Do the methods below use Cash Flows or Operating Income

You are considering two equally risky annuities, each of which pays $5,000 per year for 10 years. Investment ORD is an ordinary

liubo4ka [24]

Answer:

A rational investor would be willing to pay more for DUE than for ORD, so their market prices should differ.

Explanation:

If both annuities pay the same amount ($5,000 per year), then the present value of the annuity due will always be higher than the present value of the ordinary annuity. Therefore, an investor will always be willing to pay more (at equal risk) for the annuity due than the ordinary annuity.

E.g. let say that both annuities carry a 10% interest rate.

The present value of the annuity due is:

PV = $5,000 + [$5,000 x 5.7590 (PV annuity factor, 10%, 9 periods)] = $33,795

The present value of the ordinary annuity is:

PV = $5,000 x 6.1446 (PV annuity factor, 10%, 10 periods) = $30,723

The logic behind this is that $1 today is worth more than $1 tomorrow, and the annuity due's first payment is today, while the ordinary annuity's first payment is in 1 year.

4 0

3 years ago

Points represent

Burka [1]

D. Monthly payments

8 0

3 years ago

The Restaurant Group manufactures the bags of frozen French fries used at its franchised restaurants. Last week, purchased and

pishuonlain [190]

Answer:

Explanation:

The question was missing the actual amount of potatoes used and their actual price = 98,000 pounds at $0.85 per pound:

1. Determine the direct material price and quantity variances.

direct materials price variance = AQ x (AP - SP) = 98,000 x ($0.85 - $1) = $14,700 favorable

direct material quantity variance = SP x (AQ - SQ) = $1 x (98,000 - 95,000) = $3,000 unfavorable

2. Think of a plausible explanation for the variances found in Requirement 1

Since the actual price of potatoes was less than the standard price, the price variance was favorable. But since the actual quantity used was more than the standard quantity, the quantity variance was unfavorable.

3. Determine the direct labor rate and efficiency variances.

direct labor rate variance = AH x (AR - SR) = 2,100 x ($12.45 - $12.15) = $630 unfavorable

direct labor efficiency variance = SR x (AH - SH) = $14.15 x (2,100 - 2,000) = $1,415 unfavorable

4. Could the explanation for the labor variances be tied to the material's variances?

Probably the labor efficiency variance since more materials had to be processed, but the labor rate variance is completely independent from the materials variances.

8 0

4 years ago

Jose and Juanita are buying their first home. They want a low interest rate on loans, and they want to deal with someone local a

Sedbober [7]

Answer:

savings and loan association

8 0

3 years ago

On the basis of this information, what were total maintenance costs when the company experienced 23,000 machine hours of activit

spayn [35]

Answer:

Results are below.

Explanation:

First, we need to calculate the total cost for each activity level:

High activity level= 27,000*27.3= $737,100

Low activity level= 23,000*34.3= $788,900

Now, using the high-low method, we can determine the variable and fixed costs:

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Variable cost per unit= (788,900 - 737,100) / (27,000 - 23,000)

Variable cost per unit= $12.95 per machine-hour

Fixed costs= Highest activity cost - (Variable cost per unit * HAU)

Fixed costs= 788,900 - (12.95*27,000)

Fixed costs= $439,250

Fixed costs= LAC - (Variable cost per unit* LAU)

Fixed costs= 737,100 - (12.95*23,000)

Fixed costs= $439,250

Finally, for 25,000 hours:

Total cost= 439,250 + 12.95*2,5000

Total cost= $763,000

8 0

3 years ago