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masya89 [10]
3 years ago
8

Tanner is choosing between two​ mutually-exclusive investment options. These options have absolutely no​ risk, and Tanner can al

ways borrow and lend at the​ risk-free rate. Option 1. He can invest​ $500 now and get​ (guaranteed) $550 in one year. Option 2. He can invest​ $600 now and get​ (guaranteed) $631.40 back later today. Assume the​ risk-free interest rate is​ 3.5%. Which investment should Tanner​ prefer?
Business
1 answer:
Reika [66]3 years ago
5 0

Answer:

D) Tanner should be indifferent between the two investments, since both are equivalent to the same amount of cash today.

Explanation:

Here are the options to this question:

A) $531.40 later today, since $1 today is worth more than $1 in one year.

B) $550 in one year, since it is $50 more than he invested rather than $31.40 more than he invested.

C) Neither - both investments have a negative NPV.

D) Tanner should be indifferent between the two investments, since both are equivalent to the same amount of cash today.

Net present value is the present value of after tax cash flows from an investment less the amount invested.

NPV can be calculated using a financial calculator:

For the first option:

Cash flow in year 0 = $500

Cash flow in year 1 = $550

I = ​ 3.5%

NPV = $31.40

For the second option:

NPV = $631.40 - $600 = $31.40

The npv of both options are equal and postive. So, Tanner should be indifferent between the options.

To find the NPV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

I hope my answer helps you

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Nuetrik [128]

Solution :

1. Allocation on the basis of $\text{Direct labor hours}$

                                              LX                               EX

Direct Material                    125000                       90000

Direct $\text{labor}$ cost                  90000                       60000

Manufacturing overhead      $81000$                        $121500$

                              (202500/5000 x 2000)     (202500/5000 x 3000)

Total cost                             296000                       271500

Units produced                       50                               30

Cost per unit                          5920                           9050

2. Allocation on the basis of $\text{Direct labor costs}$:

                                              LX                               EX

Direct Material                    125000                       90000

Direct labor cost                  90000                       60000

Manufacturing overhead    121500                       81000

                        (202500/150000 x 90000)     (202500/150000 x 60000)

Total cost                             336500                       231000

Units produced                       50                               30

Cost per unit                          6730                           7700

3. Allocation on the basis of $\text{machine hours}$

                                              LX                               EX

Direct Material                    125000                       90000

Direct labor cost                  90000                       60000

Manufacturing overhead    112500                        90000

                              (202500/2700 x 1500)     (202500/2700 x 1200)

Total cost                             327500                       240000

Units produced                       50                               30

Cost per unit                          6550                          8000

5 0
3 years ago
Over the years, O'Brien Corporation's stockholders have provided $20,000,000 of capital, when they purchased new issues of stock
velikii [3]

Answer:

The answer is: O'Brien's MVA is $12,000,000

Explanation:

We first take the total book value of equity $20,000,000

Then e calculate the market value of the company (stock price per share times shares outstanding) = $32 per share x 1,000,000 shares = $32,000,000

The market value added (MVA) is the difference between market value and equity value:

MVA = $32,000,000 - $20,000,000 = $12,000,000

4 0
3 years ago
A company uses straight line depreciation for an item of equipment that cost $12000, had a salvage value of $2,000 and a five ye
timurjin [86]

Answer:

option (d) 2400

Explanation:

Data provided in the question:

Initial book value = $12,000

Salvage value = $2000

Useful life = 5 years

Thus,

Using the straight line method of depreciation

Annual depreciation = [Cost - Salvage value] ÷ Useful life

= [ $12,000 - $2,000 ] ÷ 5

= $2,000

Accumulated Depreciation for 3 years

= Annual depreciation × Time

= $2,000 × 3

= $6,000

Book value after 3 years = Cost - Accumulated depreciation

= $12,000 - $6,000

= $6,000

Remaining useful life = 2 years

Reduced Salvage value after 3 years = $1,200

Therefore,

Depreciable value of the Asset = Book value - Reduced salvage value

= $6,000 - $1,200

= $4,800

Revised depreciation to be charged every year

= Depreciable value of the Asset ÷ (Remaining useful life)

= $4,800 ÷ 2

= $2,400

Hence,

The correct answer is option (d) 2400

4 0
3 years ago
A client diagnosed with cancer has met with the oncologist and is now weighing whether to undergo chemotherapy or radiation for
Scorpion4ik [409]

Answer:

Autonomy

Explanation:

Autonomy allows the individuals to make independent decisions. In the case given in the question, the oncologist believes that the patient has the right to have their own opinions, values, and beliefs. This is why the doctor has left it on the patient to decide whether they want to go for chemotherapy or radiation to get rid of the disease. Autonomy gives the patient the right to accept or reject any treatment for themselves.

6 0
3 years ago
Zouar Computer Corporation currently manufactures the disk drives that it uses in its computers. The costs to produce 5,000 of t
iogann1982 [59]

Answer:

Net profit $15,000  

Explanation:

Total Cost Saving and Benefit of Buying outside  

Total Cost Other than fixed cost               $95,000  

($12 + $2 + $5) × 5,000    

Fixed cost                                                     $15,000

($3 × 5,000)

Additional income                                        $40,000  

Total saving                                                 $1,50,000  

Cost Of buying                                             $1,35,000  

($27 × 5,000)    

Net Benefit                                                   $15,000

($150,000 - $135,000)

6 0
3 years ago
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