Answer: C. the coattail effect.
Explanation: Coattail effect refers to situations in which the actions of other franchises in one way or the other affects the success or failure of one particular franchise's business.
Assume company x deposits $100,000 in cash in a commercial bank. If no excess reserves exist at the time this deposit is made and the reserve ratio is 20 percent, the bank can increase loans by a maximum of $500,000.
Reserve ratio = 20% = 20/100 = 0.25
Initial Money supply = (1/Reserve ratio)*New Deposit = (100,000/0.25) = $ 400,000
Reserve ratio = Rerserve / Deposit
=> Reserves = 0.25*100,000 = 25,000
Max Increase in Money Supply = Initial Money Supply + Reserves/ Reserve Ratio
= $ 400,000 + 100,000
= $ 500,000.
The term commercial bank refers to financial institutions that accept deposits, provide checking account services, issue various loans, and provide basic financial products such as certificates of deposit (CDs) and savings accounts to individuals and small businesses. refers to
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Answer:
The answer is b. Up to $4 million.
Explanation:
It is critical to recognize that $3 million already spent on developing the product is the sunk cost, which is irrelevant cost that should not be included in the budget further spend for the new product.
As the new product is expected to generate a revenues of $4 million, the further cost should be spent on the new product development should not be exceeded the $4 million.
Thus, the answer is b. Up to $4 million is the correct choice.
Answer: The net effect of additional debt on WACC is uncertain.
Explanation:
Weighted Average Cost of Capital (WACC) refers to the rate of return that a company is paying it's capital providers on average be it debt holders or shareholders.
Adding additional debt to the mix effects the WACC in an uncertain way due to the different ways the WACC could react. For example, adding additional debt decreases the after-tax cost of debt because debt is tax deductible which means that more money can flow to shareholders so that reduces the cost of equity. At the same time however, Additional debt can increase the risk of bankruptcy meaning that the before tax cost of debt rises which also increase the WACC.
The effect can swing either way thereby making it uncertain.
