For each of the scenarios, please decide whether there will be an increase or decrease in short-run aggregate supply or if there will be no change. 1. Changes in the healthcare market cause employers to pay significantly more for health insurance they provide employees.
2. The price of lumber, a commodity, rises drastically due to the effect of heavy winter weather in the American Northwest, where much of the world's lumber is grown.
3. The production of a new type of blade for their combine harvesters, a tractor used to harvest crops, has allowed wheat farmers, like Herbert, to increase productivity by 40%.

Answers

Answer 1
Answer:

Answer:

1.Aggregate supply falls

2.Aggregate supply falls  

3.Aggregate supply rises due to rise in productivity.

           

Explanation:

1. In simple words, when the cost of production rises the profit margin of the supplier decreases leading as an incentive to supply less.      

2. If the price of the input rises the cost of production also rises leading to lower supply because of lower profit margins.

3. The technological improvement leading to high production would lead to more profits and advantage of economies of scale thus working as an invective to supply more.


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IF COUNTRIES FIND WAYS OF IMPROVING THEIR FACTOR OF PRODUCTIVITY

Answers

Answer:

THEIR FACTOR OF PRODUCTIVITY will increase.

Shown below are selected data from the financial statements of the Supreme Company. (Dollar amounts are in millions, except for the per share data). Income statement data:

$'000
Net sales $1,230
Cost of goods sold $520
Operating expenses $440
Net income $390
Balance sheet data:

$'000
Average total equity $2,400
Average total assets $4,000
Supreme reported earnings per share for the year of $4 and paid cash dividends of $1 per share.

At year-end, the Wall Street Journal listed Supreme's capital stock as trading at $88 per share.

Required:

Compute the following:

a). Gross profit rate

b). Supreme's operating income (in millions)

c). Return on assets

d). Return on equity

e). Price-earning ratio

Answers

Answer:

a. Gross profit rate =   Gross profit / sales

                              = $710,000 * 100

                                       $1,230,000

                              =  57.72%

b. Supreme Operating Income

Gross Profit                           $710,000

Operating expenses             (440,000)

Operating Profit                     270,000

c. Return on Asset  =   Return/  Average Asset

                                =   $390,000 * 100

                                       $4,000,000

                             =   9.75%

d. Return on equity  =   Return / Average equity

                                 =   $390,000 * 100

                                        $2,400,000

                               =      16.25%

e. Price-earnings ratio  =  Market price per share / earnings per share

                                       =   $88/ $4  

                                       =  22

Explanation:

Computation of Gross profit

                                                $'000

Net Sales                                1,230

Cost of goods sold                 (520)

Gross Profit                              710  

EB7. LO 1.4Indicate whether each of the following statements is true or false.

Section 302 of Sarbanes-Oxley requires the CEO and CFO to review all financial reports and sign the reports.
One of the three questions put forth by the Institute of Business Ethics is "Do I mind others knowing what I have done?"
Ethical issues may be faced on a small scale, such as making a business decision to produce excess inventory for the sole purpose of trying to influence managers’ bonuses.
A manager who spends excess budgeted funds remaining at the end of a fiscal year on unnecessary expenditures thinking that it is better to "use it than lose it" is acting ethically.
The Foreign Corrupt Practices Act was implemented in 2001 to protect investors by enhancing the accuracy and reliability of corporate financial statements and disclosures.

Answers

Answer:

Statement 1, 2  and 3 are correct whereas statement 4 and 5 are false statements.

Explanation:

Statement 1 is correct because Section 302 of Sarbanes-Oxley states that the principal executive and the CFO must review the report and sign it as well to certify that these reports are accurate.

Statement 2 is correct because it is one of the 3 questions put forth by the Institute of Business Ethics.

Statement 3 is correct because ethical issues can be faced on smaller scale. It can be faced while purchasing from small stores where they we can easily manipulate the facts.

Statement 4 is false because a manager who is manipulating facts is not acting ethically.

Statement 5 is also incorrect because Foreign Corrupt Practices Act was enacted to restrain people and entities to bribe government officials of other countries for assistance in obtaining or restraining business.

Final answer:

Section 302 of Sarbanes-Oxley requires CEO and CFO to review and sign financial reports. Institute of Business Ethics question is about others knowing what one has done. Ethical issues can be faced on a small scale like influencing bonuses. Manager spending excess funds is not ethical. Foreign Corrupt Practices Act protects investors.

Explanation:

Section 302 of Sarbanes-Oxley requires the CEO and CFO to review all financial reports and sign the reports. (True)

  1. One of the three questions put forth by the Institute of Business Ethics is "Do I mind others knowing what I have done?" (True)
  2. Ethical issues may be faced on a small scale, such as making a business decision to produce excess inventory for the sole purpose of trying to influence managers’ bonuses. (True)
  3. A manager who spends excess budgeted funds remaining at the end of a fiscal year on unnecessary expenditures thinking that it is better to "use it than lose it" is NOT acting ethically. (False)
  4. The Foreign Corrupt Practices Act was implemented in 2001 to protect investors by enhancing the accuracy and reliability of corporate financial statements and disclosures. (True)

Learn more about Business here:

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On January 1 st, you make plans to travel to Switzerland the following summer. The direct quote for Swiss francs is $0.30.Since it will be a short trip, you believe $3000 in spending money will be sufficient. On June 1 st, the direct quote for Swiss francs is $0.40.As a result, How much Swiss francs will buy your $3000.

Answers

Answer:

On January 1st, the $3,000 could buy 10,000 Swiss francs (3,000/0.3).

On June 1st, the $3,000 would buy 7,500 Swiss francs (3,000/0.4).

Explanation:

On January 1st, each Swiss francs could only purchase $0.30 while on June 1st, each Swiss francs could purchase $0.40.

These show that the Swiss francs had appreciated in value relative to the US Dollars with a positive change of 33%.  Therefore, the dollar had weakened against the Swiss francs by the same rate.

Answer:

7500 Swiss francs

Explanation:

Working

January 1, Swiss francs = $0.3

$3000 will by 3000/0.3 = 10,000 Swiss francs.

June 1 , Swiss Francs = $ 0.4

$3000 will buy 7500 Swiss francs.

This also mean that in January 3.33 Swiss francs will buy 1 $

In June 1 , 2.5 Swiss francs will buy one dollar.

This shows that Swiss francs has appreciated in value against dollar over the months

4th Time posting same QUSETION; I have due on tomorrow assignment; please some one help and provide correct answer.Problem 9-17
WACC Estimation

The table below gives the balance sheet for Travellers Inn Inc. (TII), a company that was formed by merging a number of regional motel chains.

Travellers Inn: December 31, 2012 (Millions of Dollars)
Cash $10 Accounts payable $10
Accounts receivable 20 Accruals 10
Inventories 20 Short-term debt 5
Current assets $50 Current liabilities $25
Net fixed assets 50 Long-term debt 30
Preferred stock 5
Common equity
Common stock $10
Retained earnings 30
Total common equity $40
Total assets $100 Total liabilities and equity $100
The following facts also apply to TII:

1. Short-term debt consists of bank loans that currently cost 8%, with interest payable quarterly. These loans are used to finance receivables and inventories on a seasonal basis, bank loans are zero in the off-season.

2. The long-term debt consists of 30-year, semiannual payment mortgage bonds with a coupon rate of 8%. Currently, these bonds provide a yield to investors of rd= 12%. If new bonds were sold, they would have a 12% yield to maturity.

3. TII's perpetual preferred stock has a $100 par value, pays a quarterly dividend of $2.50, and has a yield to investors of 11%. New perpetual preferred would have to provide the same yield to investors, and the company would incur a 3% flotation cost to sell it.

4. The company has 4 million shares of common stock outstanding. P0 = $20, but the stock has recently traded in price the range from $17 to $23. D0 = $1 and EPS0 = $2. ROE based on average equity was 26% in 2008, but management expects to increase this return on equity to 31%; however, security analysts and investors generally are not aware of management's optimism in this regard.

5. Betas, as reported by security analysts, range from 1.3 to 1.7; the T-bond rate is 10%; and RPM is estimated by various brokerage houses to be in the range from 4.5% to 5.5%. Some brokerage house analysts reports forecast dividend growth rates in the range of 10% to 15% over the foreseeable future.

6. TII's financial vice president recently polled some pension fund investment managers who hold TII's securities regarding what minimum rate of return on TII's common would make them willing to buy the common rather than TII bonds, given that the bonds yielded 12%. The responses suggested a risk premium over TII bonds of 4 to 6 percentage points.

7. TII is in the 35% federal-plus-state tax bracket.

8. TII's principal investment banker predicts a decline in interest rates, with rd falling to 10% and the T-bond rate to 6%, although the bank acknowledges that an increase in the expected inflation rate could lead to an increase rather than a decrease in interest rates.

Assume that you were recently hired by TII as a financial analyst and that your boss, the treasurer, has asked you to estimate the company's WACC under the assumption that no new equity will be issued. Your cost of capital should be appropriate for use in evaluating projects that are in the same risk class as the assets TII now operates. Do not round intermediate steps. Round your answer to two decimal places.

%

NOTE:

Wrong Answers:
14.29% & 14.76% --> Please someone give me right answer, I am posting same question 4th time; please dont post spam.

--> It's Problem 9-17 of mangerial finance course WACC Estimation problem; required to consider above table with given 8 assumption to get WACC value; it will be only one answer liike 15.12%; 17.32%.....

Answers

Answer:

Explanation:

(1) Cost of short-term debt after tax : 8% ( 1 – tax rate)

                                                                 = 8% ( 1 – 35%)

                                                                = 8% (65%)

                                                                = 5.2%

Market value of Short term debt ( in million $) = 5

(2) Cost of long-term debt after tax: 8% ( 1 – tax rate)

                                                 = 8% ( 1 – 35%)

                                                 = 8% (65%)

                                                 = 5.2%

Market value of long term debt ( in $ million) = ( par value of Debt * coupon rate) / Yield

                                                                                 = (30 * 8%) / 12%

                                                                                  = 2.4 / 12%

                                                                                  = 20

(3) Market price of preferred stock = annual Dividend / Yield to investor

                                                              = ($2.50*4) / 0.11

                                                              = $ 10 / 0.11

                                                              = $ 90.909

     

Cost of new preferred stock = Annual dividend / Current market price – floatation cost

                                                        = ($2.50*4) / $ 90.909 – ( 3% * $ 90.909)

                                                        = $ 10 / $ 90.909 – $ 2.727

                                                        = $ 10 / $ 88.182

                                                        = 0.1134

                                                        = 11.34%

Market value of Preferred stock ($ millions) = Par value of Preferred * Annual Dividend rate / Yield

                                                                              = 5 * ( $ 10 / $ 100) / 0.11

                                                                             = 5 * 0.1 / 0.11

                                                                             = 0.5 / 0.11

                                                                             = 4.545454

(4)  Market value of Common stock ($ millions) = No of common stock outstanding * Current market price

                                                                             = 4 * 20

                                                                             = 80

Retention ratio = (1 – dividend pay-out ratio)

                           = (1 – $1 / $ 2)

                          = (1 – 0.5)

                          = 0.5

                          = 50%

Growth rate = return on equity * retention ratio

                      = 26% * 0.5

                      = 13%

Cost of common stock (Alternative 1) = (Dividend for next year / Current market price) + growth rate

                                                                  = [1 ( 1+ 0.13) / 20 ] + 13%

                                                                  = [1 ( 1.13) / 20 ] + 13%

                                                                  = [1.13 / 20 ] + 13%

                                                                 = 5.65% + 13%

                                                                 = 18.65%

Cost of common stock (alternative 2) = Risk free rate + Beta (Market risk premium)

                                                                 = 10% + [(1.3 + 1.7)/2] [(4.5% + 5.5%) /2]

                                                                = 10% + [(1.3 + 1.7)/2] [(4.5% + 5.5%) /2]

                                                               = 10% + (1.5)( 5%)

                                                               =10% + 7.5%

                                                              = 17.5%

                     

Cost of Common stock (Alternative 3) = Yield on TII Bond + Average Risk premium

                                                                       = 12% + (4% + 6%) / 2

                                                                       = 12% + (10%) / 2

                                                                       = 12% + 5%

                                                                       = 17%

Cost of common stock = Highest of Alternative 1, Alternative 2 & Alternative 3

                                         = Highest of (18.65%, 17.5% and 17%)

                                        = 18.65%

Answer : Weighted Average cost of capital (WACC) of Company is 15.28% (take a look to the document attached)

Starset, Inc., has a target debt-equity ratio of 1.15. Its WACC is 8.6 percent, and the tax rate is 21 percent.Required:
a. If the company's cost of equity is 14 percent, what is its pretax cost of debt?
b. If instead you know that the aftertax cost of debt is 6.1 percent, what is the cost of equity?

Answers

Answer:

a. 4.94%

b. 11.48%

Explanation:

Here in this question, we are interested in calculating the pretax cost of debt and cost of equity.

We proceed as follows;

a. From the question;

The debt equity ratio = 1.15

since Equity = 1 ; Then

Total debt + Total equity = 1 + 1.15 = 2.15

Mathematically ;

WACC = Cost of equity x Weight of equity + Pretax Cost of debt x Weight of debt x (1-Tax rate)

Where WACC = 8.6%

Cost of equity = 14%

Weight of equity = 1/(total debt + total equity) = 1/(1+1.15) = 1/2.15

Pretax cost of debt = ?

Weight of debt = debt equity ratio/total cost of debt = 1.15/2.15

Tax rate = 21% = 0.21

Substituting these values, we have;

8.6% = 14% x 1/2.15 + Pretax cost of debt x 1.15/2.15 x (1-21%)

8.6% = 14% x 1/2.15 + Pretax cost of debt x 1.15/2.15 x (1-21%)

Pretax cost debt = (8.6%-6.511628%)/(1.15/2.15 x (1-21%))

Pretax cost of debt = 4.94%

b. WACC = Cost of equity x Weight of equity + After tax Cost of debt x Weight of debt

8.6% = Cost of equity x 1/2.15 + 6.1% x 1.15/2.15

Cost of equity = (8.6%-3.26279%)/(1/2.15)

Cost of equity = 11.48%

Other Questions
Transfer Pricing, Idle Capacity Mouton & Perrier, Inc., has a number of divisions that produce liquors, bottled water, and glassware. The Glassware Division manufactures a variety of bottles that can be sold externally (to soft-drink and juice bottlers) or internally to Mouton & Perrier's Bottled Wat Division. Sales and cost data on a case of 24 basic 12-ounce bottles are as follows Unit selling price Unit variable cost Unit product fixed cost* Practical capacity in cases $350,000/500,000 During the coming year, the Glassware Division expects to sell 390,000 cases of this bottle. The Bottled Water Division currently plans to buy 100,000 cases on the outside market for $2.95 each. Ellyn Burridge, manager of the Glassware Division, approached Justin Thomas, manager of the Bottled Water Division, and offered to sell the 100,000 cases for $2.89 each. Ellyn explained to Justin that she can avoid selling costs of $0.12 per case by selling internally and that she would split the savings by offering a $0.06 discount on the usual price $2.95 $1.25 $0.70 500,000 Required 1. What is the minimum transfer price that the Glassware Division would be willing to accept? Round to the nearest cent. per unit What is the maximum transfer price that the Bottled Water Division would be willing to pay? Round to the nearest cent. per unit Should an internal transfer take place? Yes What would be the benefit (or loss) to the firm as a whole if the internal transfer takes place? Benefit V $ 2. Suppose Justin knows that the Glassware Division has idle capacity. Do you think that he would agree to the transfer price of $2.89? No Suppose he counters with an offer to pay $2.40. If you were Ellyn, would you be interested in this price? Yes 3. Suppose that Mouton & Perrier's policy is that all internal transfers take place at full manufacturing cost. What would the transfer price be? Round to the nearest cent. per unit