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Murrr4er [49]
3 years ago
7

Sydney wins a prize. She has a choice of receiving a payment of $160,000 immediately or of receiving a deferred perpetuity with

$10,000 annual payments, the first payment occurring in exactly four years. Which has a greater present value if the calculation is based on an annual effective interest rate of 5%? How about if the annual effective rate used is 6%? What real life considerations should enter into Sydney’s choice besides maximizing her present value?
Business
1 answer:
Mamont248 [21]3 years ago
5 0

Answer:

Instructions are listed below

Explanation:

Giving the following information:

She has a choice of receiving a payment of $160,000 immediately or of receiving deferred perpetuity with $10,000 annual payments, the first payment occurring in exactly four years.

A) i= 5%

First, we need to determine the value of the perpetuity four years from now.

Perpetuity= 10,000/0.05= 200,000

Now, we can calculate the present value:

PV= 200,000/(1.05^4)= $164,540.50

B) i= 6%

Perpetuity= 10,000/0.06= $166,666.67

PV= $166,666.67/1.06^4= $132,015.61

C) She should consider her necessities of cash and the value of the products she can purchase now.

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3 years ago
Northwood Company manufactures basketballs. The company has a ball that sells for S25. At present, the ball is manufactured in a
Maksim231197 [3]

Answer:

1A. Compute the CM ratio and the break-even point in balls.

  • CM ratio = 2.5
  • break even point = 21,000 balls

1B. Compute the degree of operating leverage at last year.

  • 31.82%

2. Due to an increase in labor rates, the company estimates that variable expenses will increase by $3 per ball next year. If this change takes place and the selling price per ball remains constant at $25, what will be the new CM ratio and break-even point in balls?

  • CM ratio = 3.57
  • break even point = 30,000 balls

3. Refer to the data in (2) above. If the expected change in variable expenses takes place, how many balls will have to be sold next year to earn the same net operating income, $90,000, last year?

  • 42,858 balls

4. The president feels that the company must raise the selling price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year, what selling price per ball must it charge next year to cover the increased labor costs?

  • new price of $28 per ball

5. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per ball by 40%, but it would cause fixed expenses per year to double. If the new plant is built, what would be the company's new CM ratio and new break-even point in balls?

  • CM = 1.32
  • 26,250 balls

6.a. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $90,000, as last year?

  • 31,875 balls

6.b. Assume the new plant is built and that next year the company manufactures and sells 30,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage.

Income Statement

Total revenue $750,000

Variable expenses <u>($270,000) </u>

Contribution margin $480,000

Fixed expenses <u>($420,000 )</u>

Net operating income $60,000

Degree of operating leverage = 60.87%

6.c. If you were a member of top management, would you have been in favor of constructing the new plant?

  • If you cannot avoid paying the salary raise, then the company needs to carry on the new plant project.

Explanation:

sales price per ball = $25

variable expenses: $15 per unit

  • direct labor $9
  • other variable costs $6

CM ratio = net sales / CM = $750,000 / $300,000 = 2.5

break even point = total fixed costs / CM per unit = $210,000 / $10 = 21,000 balls

degree of operating leverage = fixed costs / total costs = $210,000 / $660,000 = 31.82%

new CM ratio = net sales / CM = $750,000 / $210,000 = 3.57

break even point = total fixed costs / CM per unit = $210,000 / $7 = 30,000 balls

sales level for $90,000 profit = ($210,000 + $90,000) / $7 = 42,857.14 ≈ 42,858 balls

CM ratio (new plant) = net sales / CM = $750,000 / $570,000 = 1.32

break even point = total fixed costs / CM per unit = $420,000 / $16 = 26,250 balls

sales level for $90,000 profit = ($420,000 + $90,000) / $16 = 31,875 balls

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Char and Russ Dasrup have one daughter,Siera.who is 16 years old.ln November of last year,the Dasrup's took in Siera's 16 year o
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Answer:

A) One exemption for their daughter Siera as a qualifying child but no exemption for Angela.

Explanation:

The six IRS requirements for determining a qualifying child are:

  1. Relationship
  2. Age
  3. Residence
  4. Support
  5. Joint return
  6. Citizenship

The problem with Angela is that she fails number 1, which means that she has no legal relationship with the Dasrups. She would qualify for the remaining 5, but if only one is missing, then the IRS will not qualify Angela.

On the other hand, Siera qualifies because she meets all the requirements.  

3 0
3 years ago
As jamal's income rises, his demand for pizza does not change. it follows that, for jamal, pizza is a(n)
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. Suppose that a car dealer has a local monopoly selling Volvos. It pays w to Volvo for each car that it sells, and charges each
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Answer:

The dealer will sell 15 Volvos

Explanation:

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Profit = Q*p

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Differentiating with respect to q, we get

30-2q = 0

2q = 30

q=15

The dealer will sell 15 Volvos

6 0
3 years ago
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