Answer:
Real rate of return = 0.94%
Explanation:
The relationship between the nominal rates of return, real rate of return and inflation is:
( 1+ nominal rate ) = ( 1+ real rate) *( 1 + inflation)
or, (1.07) = (1 + real rate) * (1.06)
Hence, the real rate of return is = (1.07)/(1.06) = (1 + real rate of return)
1.0094 = 1 + real rate of return
Real rate of return = 0.94%
The annual interest rate is 11.803%.
Assumptions:
- Interest is compounded annually.
Answer:
$235,000
Explanation:
The computation fo the safety margin is shown below:
As we know that
Margin of safety = Expected sales - break even sales
where,
Expected sales is
= 29,000 units × $50
= $1,450,000
And, the break even sales is
= Fixed cost ÷ contribution margin per unit
= $486,000 ÷ ($50 - $50 × 0.60)
= $486,000 ÷ $20
= 24,300 units
And, the selling price is $50
So the break even sales is
= 24,300 units × $50
= $1,215,000
So, the safety margin is
= $1,450,000 - $1,215,000
= $235,000
<u>By choosing </u><u>high-risk ventures,</u><u> stockholders steal wealth from bondholders. The incentive for underinvestment is one of </u><u>bankruptcy's</u><u> </u><u>indirect costs. </u>
- Underinvestment would typically lead to - The company rejecting profitable proposals that would unquestionably be approved if the company were fully funded by equity.
How does a company's capital structure get impacted by bankruptcy costs?
- The likelihood of bankruptcy may rise as a result of higher capital expenses and increased risk.
- The company's WACC rises over the ideal level when additional debt is added to its capital structure, raising the cost of bankruptcy even more.
Learn more about bankruptcy
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Answer:
- $45000
Explanation:
Economic profit is different from accounting profit in the sense that former also takes into consideration the implicit costs, also referred to as opportunity costs unlike the latter.
Economic Profit = Accounting profit - Opportunity Costs
Opportunity costs are defined as the the cost of sacrificed or foregone alternative for pursuing a particular alternative. Such costs are implicit or notional as they are not actually incurred.
In the given case, Economic Profit = Revenues - Explicit costs - Implicit costs
Here, the implicit cost is $60,000 income foregone.
Thus, Economic Profit = $20,000(income) - $ 5000 (expense) - $60,000 (opportunity cost)
Economic Profit = ($ 45,000) or -$45,000.
