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Oxana [17]
2 years ago
5

What would be the consequences if managers of a firm evaluated a project based on its actual dollar cash flows, but used a real

rate to discount the cash flows? Would the project be more likely to be accepted, or more likely to be rejected? What kind of error could be committed? Please provide an example of how a project evaluation was affected by inflation considerations, either from your own experience, or do some online search for examples.
Business
1 answer:
matrenka [14]2 years ago
6 0

Answer:

Real rate of returns are lower than nominal rates of return, therefore, using a real discount rate would overestimate a project's net present value. This could result in unprofitable projects being accepted because the NPV was erroneously calculated. If you want to use a real discount rate, you must first convert cash flows to real dollars.

For example, nominal discount rate is 10%, inflation rate is 5%, real discount rate is 5%.

Initial outlay $100

NCF year 1 = $40

NCF year 2 = $40

NCF year 3 = $40

Using the real discount rate, the NPV = $8.93

Using the nominal discount rate, the NPV = -$0.53

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Mission Corporation reported the following equity section on its current balance sheet. The commonstock is currently selling for
castortr0y [4]

Answer:

The correct option is A. 160,160

Explanation:

For computing the total number of common share issued, we have to multiply the common share issued with the dividend percentage

In mathematically,

Total common share issued = Issue of common shares × (1+dividend rate)

where,

Issue of common shares is 143,000 shares

and, the dividend rate is 12%

Now put these values to the above formula

So, the answer would be equal to

= 143,000 shares × ( 1 + 12%)

= 143,000 shares × 1.12

= 1601,60 shares

Since the common share value is given without considering the dividend, so we have to consider it for calculating the total number of common share issued.

The remaining information which is given in the question is irrelevant. Hence, it is ignored.

Hence, the total number of common shares issued is 1601,60 shares

Therefore, the correct option is A. 160,160

4 0
3 years ago
Craig, a sales manager, has been asked to explain the under performance of his team in the previous financial year. Instead of u
Scilla [17]

Answer:

a. Stonewalling

Explanation:

Stonewalling can be defined as refusal to cooperate, be obstructive or evasive.

Stonewalling could result from various reasons, and they could include:

  • a genuine belief that the accused is not wrong, as in the question above, i.e. refusal to take responsibility for one's errors,
  • a means to quickly dismiss the discussion,
  • a fear of where the discussion may lead,
  • a belief that the accuser has no desire to resolve the conflict, etc.
5 0
3 years ago
An FI purchases at par value a $100,000 Treasury bond paying 10 percent interest with a 7.5 year duration. If interest rates ris
puteri [66]

Answer:

The bond's new value is $70,000

Explanation:

First calculate the percentage change in the value of the bond

Duration = Percentage change in price / Percentage change in yield

Percentage change in price = Duration x Percentage change in yield

where

Duration = 7.5 years

Percentage change in yield = 4%

Percentage change in price = ?

Placing value sin the formula

Percentage change in price = 7.5 x 4%

Percentage change in price = 0.30

Percentage change in price = 30%

As we know that the value of the bond and the yield rate are inversely proportional to each other, If the yield rate increases the value of the bond decreases due to the discounting factor used in the valuation o the bond.

Hence, the value of the bond is calculated as follow

Value of the bond = Par value of the bond x ( 1 - per centage of change in the price of the bond

Value of the bond = $100,000 x ( 1 - 30% )

Value of the bond = $100,000 x 0.70

Value of the bond = $70,000

3 0
3 years ago
Arntson, Inc., manufactures and sells two products: Product R3 and Product N0. The annual production and sales of Product of R3
Tcecarenko [31]

Answer:

$695.24 per unit

Explanation:

Calculation to determine what The unit product cost of Product R3 under activity-based costing is closest to

First step is to Calculate Activity rates

Activity Cost Pool Activity driver Overhead Cost (A) Expected Activity (B) Activity rate (A/B)

Labor related Number of DLH $ 40,636÷13,000 = 3.13 Per DLH

Production orders Number of Order 65,880÷ 1,600= 41.18 Per Order

Order size Number of MH 433,075÷ 7,600 = 56.98 Per MH

Second step is to calculate the Cost assigned to Product R3

Cost assigned to Product R3

Activity name Activity Rates Activity ABC Cost

(A) (B) (A x B)

Labor related 3.13 * 11,000 =$34,430

Production orders 41.18* 1,200=$49,416

Order size 56.98*3,900= $222,222

Total Overheads assigned $306,068

($34,430+$49,416+$222,222)

Production 1,100

Overhead cost per unit $278.24

Product R3

Direct material $211

Direct labor (10x $20.60 per DLH) $206

Overheads $278.24

Total Cost per unit $695.24

($211+$206+$278.24)

Therefore The unit product cost of Product R3 under activity-based costing is closest to $695.24 per unit

3 0
2 years ago
Cycle Wholesaling sold merchandise on account, with terms n/60, to Sarah’s Cycles on February 1 for $550 (cost of goods sold of
nikitadnepr [17]

Explanation:

The journal entries are shown below:

On February 1

Account receivable - Sarah’s Cycles A/c Dr $550

       To Sales $550

(Being the goods are sold on credit)

Cost of goods sold A/c Dr $375

           To Merchandise Inventory A/c $375

(Being goods are sold at cost)

On February 9

Sales return and allowance A/c Dr $137.50    ($550 ÷ 4)

To Accounts receivable - Sarah’s Cycles    $137.50

(Being sales return is recorded)  

Merchandise Inventory A/c $85

                  To Cost of goods sold A/c Dr $85

(Being sales return is recorded)  

On March 2

Cash A/c Dr $412.50        ($550 - $137.50)

           To Accounts receivable - Sarah’s Cycles $412.50    

(Being cash is received)

The net profit margin is

= (Net sales - Cost of goods sold) ÷ Net sales

= ($412.50 - $290) ÷ ($412.50)

= 29.69%

The cost of goods sold

= $375 - $85

= $290

5 0
3 years ago
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