a. How much money will they have accumulated 30 years from now?

b. If the goal is to retire with $800,000 savings, how much extra do they need to save every year?

Answer:

**Answer:**

a. $408,334.39

b. $3,457.40

**Explanation:**

r = rate per period = 8% = 0.08

P = Initial Value of Gift = $10,000

t = time = 30 - 5 = 25, As received after 5 years.

A = $10,000 x 6.8485

A = $68,484.75

P = Periodic Payment = $3,000

**a.**

n = number of periods = 30

FV of annuity = $3,000 x 113.2832

FV of annuity = $339,849.63

Accumulated value of money can be calculated as follows;

$68,484.75 + $339,849.63

**$408,334.39**

**b.**

If they wish to retire with $800,000 savings, they need to save additional amount of money every year to provide additional amount of money, as follows;

$800,000 - $68,484.75

$731,515.24

The extra annual savings can be calculated as follows;

$731,515.24 = P x 113.28

Divide the above equation by 113.28 we get;

P = $6,457.40

They are already paying $3,000, So the extra saving they need make every year is calculated as follows;

$6,457.40 - $3,000

**$3,457.40**

Stark Company's most recent balance sheet reported total assets of $1.82 million, total liabilities of $0.84 million, and total equity of $0.98 million. Its Debt to equity ratio is:

Suppose that just by doubling the amount of output that it produces each year, a firm s per-unit production costs fall by 30 percent. This is an example of: a. technological advance. b. the demand factor. c. economies of scale. d. improved resource allocation.

Snap On Inc has a beta of 2.67 and the expected market return is 0.19. In addition, Treasury bills (risk-free asset) are currently yielding 0.02. Find the expected return for Snap On Inc.

A survey asks 1200 workers, "Has the economy forced you to reduce the amount of vacation you plan to take this year?" Forty-six percent of those surveyed say they are reducing the amount of vacation. Twenty workers participating in the survey are randomly selected. The random variable represents the number of workers who are reducing the amount of vacation. Decide whether the experiment is a binomial experiment. If it is, identify a success, specify the values of n, p, and q, and list the possible values of the random variable x. Is the experiment a binomial experiment?

20. WACC and NPV [LO3, 5] Sommer, Inc., is considering a project that will result in initial aftertax cash savings of $2.3 million at the end of the first year, and these savings will grow at a rate of 2 percent per year indefinitely. The firm has a target 4.6 percent. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment factor of +3 percent to the cost of capital for such risky projects. Under what circumstances should the company take on the project?

Suppose that just by doubling the amount of output that it produces each year, a firm s per-unit production costs fall by 30 percent. This is an example of: a. technological advance. b. the demand factor. c. economies of scale. d. improved resource allocation.

Snap On Inc has a beta of 2.67 and the expected market return is 0.19. In addition, Treasury bills (risk-free asset) are currently yielding 0.02. Find the expected return for Snap On Inc.

A survey asks 1200 workers, "Has the economy forced you to reduce the amount of vacation you plan to take this year?" Forty-six percent of those surveyed say they are reducing the amount of vacation. Twenty workers participating in the survey are randomly selected. The random variable represents the number of workers who are reducing the amount of vacation. Decide whether the experiment is a binomial experiment. If it is, identify a success, specify the values of n, p, and q, and list the possible values of the random variable x. Is the experiment a binomial experiment?

20. WACC and NPV [LO3, 5] Sommer, Inc., is considering a project that will result in initial aftertax cash savings of $2.3 million at the end of the first year, and these savings will grow at a rate of 2 percent per year indefinitely. The firm has a target 4.6 percent. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment factor of +3 percent to the cost of capital for such risky projects. Under what circumstances should the company take on the project?

**Answer:**

b. a natural response to a sudden increase in demand.

**Explanation:**

**Price gouging - **

It refers to the situation , when the seller increases the price of his services and goods to a very high level , which is a unethical situation , is referred to as **price gouging . **

The situation of price gouging , is very commonly observed in any natural disaster , where due to shortage of foods and other item , the price of the food increases to a very high price , is referred to as price gouging .

**Hence , from the question, **

**The correct option is b. **

**Common stockholders **bear the greatest risk of** loss **of value if a firm should fail.

There are two sorts of shareholders in a company: **common **shareholders and **preferred **shareholders. They are the owners of **common stocks**, as their name implies, in a corporation. These individuals enjoy voting rights over matters concerning the company.

A person who has acquired at least** one common share **of a **corporation **is referred to as a** common shareholder**. Common shareholders have entitled to **declared common dividends** as well as a **vote on corporate matters**. In the event of **bankruptcy**, common shareholders are **compensated last**, following preferred **shareholders **and **debtholders**.

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**Answer:**

a. What is owners’ equity for 2018 and 2019?

owners' equity 2018 = $8,435

owners' equity 2019 = $7,381

b. What is the change in net working capital for 2019?

-$463

c-1. In 2019, the company purchased $8,038 in new fixed assets. The tax rate is 23 percent. How much in fixed assets did the company sell?

net capital spending = $14,511 - $14,060 + $3,885 = $4,336

net capital spending = fixed assets purchased - sold

$4,336 = $8,038 - fixed assets sold

fixed assets sold = $3,702

c-2. What is the cash flow from assets for the year?

operating cash flow = EBIT + depreciation - taxes = $18,593 + $3,885 - $4,276 = $18,202

cash flow from assets = operating cash flow - change in net working capital - net capital spending = $18,202 - (-$463) - $4,336 = $14,329

d-1. During 2019, the company raised $2,479 in new long-term debt. What is the cash flow to creditors?

new long term debts = $8,419 (2019) - $7,377 (2018) = $1,042

cash flow form creditors = new long term debts - interests = $1,042 - $995 = $47

d-2. How much long-term debt must the company have paid off during the year?

new long term debts = new debt - retired debt

$1,042 = $2,479 - retired debt

retired debt = $2,479 - $1,042 = $1,437

a)The owners' **equity **for 2018 and 2019 is $8,435 and $7,381. b) The change in net working capital for 2019 is $463. c-1) The fix assets sell are $3,702, c2-The **cash **flow from assets for the year is $14,329. d-1)The cash flow to creditors is $47 and d-2)The long-term debt that the company must have paid off during the year is $1,437.

a)owners' **equity **2018 = $8,435 owners' equity 2019 = $7,381

b. The change in net working capital for 2019 is $463

c-1. The company purchased $8,038 in new fixed assets. The tax rate Is 23 percent. The fixed assets sold are:

net capital spending $14,511 $14,060+ $3,885-$4,336

net capital spending = fixed assets purchased-sold

$4,336 $8,038-fixed assets sold

fixed assets sold = $3,702

c-2. The cash flow from assets for the year is:

operating cash flow - EBIT + depreciation-**taxes **= $18,593 +$3,885- $4,276 $18,202

cash flow from assets = operating cash flow-change in net working capital- net capital spending $18,202 (-$463)-$4,336 $14,329

d-1. During 2019, the company raised $2,479 in new long-term **debt**. The cash flow to creditors is:

new long term debts = $8,419 (2019) - $7,377 (2018) = $1,042 cash flow form creditors = new long term debts interests $1,042 - $995 = $47

d-2. The long-term debt that the company must have paid off during the year is:

new long term debts = new debt-retired debt $1,042 $2,479 - retired debt

retired debt = $2,479 - $1,042 = $1,437

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**Answer:**

* Profit from buying the call with strike price of $50 after six months if:

- The stock price is $40: -$9

- The stock price is $50: -$9

- The stock price is $60: $1

* Profit from buying the put with strike price of $50 after six months if:

- The stock price is $40: $9

- The stock price is $50: -$1

- The stock price is $60: -$1

**Explanation:**

It is useful to recall that the call's buyer has the right but not the obligation to buy an underlying asset at strike price at expiration date; while the put's buyer has the right but not the obligation to sell an underlying asset at strike price at expiration date.

Explanation for each circumstances:

__*Profit from buying the call with strike price of $50 after six months if:__

- The stock price is $40: Do not exercise the call option as investor can buy from the market at $40 instead at the strike price of $50. Thus, investor will recognize a loss of $9 from buying the option.

- The stock price is $50: Market price is equal to strike price, investor will recognize a loss of $9 from buying the option.

- The stock price is $60: $1. Investor buy at strike price $50, sell in the market for $60 to get profit of $10, minus option price of $9, net gain is $1.

__* Profit from buying the put with strike price of $50 after six months if:__

- The stock price is $40: Investor buy from market at $40, sell through put option at $50, recognized the profit of $10. Net gain will be determined by further deducting of option price $1, to come at $9.

- The stock price is $50: Market price is equal to strike price, investor will recognize a loss of $1 from buying the option.

- The stock price is $60: Investor ignore the option as it can sell at market price of $60 instead of strike price $50. Net loss is option price $1.

Answer:

c. Bruce owns Buster, a large dog who barks whenever anyone walks near his house. Betty lives next to Bruce, and Buster's barking can be heard whenever anyone walks near her house, too. Thus, Betty receives free protection from burglars because of Buster's barking

Explanation:

Free rider is a form of market inefficiency that occurs when people benefit from a good or service but do not pay or underpay for the product.

Betty is receiving free protection from Bruce's dog.

I hope my answer helps you

**Answer:**

Which of the following is an example of the free-rider problem? Option C is the most suitable answer - Bruce owns Buster, a large dog who barks whenever anyone walks near his house. Betty lives next to Bruce, and Buster's barking can be heard whenever anyone walks near her house, too. Thus, Betty receives free protection from burglars because of Buster's barking.

**Explanation:**

In a situation whereby one party benefits without having to pay for the transaction themselves, and rather the other party pays for it, there would be an occurrence of the free-riding problem.

In the scenario described in the question, the neighbor is receiving benefits from burglars without having to pay for the security or dog.

Therefore, option C is the most suitable answer.

**Answer:**

Varga should recognize $4,000 as revenue in 2016.

**Explanation:**

As the cash received in advance is recorded as unearned revenue which is a liability for the Varga Tech Services because they did not provide the services yet. On December 31, Eight months have passed and services for these month has been provided. So the revenue of 8 month months of 2016 will be recognized and recorded at year end.

Serive Contract = $6,000 for 12 months

Revenue Recognized in 2016 = $6,000 x 8/12 = $4,000