Answer:
B) Should be at least as large as their intrinsic value.
Explanation:
American call and put option premiums are one of the options contracts, which allows investors to buy or sell the stock options before the maturity date. It is not referred to as the option related to geographical location, however, it is only applied to the rights of execution.
There are four variables to specify the contract:-
- Underlying asset.
- Premium
- Strike price.
- Maturity data.
Intrinsic value is the difference between underlying assets and strike price, which can not be negative and the premium is the price paid during buying and selling of options. Therefore, American call and put premiums should be at least as large as their intrinsic value.
Answer and Explanation:
The computation is shown below:
a) Total Cost
= Fixed Cost + Variable Cost
= 2000 + 250 × 1000 + 420 × 1000 + 620 × 1000 + 810 × 2000
= $29,12,000
b) Total Revenue is
= Price × Quantity
= 650 × 5000
= $3,250,000
c) Profit is
= Total Revenue- Total Cost
= $3,250,000 - $2,912,000
= $338,000
Answer:
costs that have been incurred and cannot be reversed.
Explanation:
Sunk cost can be defined as a cost or an amount of money that has been spent on something in the past and as such cannot be recovered. Thus, because a sunk cost has been incurred by an individual or organization it can't be recovered and as such it is irrelevant in the decision-making process such as investments, projects etc.
Basically, sunk costs are referred to as fixed costs.
Sunk costs are the opposite of relevant costs because they can't be changed or recovered, as they've been spent or contracted in the past already. Hence, relevant cost are relevant for decision-making purposes but not sunk costs.
Hence, sunk costs are costs that have been incurred and cannot be reversed.
For example, ABC investors decide to acquire land and develop residential houses at a location X. This decision is informed on the fact that the government had recently enacted a policy that led to an increase in demand for residential properties in that location. 6 months into construction of the residential houses, the government reviews and rescinds the policy. This leads to a sharp decline in property values in location X. ABC investors had already incurred 10 million dollars in the project. The 10 million dollars is considered sunk cost.
Answer:
a. Breakeven point in number of rented rooms:
= Fixed costs / Contribution margin
Fixed cost = Salaries per month + Utilities + Depreciation + Maintenance
= 7,000 + 1,000 + 1,100 + 1,508
= $10,608
Contribution margin:
= Rent price - Maid service - Other costs
= 65 - 13 - 26
= $26
Breakeven point in rented rooms:
= 10,608 / 26
= 408 rooms
b. Breakeven point in dollars:
= Fixed costs / Contribution margin ratio
= 10,608 / (26 / 65)
= 10,608 / 40%
= $26,520
