c. Internal common equity where the current market price of the common stock is $43.50. The expected dividend this coming year should be $3.25, increasing thereafter at a 7% annual growth rate. The corporation’s tax rate is 34%. d. A preferred stock paying a 10% dividend on a $125 par value. If a new issue is offered, flotation costs will be 12% of the current price of $150.
The annual growth rate is I in the following equation: $1(1 + I)10 = $2. We can find I in the equation above as follows: Using a financial calculator input N = 10, PV = -1, PMT = 0, FV = 2, and I/YR = ? Solving for I/YR you obtain 7.18%. Viewed another way, if earnings had grown at the rate of 10% per year for 10 years, then EPS would have increased from $1.00 to $2.59, found as follows: Using a financial calculator, input N = 10, I/YR = 10, PV = -1, PMT = 0, and FV = ?. Solving for FV you obtain $2.59.
4. 2 Abel/Bernanke • Macroeconomics, Fifth Edition 5. The most direct effect of an increase in the growth rate of average labor productivity would be an increase in (a) the inflation rate. (b) the unemployment rate. (c) the long–run economic growth rate.
There are two types of Fiscal policy put in place to alter the level of aggregate demand; Expansionary fiscal policy and Contractionary fiscal policy. When an economy is in a recession, expansionary fiscal policy is in order. Typically this type of fiscal policy results in increased government spending and/ or lower taxes. A recession results in a recessionary gap meaning that aggregate demand is at a level lower than it would be in a full employment situation. In order to close this gap, a government will typically increase their spending which will directly increase the aggregate demand curve (since government spending creates demand for goods and services).
Profit: the amount of money a business has made over a certain time period. Profit= Total revenue-Total costs. Budgets Budgets Profit Profit Net profit margin: A net profit margin is a ratio that expresses a business’s profit after the deduction of all costs, as a percentage of sales income. Net profit margin= Net profit x 100 / sales revenue Net profit margin: A net profit margin is a ratio that expresses a business’s profit after the deduction of all costs, as a percentage of sales income. Net profit margin= Net profit x 100 / sales revenue Profit is when a business is generating higher revenue than its total costs over a period of time.
Question 3 Which price increase is needed to offset the profit impact of the increased raw material costs (assuming that volumes are constant)? Which price decrease will result from instituting price-flex (assume a best case and a worst case)? Answer 3 The selling price would increase by offsetting the raw material cost which is given in the “Appendix A” which shows that increase in the price by 6.5% would result in the positive side and a reductioncompany from reduction in the price. Understanding all this is done with respect to the case material. The volume is a constant which is assumed at 80% in the analysis of the price.
Accelerated depreciation refers to any one of several methods by which a company, for 'financial accounting' and/or tax purposes, depreciates a fixed asset in such a way that the amount of depreciation taken each year is higher during the earlier years of an asset’s life. For financial accounting purposes, accelerated depreciation is generally used when an asset is expected to be much more productive during its early years, so that depreciation expense will more accurately represent how much of an asset’s usefulness is being used up each year. For tax purposes, accelerated depreciation provides a way of deferring corporate income taxes by reducing taxable income in current years, in exchange for increased taxable income in future years. This is a valuable tax incentive that encourages businesses to purchase new assets. For financial reporting purposes, the two most popular methods of accelerated depreciation are the declining balance method and the sum-of-the-years’ digits method.
Gross domestic product, adjusted for inflation, also known as "real GDP", can tell economists whether an economy is growing or contracting from year to year or from quarter to quarter, a key determinant in deciphering whether the economy is expanding or in a recession. Internationally, gross domestic product adjusted for some benchmark, usually the US dollar, is a good indication of whether a nation's economic output is increasing or shrinking relative to other nations of the world. To exactly know if GDP is a good enough indicator of understanding an economy, it should be compared to an equivalent form of indicator. This is where we come across GNP which is quite similar to GDP. So let us understand what GNP is in order to compare these two entities.
Savings in purchasing cost: Annual demand: 800, 11.89*800 = $9512 per year. Holding cost will be higher, Extra storage, FOB, LT= 4weeks vs. 2 weeks. Sourcing and Procurement Slide 3 © Hu Lot Sizing Analysis D=800 H=20% C=$108.2 S= $75 ? Q0 2* D * S 2*(Annual Demand)*(Ordering cost) H (Annual Unit Holding Cost) QO = {2 * 800 * 75/ (108.2*0.2)} = 74.46, round up to 80, Then You order 10 times a year, you have 360/10=36 days inventory Do all of the EOQ assumptions hold here? Sourcing and Procurement Slide 4 © Hu 2
Chapter 4 problems: “We prefer to have more money in the future than today”. Interest rate comes from that people want to have a higher expected wealth in the future. The higher the risk the higher the interest rate. 4.11 a) 100/1,08 + 100/1,08^2 + 100/1,08^3 = PV b) 100*1,08^2 + 100*1,08 + 100 = FV c) Same answer as b) 4.14 Draw a timeline so you know where you are! a) Today 1 year 2 years 10 years -10.000 500 1.500 10.000 NPV = -10.000 + 500/1,06 + 1.500/1,06^2 + 10.000/1,06^10 = -2.609,36 If the interest rate were lower the project would be positive.