you to make a profit on your initial investment when time value of money is taken into consideration.
Explanation:
Note: This question is not complete. The complete question is therefore provided before answering the question as follows:
The explanations to the answers are now given as follows:
a. If the risk-free interest rate is 8% per year, what must be the price of a 3-month put option on P.U.T.T. stock at an exercise price of $90? (The stock pays no dividends.)
This can be computed using put-call parity theorem (PCPT) which is employed when we know the price of either put or call option as well as the current stock price, exercise price, interest rate, and the option period.
PCPT formula is given as follows:
VS + P – C = E / (1 + r)^t ……………………………….. (1)
Where, for this question;
VS = Current price of the stock = $90
P = Price of put option = ?
C = Price of call option = $7
E = Exercise price = $90
r = risk-free interest rate = 8%, or 0.08
t = period of option = 3 months / 12 months = 0.25
Substituting the values into equation (1) and solve P, we have:
$90 + P - $7 = $90 / (1 + 0.08)^0.25
$83 + P = $90 / 1.08^0.25
$83 + P = $90 / 1.01942654690827
$83 + P = $88.2849286914817
P = $88.2849286914817 - $83
P = $5.28
Therefore, the price of a 3-month put option on P.U.T.T. stock at an exercise price of $90 is $5.28.
b. A straddle would be a simple options strategy to exploit your conviction about the stock price’s future movements. How far would it have to move in either direction for you to make a profit on your initial investment?
To determine this, we have to compute the total cost of the straddle. Since a straddle option refers to the purchase of both a put and a call on the stock, the total cost of the straddle can be calculated as follows:
Total cost of the straddle = Price of the put option + Price of the call option ………….. (2)
Since Price of put option is $5.24 as computed in part a and the price of a call option is $7 as already given in the question, we substitute these into equation (2) and have:
Total cost of the straddle = $5.28 + $7 = $12.28
Therefore, the stock price will have to move in either direction by $12.24 for you to make a profit on your initial investment when time value of money is NOT taken into consideration.
To account for the time value of money, we compute the future value (FV) of the Total cost of the straddle as follows:
FV of the Total cost of the straddle = Total cost of the straddle / (1 + r)^t ………………….. (3)
Where;
Total cost of the straddle = $12.28
r = risk-free interest rate = 8%, or 0.08
t = time of the put option in a year = 3 months / 12 months = 0.25
Substituting the values into equation (3), we have:
PV of the Total cost of the straddle = $12.28 * (1 + 0.08)^0.25
PV of the Total cost of the straddle = $12.28 * 1.08^0.25
PV of the Total cost of the straddle = $12.28 *1.01942654690827
PV of the Total cost of the straddle = $12.52
Therefore, the stock price will have to move in either direction by $12.52 for you to make a profit on your initial investment when time value of money is taken into consideration.
Explain how the analysis of nonprofit and governmental financial statements differs from analysis of traditional financial statements
Answers
Answer with Explanation:
The analysis includes the assessment of Non profit organization's efficiency both in fundraising and spending, economy of operations and the effectiveness of the operations. This can be explained with an example. For example if the non profit organization has an objective to increase the book reading habit because it believes that the people who read more are not violent personalities and in this way they can reduce the crime rate. So it has established number of libraries in different communities. Now we will look at at what cost it has acquired these libraries (Economy), how much people have visited these libraries (Efficiency) and whether the crime rate in the community has sufficiently fallen or not (Effectiveness). So this helps in understanding whether the objective was met or not.
However when we analyze the financial statement of profit making organizations then we use many profit and efficiency ratios to assess the performance of the organization. These ratios can also be helpful if the NGO is in business as well. But most of the NGOs rely on grants and these grants are subjective to their previous performance.
The NGOs are also required to publish reports according to the grant provider's enforced accounting principles, rules and guidelines. Just take the example of US-AID program that requires the Non profit organization to publish financial reports in specific format and enforces different Generally Acceptable Principles to be used in preparing these financial reports. So yes it is much more different in analyzing the financial statements of Non profit organization and profit making organization.