The GDP value would then decrease, due to the move from Point A to C, and increase employment which would decrease savings. In addition, there is an inverse relationship to both bond prices and interest rates because as one increase in value, the other decreases, and vice versa. 2. IS-LM Model--Suppose that you have the following equations for the IS-LM model. The following are the equations of the IS-LM model, here including a feature that taxes are not simply given but depend on income through a tax function, T(Y).
3. If a change is made in the discount rate, the net present value. If Superior Living were to take on an investment with the common pattern of having costs early and profits later, it would need a higher discount rate to make the net present value smaller. When calculating NPV of a project, the amount of profit must be discounted in order to view its present value. This is called ‘discount rate’ (Bills, 2011).
Explain the difference in the required return estimates from the Value Line to the WSJ price data. The company’s return on common stock using the constant growth model is 7.72% Expected dividend yield = .60/27= 2.22% Cap. Gains Yield=5.5% The expected returns decreased from 8.36%to 7.72% which indicates the company is not as risky because the higher the risk the higher the return. B. What is the relationship between dividend yield and capital gains yield over time under constant growth assumptions?
• it increases the time it takes to detect changes in the competitive environment • organization response time is increased • organizational flexibility is reduced • It reduces time lags 3. The acquisition of treasury stock by a corporation: • requires that a gain or loss be recognized on the income statement. • increases its total assets and total stockholders’ equity. • has no effect on total assets and total stockholders’ equity. • decreases its total assets and total stockholders’ equity.
Low costs could be realized if, say, material costs are low and machine breakdowns are infrequent, while costs could be higher if material prices increase and the machinery needs frequent maintenance. All costs and revenues are perpetual and after tax. Thus, the revenue (costs) are annual amounts that Excellent will receive (pay) each year forever. Assume that Excellent's cost of capital is 10 percent. What should Excellent do?
A company’s profits are adversely affected by changes in sales price, costs, and the volume of activity (Edmonds, p. 946, 2007). Therefore it is imparitive that management considers probable changes in cost and volume through the use of a CVP analysis. A CVP analysis measures fixed cost and “assumes true linearity among the CVP variables and a constant level of inventory” (Edmonds, p. 946, 2007). Although flexible budgets are based on different levels of volume and change with the changes in activity, flexible budgets lends itself to CVP analysis due its ability of measuring changes in cost and volume. With the use of a flexible budget, a
This occurs through an accounting adjusting entry in which the account Depreciation Expense is debited and the contra asset account Accumulated Depreciation is credited. Depreciation is very important in managing the life of asset, planning taxes, for future success of the company. Depreciation in accounting is the process of allocating the cost of a capital asset over an amount of time of its useful life. Depreciation also takes into account the decrease in the service potential of capital assets invested in a business resulting from such causes as physical wear and tear in ordinary use, deterioration by natural elements or obsolescence caused by technological changes. Basically depreciation is a loss in value or a diminishment in market price of a good always taking the time factor into account.
The company regularly calculated “warranted equity value” for its common shares and repurchased its stock whenever the market price fell substantially below that value. The cost of capital for Marriott and for each of the three divisions individually could differ in each of the divisions resulting in varying cost of capital. In order for Marriott to only invest in a project, the internal rate of return (IRR) needs to be greater than the hurdle rate. To accurately determine the opportunity cost of capital. We will apply the cost of capital as the hurdle rate to discount future cash flows for the investment projects of the firm’s three divisions.
Something else to be considered is that when a company uses money for share repurchases when it could be paying a higher dividend instead, the company’s management is limiting your control and increasing theirs. As a shareholder in a company that makes uses of share repurchases, you have to rely on management’s ability to judge whether it’s an appropriate time to repurchase shares, whereas with your dividend, you have complete control over that choice. The flexibility of dividends for shareholders is great, because if allows you to direct your flow of income to where you think the best investment opportunities are at any given time. Share repurchases lack that
If the company change to RI/EVA it will be possible to negotiate relevant inventory levels in the budget process. High inventory levels can also be managed with differentiated capital charges that will create high interest costs. The best way to control operational tasks is to us nonfinancial measures such as inventory turnover. Use non financial measures to control the inventory levels. If it is an strategic issue you can connect this measure to the bonus system.