The cost of a call option hedge for CVT's euro receivable contract is $50,407.20.
A call option is a contract that gives the holder the option, but not the obligation, to purchase an underlying asset at a predetermined price within a specific period. A call option, unlike a put option, is a bullish wager on the market, expecting the underlying price to rise prior to expiration. The buyer of the option pays a fee, known as a premium, to the option writer in return for the option. If the price of the underlying asset falls below the strike price before expiration, the buyer will not exercise the option and will let it expire. If the underlying asset's price rises above the strike price, the buyer will exercise the option and benefit from it.
Now, let's determine the cost of a call option hedge for CVT's euro receivable contract. Instruction 10.1 provides the following data:-
Spot exchange rate is $1.250/euro The six-month forward rate is $1.22/euro December call options for euro 750,000; strike price $1.28, premium price is 1.5%CVT's cost of capital is 11%.The firm will have a euro receivable of €3,000,000 from the contract to purchase light rail cars from the German manufacturer. The December call options would enable CVT to sell €750,000 in December at a strike price of $1.28 per euro. This would result in a $960,000 cash inflow. The premium on the call options is 1.5%, or €11,250. Therefore, the total cash inflow from the call options will be $960,000 - €11,250. €11,250 needs to be converted into dollars for making appropriate calculations using the spot rate, which is $1.250/euro.€11,250 x $1.250/euro = $14,062.5.The total cash inflow from the call options after conversion from euro to dollars is $960,000 - $14,062.5 = $945,937.5.The cost of the call option hedge is the premium that CVT will have to pay to the options writer. This premium cost will be the same as the cash inflow that the writer of the call options will receive.Cost of the call option = €11,250 = $14,062.5 (as calculated above)In future value dollars, the cost of the call option is $14,062.5 x (1 + 0.11)⁶ = $50,407.20 (rounded to the nearest cent).Therefore, the cost of a call option hedge for CVT's euro receivable contract is $50,407.20.
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. Why does Starbucks Coffee consider internal leadership such an important part of its core business process?
Answer:
Starbucks Coffee consider internal leadership an important aspect of its core business because it understands and appreciates the idea of planning for one's own succession.
Explanation:
Internal Leadership can be defined as an ability to oneself. Many times it is a neglected aspect of leadership, but a leader who knows how to lead himself have thriving possibility to lead others as well.
Starbucks Coffee is considered one of the companies in which people like to work. It is because Starbucks Coffee has given much importance to the aspect of internal leadership development. This aspect is usually overlooked in many companies but is accepted and adopted by Starbucks Coffee. The company understands that everyone has right to plan for one's own succession and thus keeps itself prepare for top-level-successors. The company provides an environment growth and becoming a successful leader to the educated employees that come for work in the company.
which research source needs to be carefully vetted to determine the expertise of the writer?
The research source that needs to be carefully vetted to determine the writer's expertise is "online blogs."
This is because online blogs can be created and written by anybody.
Using the findings or posts from blogs as a research source can be detrimental because it might be written based on opinions or someone else that has no adequate knowledge of the subject matter.
Therefore, to confirm the reliability of the post or materials on blogs, one needs to vet the writer's expertise carefully to know if the writer has adequate knowledge or authority about the topic.
Hence, in this case, the correct answer is "online blogs."
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View Policies Current Attempt in Progress A company issues $25850000, 7. 4%, 20-year bonds to yield 8% on January 1, 2020. Interest is paid on June 30 and December 31. The proceeds from the bonds are $24315069. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2020 balance sheet? (Round answer to O decimal place, e. G. 52. ).
The carrying value of the bonds on the December 31, 2020 balance sheet, using effective-interest amortization, will be $24,315,070.
To calculate the carrying value of the bonds, we need to consider the bond issuance proceeds, the interest payments, and the effective-interest amortization.
The bond issuance proceeds were given as $24,315,069. The interest is paid semi-annually on June 30 and December 31. The coupon rate is 7.4%, and the market yield is 8%.
Using the effective-interest amortization method, the carrying value of the bonds is adjusted based on the market yield and the remaining term of the bonds. As the market yield is higher than the coupon rate, the carrying value will be lower than the bond issuance proceeds.
By applying the effective-interest amortization, the carrying value of the bonds on the December 31, 2020 balance sheet is determined to be $24,315,070. This represents the adjusted value of the bonds at the end of the year, reflecting the amortization of the bond discount or premium.
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Where can water in the atmosphere come from? Select all possible answers.
A. oceans. B. plants. C. ice. D. puddles
Answer: A. It comes from oceans
Keyanna is thinking of marketing consulting as a potential future career. Identify each task associated with consulting as either producing research or consuming research.
1. collect and analyze data, and present the results to clients
2. keep up to date on current product trends
3. look at analyses conducted by other firms, and inform clients of the findings
4.test different marketing strategies to identify the best one
Producing research involves gathering and evaluating data, as well as presenting the findings to clients.
Consuming - One activity related to consuming research is staying current on market trends. This is due to the fact that current research or data on product trends are reviewed and analyzed rather than fresh research being conducted.
Generating - A task included in producing research is testing many marketing techniques to find the most effective one. This is due to the fact that it entails performing fresh research by testing various marketing methods and assessing the outcomes to establish the most effective course of action.
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Two cigarette manufacturers (Firm A and Firm B) are faced with lawsuits from states to recover the health care related expenses associated with cigarette smoking. Both cigarette firms have evidence that indicates that cigarette smoke causes lung cancer (and other related illnesses). State prosecutors do not have access to the same data used by the cigarette manufacturers and thus will have difficulty recovering full costs without the help of at least one cigarette firm study. Each firm has been presented with an opportunity to lower their liability in the suit if they cooperate with attorneys representing the states. FIRM A Concede that cigarette smoke causes lung cancer Argue that there is no evidence that smoke causes cancer FIRM BConcede that cigarette smoke causes lung cancer Firm A profits $-20 billion Firm B profits $-20 billion Firm A profits $-50 billion Firm B profits $-10 billion Argue that there is no evidence that smoke causes cancerFirm A profits $-10 billion Firm B profits $-50 billionFirm A profits $-15 billion Firm B profits $-15 billion When this game reaches a Nash equilibrium, profits for firm A and firm B will respectively be
Answer:
In Nash equilibrium Profits for Firm A and Firm B will be;
$-20 billion , $- 20 billion
Explanation:
Nash equilibrium is a situation in which both players will receive optimal profit. One player can not receive higher and extra ordinary profit while other player will make excessive losses. Nash equilibrium is a strategy in payoff matrix which benefits both the firms.
Why would South Africa’s import value be higher than export value
South Africa exports of items and services as proportion of GDP is 30.47% and imports of items and services as proportion of GDP is 25.53%.
Why import is greater than export?A weaker domestic currency stimulates exports and makes imports more expensive; conversely, a sturdy home forex hampers exports and makes imports cheaper. Higher inflation can also influence exports via having a direct have an effect on on input fees such as materials and labor.
Imports become extra expensive. Exports and AD make bigger causing demand-pull inflation.
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https://brainly.com/question/27899202#SPJ13which of the following comparisons of wage trends for 1953 to 1973 and 1973 to 1993 is accurate?
The comparison of wage trends for 1953 to 1973 and 1973 to 1993 can be analyzed. Between 1953 to 1973, there was a significant increase in wages, with real wages growing by 75%. However, from 1973 to 1993, the trend reversed, and wages barely increased, with real wages only growing by 6.6%. This reflects a notable shift in the economy's structure, with technological advancements and globalization leading to a decline in wages for the working class. Overall, it can be concluded that the accurate comparison of wage trends for these two periods is that there was a considerable increase in wages during the first period, while wages stagnated during the second period.
Based on historical data, the accurate comparison of wage trends for the periods 1953-1973 and 1973-1993 is that during 1953-1973, there was a general increase in real wages, while in the 1973-1993 period, wage growth slowed down considerably. In the first period, economic expansion led to higher wages and improved living standards, whereas in the latter period, factors such as globalization, technology, and weakened labor unions contributed to stagnating or even declining real wages for many workers. These comparisons highlight the changing dynamics of wage trends over the decades.
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First, start with definitions
What are recession and inflation? What causes them?
What are fiscal and monetary policies? Who controls them?
Then describe the fiscal and monetary action to fight rec
1. Recession and inflation are two economic phenomena with distinct characteristics:
i) Recession: A recession refers to a significant decline in economic activity, typically measured by a decrease in Gross Domestic Product (GDP) over two consecutive quarters. It is characterized by a contraction in business activity, rising unemployment rates, reduced consumer spending, and a slowdown in investment.
ii) Inflation: Inflation is the sustained increase in the general level of prices for goods and services in an economy over time. It results in a decrease in the purchasing power of money.
2. Fiscal and monetary policies are two key tools used by governments and central banks to manage the economy:
i) Fiscal Policy: Fiscal policy refers to the use of government spending and taxation to influence the economy. It involves decisions regarding government expenditure on public goods and services, social welfare programs, infrastructure development, and taxation levels.
ii) Monetary Policy: Monetary policy is the management of the money supply and interest rates by the central bank of a country. It aims to influence the economy by controlling the cost and availability of credit, managing inflation, and stabilizing financial markets. The central bank adjusts interest rates, sets reserve requirements for banks, conducts open market operations.
3. During a recession, fiscal and monetary policies can be used to stimulate the economy:
i) Fiscal Action: Governments may increase government spending, implement tax cuts, or provide stimulus packages to boost economic activity. These measures aim to increase aggregate demand, encourage consumer spending, and promote investment.
ii) Monetary Action: Central banks can lower interest rates to make borrowing cheaper, which stimulates spending and investment. They can also use unconventional measures like quantitative easing.
Governments and central banks often coordinate their efforts to implement a mix of fiscal and monetary policies to address the challenges posed by a recession and stimulate economic growth.
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All of the following are reasons for revenue variances EXCEPT ________.
A.) A change in discount structure
B.) A change in input prices
C.) A change in product mix
D.) A change in selling price
All of the given options are reasons for revenue variances expect B.) A change in input prices.
What is revenue variances?Revenue variances can be described as the tools that is usually used in statistiucs which do help in the process of measurement of the difference between expected and actual sales.
It shpould be noted that the information that an be gotten from there can determine the success of an organization's selling activities , and some of the reasons for this tool are the change in product mix and change in selling price.
Therefore, option B is correct.
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What does the Federal Reserve System do
Answer: It tries to maximize employment and minimize inflation.
Explanation:
Culinary Solutions Inc. manufactures cooking and baking equipment and has its base in the country of Vandevar. It has approximately 300 stores across the country and is already active in three foreign countries. It attempts to establish itself in the country of Balalaika, and uses its low-cost strategy to do so. However, due to the additional costs associated with training, coordinating across geographic distances, and other costs associated with doing business in an unfamiliar cultural and economic environment, Culinary Solutions Inc. incurs huge financial losses in Balalaika. In this scenario, Culinary Solutions Inc.'s failure to establish itself successfully in Balalaika occurs most likely because
Which of the following is a certificate of deposit?
- An account paying 0.5% interest with no other limitations.
- A deposit that has to be maintained in the bank for 1 year in exchange of a 2% interest.
- A “basket” of money pooled in by many investors to acquire securities based on the value of cash.
- An investment in stocks.
A deposit that, in exchange for 2% interest, must be kept in the bank for one year. Option B is correct .
What is an account for certificates of deposit?A certificate of deposit (CD) is a type of savings account that pays interest in exchange for holding a predetermined sum of money for a predetermined amount of time, such as six months, one year, or five years. When money is deposited into a certificate of deposit (CD), savers typically receive a predetermined annual percentage yield (APY). Commonly, the APY on a Compact disc is higher than a bank's investment account since it requires your assets to be secured for the term of the Cd. An investment instrument that requires investors to lock in funds for a predetermined period of time in order to earn premium rates is known as a certificate of deposit (CD), and it is typically issued by banks. Similar to a savings account, it For instance, Joe put $5,000 in Cd with a bank at a proper financing cost of 5% with 5 years development.
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If Tom and Liz Gomes have liquid assets of $200,000, real estate of $350,000, home improvement loans of $250,000, and investments of $30,000, what would their total assets be
Based on the information given their total assets is $580,000.
Total assetsUsing this formula
Total assets=Liquid assets+ Real estate+ Investment
Where:
Liquid assets=$200,000
Real estate=$350,000
Investment=$30,000
Let plug in the formula
Total assets=$200,000+$350,000+$30,000
Total assets=$580,000
Inconclusion their total assets is $580,000.
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Which of the following are objects that can fulfill needs or wants?
A. Economics
B. Goods
C. Services
D. Tools
Answer:
the word objects makes me think B. also, wants can be fulfilled by objects, not tools or economics.
Explanation:
The objects that fulfill the needs or wants are goods. Thus, option (B) is correct.
What is need?The term needs refers to the basic necessity or the requirement of the person in order to survive. The basic need of the person is food, shelter and clothing. The term needs and wants to become together. As the once the needs of the person is fulfilled, the wants arises.
Need is something without which the person cannot survive in the world, whereas without fulfillment of the wants the person can survive. In today's economy, the terms wants and needs are often yet inaccurately used.
The needs and wants of an individual can be fulfilled through the goods and services. Various companies and corporation are today working to satisfy the needs and desire of the customers.
Therefore, it can be concluded that Goods are things that satisfy needs or desires. Hence, option (B) is correct.
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What is a primary benefit of starting a new business without purchasing a franchise or buying an existing business?
1. Less record keeping
2. Lower financial risk
3. You can apply your own experience
4. Developing your own rules
Answer:
4.
Explanation:
Instead of having to follow a franchises rules or prexisting rules at the existing business you can develope your own affecting costs and overall efficiency of your company.
The primary benefit of starting a new business without purchasing a franchise or buying an existing business is developing your own rules. Thus, option fourth is correct.
What is business?A business is described as a firm or organization that engages in economic, industrial, or professional activity. Businesses can be either for-profit or non-profit organizations.
Limited liability firms, sole proprietorship, companies, and partnerships are all elements of marketing structures.
The first step of the business is to prepare the budget. As contrast to satisfying the financial criteria of purchasing a franchise or a running firm, you can tailor your new business to match your available cash, such as by working from home or part-time.
Therefore, it can be concluded that option fourth is correct.
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Business partners Lars and Sam brought to life a revolutionary idea.Both were skilled in computer science.For the first few years,they hired people with their same mindset: employees who worked well under a free-reign leadership style where they could expand upon the company's technology and create new products.Moving forward,the partners realized that their fast-growing venture needed structure.Lars and Sam understood what was needed,but questioned whether they could change their own leadership behavior to make it happen.In order to develop the financial and operations side of the business,the partners hired an additional leader,a person whose leadership style was high on structure.Which of the following statements about leader behavior attests to the soundness of this strategic move?
A) These partners could not perform the four functions of management.
B) Successful leaders adapt their behavior to the situation at hand.
C) Most successful leaders will choose one leadership style and never succumb to the threat that their behavior will be detrimental to a business's progress.
D) Businesses cannot continue to grow under the leadership of the original owners.Leaders cannot be strong in consideration and structure.
It is either one or the other,but never both in various amounts.
Answer: B) Successful leaders adapt their behavior to the situation at hand.
Explanation:
The business environment is not a fixed one, rather, it is constantly changing and in order for companies to survive, they would have to either evolve or die.
This is why leaders in those companies have to be able to adapt their behavior to the situation at hand, master it, and come up with a relevant solution.
In hiring the additional leader who could give their company structure when they needed structure, Lars and Sam are adapting to the situation at hand which makes them successful leaders.
When assessing aggregate planning variables, acquisition and training costs are examples of implications of the ____ option.
When assessing aggregate planning variables, acquisition and training costs are examples of implications of the "chase" option.
The chase option is a type of aggregate planning strategy that involves adjusting production rates to match the demand rate so that inventory levels remain constant. This means that the production rate will need to be increased or decreased in response to changes in demand. Acquisition costs refer to the cost of hiring additional workers or purchasing additional equipment to increase production capacity. This cost can be significant, especially if the equipment is expensive or specialized. Training costs refer to the cost of training new workers or retraining existing workers to meet the changing demands of the business. This cost can also be significant, especially if the workers need to be trained on complex equipment or processes. Both acquisition and training costs are examples of the implications of the chase option because this option requires the company to adjust production rates to match demand. When demand increases, the company will need to acquire new resources and train workers to meet the increased demand. Conversely, when demand decreases, the company may need to lay off workers or sell excess equipment, which can also be costly. Therefore, the chase option can be a complex and costly strategy, but it is often necessary to ensure that the company can meet changing customer demands and remain competitive in the marketplace.
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Did Amazon make sensible choices in its emerging markets entry strategies? Consider location, entry mode, and timing.
Amazon is a tech giant that has expanded globally over the years. The company operates in many countries, including emerging markets.
Amazon has utilized different entry strategies to penetrate these markets. In this regard, the company has made sensible choices in its emerging markets entry strategies, taking into consideration location, entry mode, and timing.
Location
Amazon has carefully chosen its locations when entering emerging markets. The company has targeted locations with high populations, growing economies, and a significant potential for e-commerce growth. For instance, Amazon's entry into India was strategic, considering the country's growing population and its robust e-commerce sector.
Entry mode
Amazon has utilized various entry modes to penetrate emerging markets. The company has often leveraged partnerships with local firms to enable it to operate in these markets. In India, for example, Amazon teamed up with a local e-commerce company, Flipkart, which helped the company navigate the market. Amazon has also used acquisitions to enter emerging markets. In 2017, the company acquired Souq.com, an online retailer based in Dubai.
Timing
Amazon has been cautious about the timing of its entry into emerging markets. The company has often taken its time to research the markets and understand their peculiarities. Amazon's entry into China in 2004, for instance, was calculated, considering the country's unique e-commerce environment.
In conclusion, Amazon has made sensible choices in its emerging markets entry strategies. The company has carefully considered location, entry mode, and timing when entering these markets. Amazon's strategies have enabled it to penetrate these markets successfully, grow its market share, and increase its revenues. The company's success in these markets is a testament to its well-thought-out strategies.
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which of the following statements most accurately provides the underlying rationale for the use of auscultation and percussion as assessment techniques?
Auscultation and percussion analyze interior organs and bodily systems using sound and vibration analyses.
The underlying rationale for the use of auscultation and percussion as assessment techniques is to gather information about the presence, location, and quality of sounds that are produced by various organs or tissues in the body. Auscultation is the process of listening to sounds made by the body, such as the heart, lungs, or stomach, using a stethoscope. The rationale for this technique is to identify any abnormal sounds that might indicate an underlying disease or condition. Percussion, on the other hand, involves tapping the body with the fingertips to produce vibrations that can be felt or heard. The rationale for this technique is to identify the size, shape, and consistency of internal organs or tissues, such as the liver, spleen, or lungs.
In summary, auscultation and percussion are valuable assessment techniques that provide healthcare providers with important information about a patient's health status. By using these techniques, healthcare providers can identify the presence of abnormal sounds or vibrations that might indicate a disease or condition and take appropriate action to address the problem.
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PLS HELP!! Explain the Interest-Based Relational (IBR) Approach.
Answer: See explanation
Explanation:
In conflict resolution, the Interest-based Relational (IBR) approach is used to resolve conflict or issues while a personal relationship that is positive is still being maintained.
For the interest based relational approach, conflict is resolved through active listening and carefully analysing the issues involved. Such conflict is resolved by being non-confrontational and the point of view of everyone involved is listened to.
Nederlander's customers are mostly women in the age group of 30 to 59 years with an annual household income of approximately $200,000. The company's Audience Rewards program appeals to its major partners because they want to get access to Nederlander's customers. The partners use the information about the customers for the _______ step of their personal selling process.
The partners use the information about the customers for the Prospecting step of their personal selling process.
Finding and investigating prospective consumers who are likely to make a purchase is the practice of prospecting.
The data from Nederlander's clients can be used by the partners to identify the clients who are most likely to make a purchase. They may more effectively target their marketing and sales activities thanks to this data. They can also tailor their offers and promotions to the needs and tastes of the customer.
The partners may create more successful sales tactics and raise their chances of success by understanding their clients.
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2. Complete the table to describe the coverage provided by each type of auto
insurance. (8 points)
I
Type of insurance
Bodily injury liability
Property damage liability
Collision coverage
Comprehensive coverage
Description of coverage
3. Write a paragraph (3-4 sentences) describing three types of risk a young adult
might face if they don't have enough insurance or don't have insurance at all. In your
response, explain how insurance can financially protect a young adult from each
type of risk. (6 points)
The completed table for the type of coverage in the type of insurance is given below:
Bodily injury liability: This type of insurance covers the costs of any bodily injury that you may cause to another person in an accident. This can include medical expenses, lost wages, and other damages.
Property damage liability: This type of insurance covers the costs of any damage that you may cause to another person's property in an accident. This can include damage to a vehicle, a fence, or a building.
Collision coverage: This type of insurance covers the costs of any damage to your own vehicle in an accident, regardless of who is at fault. This can include repairs or replacement of your vehicle.
Comprehensive coverage: This type of insurance covers damage to your vehicle caused by events other than a collision, such as theft, fire, or natural disasters.
What are the risks of an adult without insurance?A young adult who does not have enough insurance or does not have insurance at all faces many risks. One risk is incurring significant financial debt due to the cost of damages and medical expenses resulting from an accident.
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A long term goal taking _____ years to achieve can be broken down into shorter term goals, each taking _______ years to achieve
A. 16;32
B. 16;8
C. 8;32
D. 8;16
Answer:
B. 16;8
Explanation:
A short-term goal is something you want to do in the near future. The near future can mean today, this week, this month, or even this year. A short-term goal is something you want to accomplish soon.A long-term goal is something you want to do further in the future. Long-term goals require time and planning. They are not something you can do this week or even this year. Long-term goals usually take 12 months or more to achieve.What do borrowers use to secure a mortgage loan?
A. Credit Card
B. Down Payment
C. House
D. Land
E. Vehicle
I’m not sure if the answer is A and B, or if C is included too.
Answer:
A. and B.
Explanation:
mortgage loans are given to individuals by a certified bank against their property. In order to secure this loan the bank requires a down payment from the individual looking for the loan as well as the individual's credit card information. This credit card will be charged the amount that the individual owes the bank on a monthly basis.
Answer:
C,D,and E
Explanation:
For a mortgage to be secure it needs to be backed up by a valuable asset such as your car your house or land.
Oscar Cinema Studios rewards its retiring officers with miniature gold statuettes if the officers complete at least 10 years of service. Each statuette costs Oscar $400 and is worth $600. Rank-and-file employees receive plastic replicas of the studio’s back lot when they retire and have completed 30 years of devoted service. These plastic replicas cost $50 a piece and are each worth $70. In the current year, Oscar gave two retiring officers each a miniature statuette during a meaningful presentation. How much can Oscar deduct for these gifts?
Answer: $800
Explanation:
In this scenario in the question, we should note that there's is no discrimination which favors the officers.
The deduction for the gifts by Oscar will then be $400 for every recipient and the cost spent on each statuette by the company.
Therefore, the amount that Oscar can deduct for these gifts will be:
= $400 + $400
= $800
Which is a good rule to follow when sending business emails? (1 point)
Answer:
Avoid forwarding spam and unnecessary messages such as chain letters.
Explanation: did the test
The good rule that must follow at the time of sending business emails is to avoid forwarding spam and unwanted texts like chain letters.
What is email?An email, is also called as the electronic mail. It is one of the most extensively employed features of the Internet, that is mostly used in the formal business organizations.
It allows a person to transport and acquire messages from nay person in the globe that has an email account. Within the TCP/IP suite, email uses a variety of protocols.
When sending business emails, a good tip to follow is to avoid forwarding spam and undesirable texts like chain letters.
Therefore, the use of formal languages and proper formats made the emails more accurate.
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On September 30, 2021, Athens Software began developing a software program to shield personal computers from malware and spyware. Technological feasibility was established on February 28, 2022, and the program was available for release on April 30, 2022. Development costs were incurred as follows: September 30 through December 31, 2021 $ 2,200,000
January 1 through February 28, 2022 800,000
March 1 through April 30, 2022 400,000
Athens expects a useful life of four years for the software and total revenues of $5,000,000 during that time. During 2022, revenue of $1,000,000 was recognized.
Required:
Prepare a journal entry in each year to record development costs for 2021 and 2022.
The journal entries to record the development costs for the software program in 2021 and 2022 are as follows:
In 2021:
Debit: Development Costs (asset account) - $2,200,000
Credit: Cash - $2,200,000
In 2022:
Debit: Development Costs (asset account) - $1,200,000
Credit: Cash - $1,200,000
The development costs for the software program are recorded as an asset on the balance sheet until the program is available for release. Once the technological feasibility is established, the costs can be capitalized and recorded as an intangible asset.
In 2021, from September 30 to December 31, Athens Software incurs development costs of $2,200,000. To record this expense, we debit the Development Costs asset account and credit the Cash account for the same amount, indicating the cash outflow.
In 2022, from January 1 to February 28, Athens incurs additional development costs of $800,000, and from March 1 to April 30, incurs $400,000. However, since technological feasibility was established on February 28 and the software was available for release on April 30, only the costs incurred after February 28, totaling $1,200,000, can be capitalized. Similar to the previous entry, we debit the Development Costs asset account and credit the Cash account for $1,200,000.
It's important to note that no revenue is recorded in the journal entries for development costs. Revenue recognition occurs separately and is based on the company's estimates of total revenues from the software program over its useful life.
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Problem 4: Capital Budgeting (30 points) A friend of yours identified a need for a gourmet cookie shop in Arlington and he wants to open one very soon. He is very talented in the kitchen and bakes amazing cookies; but, when it comes to finance, he is not really that bright. He thinks that you will be the icing on the cookie if you join him on this project. He already has spent $15,000 on marketing research to come up with the following projections about the project. The project requires an initial investment of $60,000 for equipment and other related expenses. This initial investment will be depreciated down to a book value of $15,000 over 5 years, after which you will not continue operating the bakery. The average price of a cookie will be $4, and the marketing company estimates that you are going to sell 20,000 cookies for the first year; 25,000 for the second; 40,000 for the third; 50,000 for the fourth, and 60,000 for the last year. The net working capital requirement for each year is estimated to be 5% of the following year's revenues. Each cookie will cost $1 to make, and other fixed costs will run $10,000 per year for each year. The equipment will have a salvage value of $20,000 at the end of the fifth year. In an effort to estimate an appropriate discount rate for this project, you have determined that your operations are going to be similar to Crumble Cookies Inc. After some research you have identified that Crumble Cookies Inc. Has an equity beta of 1. 6 and a debt to value ratio of 40%. You on the other hand would finance the project more conservatively with only 20% debt and expect to be able to raise debt at the risk-free rate. A a) Given that the expected return on the market portfolio is 8%, the risk-free rate is 3%, and the tax rate is 25%, what would be the NPV of this project? (25 points) b) What would the NPV be if you decided to keep operating the bakery after year 5 and kept generating the same cash flow for each year thereafter forever? (Ignore the salvage value in this part) (5 points)
The NPV of the project, considering a 5-year operation and subsequent cessation, is approximately $19,340.52.
To calculate the NPV, we first determine the cash flows for each year by subtracting the costs from the revenues. Then, we discount each cash flow to its present value using the discount rate. The net working capital requirement for each year is 5% of the following year's revenues.
Using the given information, we find the following cash flows for each year:
Year 1: Revenue = $80,000, Costs = $30,000, Net working capital = $4,000
Year 2: Revenue = $100,000, Costs = $30,000, Net working capital = $5,000
Year 3: Revenue = $160,000, Costs = $30,000, Net working capital = $8,000
Year 4: Revenue = $200,000, Costs = $30,000, Net working capital = $10,000
Year 5: Revenue = $240,000, Costs = $30,000, Net working capital = $12,000
Next, we discount each cash flow to its present value using a discount rate of 8% (given the expected return on the market portfolio). The present values of the cash flows are then summed up, and the initial investment of $60,000 is subtracted to obtain the NPV.
Calculating the NPV using the formula mentioned earlier, we find an NPV of approximately $19,340.52.
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Culture, demand and competition impose saturation limits above which no amount of advertising spending can increase sales. True or false.
True that culture, demand, and competition impose saturation limits above which no amount of advertising spending can increase sales.
It is true that culture, demand, and competition impose saturation limits above which no amount of advertising spending can increase sales. Advertising can help increase brand awareness, familiarity, and preference among consumers, but there comes a point where the market becomes saturated, and additional advertising spending does not lead to significant increases in sales. The saturation limit may vary depending on the product or service, the industry, and the target audience. Therefore, it is crucial for businesses to understand their market and determine the optimal advertising budget to achieve their sales goals.
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