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romanna [79]
3 years ago
7

oe Smith, age 75, from Vienna, IL has the winning Powerball lottery numbers which will pay out $13 million at the beginning of e

ach of the next 30 years (reported prize of $390 million). Before claiming his prize, Trusty Insurance Company offers Joe $200 million today in exchange for his winning lottery ticket and prize payout. What rate of return would Trusty Insurance earn if Joe accepts their offer?
Business
1 answer:
shutvik [7]3 years ago
3 0

Answer:

The IRR is 5%. Rate of return would be 12.5% assuming a discount rate of 4%

Explanation:

The answer depends entirely on the discount rate. The question covers a 30 period timeframe and in each period, the pay off is $13 million. This is a simple time value of money concept in which to calculate the present value, you will simply calculate the present value of each of the cash flows. The formula is 13Mn/[(1+r)^n] where n is the year from 1 to 30, r is the discount rate.

The question requires us to calculate the return that is the variable 'r'. For this you need to have the present value today so that you can then use the equation to solve for 'r'. However, the only information we have is the time period and the cash flow. We are given $200mn as the initial outlay. So, we can at least use this to calculate the internal rate of return (IRR) which is simply the rate of return (or the value of 'r') at which the present value of each of the 13 Mn to be received over the next 30 years is equal to the initial outlay (i.e 200mn). In short, IRR is the rate of return at which the net present value (NPV) is equal to zero. In our example, and using the formula for each of the cash flow from years 1 to 30, the IRR is computated at 5%. So if the discount rate that the company uses is less than 5%, the company would be better of with Joe accepting the offer because any discount rate below 5% would result in the present value of the cash flows to be in excess of $200Mn.

Lets take an example and assume that the discount rate is 4%, using the formula from year 1 to 30 and summing the values would give us a present value of $225 Mn. So the rate lf return in this case would be (225-200)/200 x 100 = 12.5%.

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Answer:

the journal entry to record bond issuance:

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amortization of discount on bonds payable = $76,000 / 5 = $15,000

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2 years ago
One of the global institutions that emerged over the past 75 years is GATT which stands for the General Agreement on Tariffs and
hichkok12 [17]

GATT  is a very common term in business. One of the global institutions that emerged over the past 75 years is GATT which stands for the General Agreement on Tariffs and Trade.

<h3>What is the meaning of GATT?</h3>

The word simply means General Agreement on Tariffs and Trade. This  General Agreement is known to covers international trade in goods.

They are involved in Trade negotiations. The WTO is regarded as the successor to the General Agreement on Tariffs and Trade (GATT) set up after the Second World War.

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1 year ago
Define the term corporate social responsibility and give one practical example ​
Vesna [10]

Answer:

<u>Definition:</u> Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable—to itself, its stakeholders, and the public. By practicing corporate social responsibility, also called corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society, including economic, social, and environmental.

To engage in CSR means that, in the ordinary course of business, a company is operating in ways that enhance society and the environment, instead of contributing negatively to them.

<u>Example:</u> Starbucks has long been known for its keen sense of corporate social responsibility and commitment to sustainability and community welfare. According to the company, Starbucks has achieved many of its CSR milestones since it opened its doors. According to its 2019 Global Social Impact Report, these milestones include reaching 99% of ethically sourced coffee, creating a global network of farmers, pioneering green building throughout its stores, contributing millions of hours of community service, and creating a groundbreaking college program for its partner/employees.

Starbucks' goals for 2020 and beyond include hiring 10,000 refugees, reducing the environmental impact of its cups, and engaging its employees in environmental leadership.  Today there are many socially responsible companies whose brands are known for their CSR programs, such as Ben & Jerry's ice cream and Everlane, a clothing retailer.

Explanation:

4 0
2 years ago
Harte Systems, Inc., a maker of electronic surveillance equipment, is considering selling to a well-known hardware chain the rig
Taya2010 [7]

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

The proposed deal calls for the hardware chain to pay Harte $30,000 and $25,000 at the end of years 1 and 2 and to make an annual year-end payments of $15,000 in years 3 through 9. The final payment to Harte of $10,000 would be due at the end of year 10.

1)

Cash flows:

Year 1= 30,000

Year 2= 25,000

Year 3= 15,000

Year 4= 15,000

Year 5= 15,000

Year 6= 15,000

Year 7= 15,000

Year 8= 15,000

Year 9= 15,000

Year 10= 10,000

2) To calculate the present value we need to use the following formula for each cash flow:

PV= FV/(1+i)^n

Year 1= 30,000/1.12= 26,785.71

Year 2= 25,000/1.12= 22,321.43

Year 3= 15,000/1.12= 13,392.86

....

Year 10= 10,000/1.12^10= 3,219.73

PV= $104,508.27

3) The present value of cash inflows is higher than $100,000. It is more convenient to decline the $100,000.

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<h3>What is static budget?</h3>
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