Answer:
E) if the firm evaluates these projects and all other projects at the new overall corporate wacc, it will probably become riskier over time.
Explanation:
Before the merger, Audaco would have rejected any project with an IRR of less than 12% (more risky investments) while Careco only required a 10% IRR (less risky projects). But after the merger the combined WACC will be lower than Audaco's, but higher than Careco's. Therefore, the new merged company will start accepting more risky projects and that tendency will continue over time. Eventually, the company's WACC will have to adjust and increase, and the cycle will continue.
Alternate Outputs from One Day's Labor Input: USA: 12 bushels of wheat or 3 yards of textiles. India: 3 bushels of wheat or 12 yards of textiles. From the data, the USA:________.
a) has an absolute advantage over India in the production of wheat.
b) should export textiles to India.
c) has an absolute advantage over India in the production of textiles.
d) has a comparative advantage in the production of textiles.
Answer: a) has an absolute advantage over India in the production of wheat.
Explanation:
When a country is said to have an Absolute advantage in the production of a commodity, it means that they can produce more of that commodity than the country being compared to given the same amount of resources, all else being equal.
Given one day's labor input, the US can produce 12 bushels of wheat while India can only manage 3 bushels. The United States therefore has an Absolute advantage in the production of Wheat than India.
Finding operating and free cash flows Consider the following balance sheets and selected data from the income statement of Keith Corporation.
Keith Corporation Balance Sheets December 31
Assets 2015 2014
Cash $ 1,500 $ 1,000
Marketable securities 1,800 1,200
Accounts receivable 2,000 1,800
Inventories 2,900 2,800
Total current assets $ 8,200 $ 6,800
Gross fixed assets $ 29,500 $ 28,100
Less: Accumulated depreciation 14,700 13,100
Net fixed assets $ 14,800 $ 15,000
Total assets $ 23,000 $ 21,800
Liabilities and stockholders' equity
Accounts payable $ 1,600 $ 1,500
Notes payable 2,800 2,200
Accruals 200 300
Total current liabilities $ 4,600 $ 4,000
Long-term debt 5,000 5,000
Total liabilities $ 9,600 $ 9,000
Common stock $ 10,000 $ 10,000
Retained earnings 3,400 2,800
Total stockholders' equity $ 13,400 $ 12,800
Total liabilities and stockholders' equity $ 23,000 $ 21,800
Keith Corporation Income Statement Data (2015)
Depreciation expense $1,600
Earnings before interest and taxes (EBIT) 2,700
Interest expense 367
Net profits after taxes 1,400
Tax rate | 40%
Required
a. Calculate the firm's net operating profit after taxes (NOPAT) for the year ended December 31, 2015
b. Calculate the firm?s operating cash flow (OCF) for the year ended December 31, 2015
c. Calculate the firm?s free cash flow (FCF) for the year ended December 31, 2015
d. Interpret, compare, and contrast your cash flow estimates in parts b and c.
Answer:
a. NOPAT = EBIT * (1-t)
NOPAT = $2,700 * (1-0.40)
NOPAT = $1,620
b. OCF = NOPAT + Depreciation
OCF = $1,620 + $1,600
OCF = $3,220
c. FCF = Net fixed asset investment - Net current asset investment
FCF = $3,320 - $1,400 - $1,400
FCF = $420
Note:
Net fixed asset investment = Change in net fixed assets + depreciation
= ($14,800- $ 15,000) + $1,600
= $1,400
Net current asset investment = Change in current assets - Change in accounts payable and accurals
= ($8,200 - $6,800) - {($1,600 + $200) - ($1,500 - $300)}
= $1,400
d. FCF is meaningful as it shows that OCF is able to cover Operating expenses as well as Investment in Fixed and Current Assets
True or False: The more that the labor supply decreases in response to a decrease in wages, the larger are the supply-side effects of an increase in tax rates (that is, the decrease in output is largerdue to a tax increase).
Answer:
Correct Answer:
1. True
Explanation:
Taxes affect work activity directly through labor supply-and-demand channels and indirectly through government spending responses to available tax revenues. It has been determined that higher tax rates on labor lead to less work time in the legal market sector.
What is the yield to maturity on a bond that pays annual coupon rate of 14%, has a par value of $1,000, matures in 10 years, and is selling for $911?
Answer:
Yield to Maturity =15.6%
Explanation:
The Yield to maturity is the discount rate that equates then price of the bonds to the present of cash inflows expected from the bond
The yield on the bond can be determined as follows using the formula below:
YM = C + F-P/n) ÷ 1/2 (F+P)
YM-Yield to maturity-
C- annual coupon
F- Face Value
P- Current Price
n- number of years
DATA
Coupon = coupon rate × Nominal value = 1,000 × 14%=140
Face Value = 1000
YM-?, C- 140, Face Value - 1,000, P-911 , n- 10
YM = (140 + (1000-911)/10) ÷ ( 1/2× (1000 + 911) )
YM = 0.156 × 100 = 15.6%
Yield to Maturity =15.6%
You manufacture wine goblets. In mid- June you receive an order for 10,000 goblets from Japan. Payment of ¥400,000 is due in mid- December. You expect the yen to rise from its present rate of $1=¥107 to $1 to ¥120 by December 2020. You can borrow yen at 6% a year. What should you do?
Answer:
I will borrow yen at 6% a year.
Explanation:
a) Data and Calculations:
Payment for 10,000 = ¥400,000
Spot rate = $1 = ¥107
Forward rate = $1 to ¥120
Borrow ¥400,000, the interest cost = ¥24,000 = $224.30/2 (¥24,000/107) = $112.15 for six months
Value of ¥400,000 borrowed in dollars = $3,738.32 (¥400,000/107)
Loan Repayment of ¥400,000 in dollars = $3,333,33 (¥400,000/120)
Gain from forward contract = $404.99
Interest cost for borrowing = 112.15
Overall debt hedging gain = $292.84
By borrowing yen at 6% per annum, you will make an overall gain of $292.84. This is not comparable to the foreign exchange loss of $404.99 that you will incur without borrowing yen. Taking advantage of the the debt hedging, the supplier is able to save foreign exchange loss.
A stock has had the following year-end prices and dividends: Year Price Dividend 1 $ 43.37 - 2 48.35 $ .60 3 57.27 .63 4 45.35 .80 5 52.27 .85 6 61.35 .93 What are the arithmetic and geometric average returns for the stock? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Answer:
geometric mean return = 1.2%
arithmetic mean return = 1.21%
Explanation:
Year Price Dividend Yearly return
1 $43.37 - 0
2 $48.35 $0.60 1.24%
3 $57.27 $0.63 1.1%
4 $45.35 $0.80 1.76%
5 $52.27 $0.85 1.63%
6 $61.35 $0.93 1.52%
geometric mean return = [(1 + 0) x (1 + 0.0124) x (1 + 0.011) x (1 + 0.0176) x (1 + 0.0163) x (1 + 0.0152)]¹/⁶ - 1 = 1.012 - 1 = 0.012 = 1.2%
arithmetic mean return = (0% + 1.24% + 1.1% + 1.76% + 1.63% + 1.52%) / 6 = 7.25% / 6 = 1.21%
Dustup, a cleaning products company, was trying to revive its old wood floor waxing product. It began offering an augmented service of a small brochure called "Ask a Wood Floor Expert" to its bottles. The brochure included information and a customer support hotline. However, shoppers removed the brochure from bottles in the store, so few bottles were purchased. At the same time, Dustup began receiving a flood of calls to its hotline. This increased Dustup’s costs 30% over projections. What question did the company forget to ask before launching its add-on?
Answer:
Dustup forgot to the consumers if the add-on will give them more satisfaction from using their product.
Explanation:
The market is always king. Getting first-hand information about what consumers need and how they need it is the best way to go about creating a product or modifying an existing one to become more profitable.
The removal of the brochures from the bottles showed that shoppers didn't necessarily want their product. What they wanted was to be able to make contact with the company and get more information on how to revive their old wooden floors.
Cheers!
2. Suppose that you have 2 buyers and one item for sale. The first buyer values your product at $10, and the second buyer values your product at $6. You estimate that the probability of getting the high value customer is 40%. Your marginal costs are $3. You have only one chance to sell your item to these buyers. What is your optimal price and expected profit
Answer:
Price at $6, Profit = $3
Explanation:
When price is $ 10:
Profit = $10 - $3 = $7
But there is 40% chance of high valued customer
So, profit = $7 X 0.40 = $2.8
When price is $6
Profit = $6 - $3 = $3
A company sold equipment that originally cost $290,000 for $145,000 cash. The accumulated depreciation on the equipment was $145,000. The company should recognize a:
Answer:
$0 gain/loss
Explanation:
A company sold an equipment that originally cost $290,000 for $145,000
The accumulated depreciation on the equipment was $145,000
The first step is to calculate the book value of the equipment
Book value of the equipment= Cost of equipment-accumulated depreciation
= $290,000-$145,000
= $145,000
Therefore, the gain/loss on the equipment can be calculated as follows
= Selling price-book value
= $145,000-$145,000
= 0
Hence there is no recognized gain or loss on the equipment
Answer:
Company would recognize a no loss or gain on the disposal i.e Nil
Explanation:
The gain or loss on disposal is the difference between the carrying value of an assets at the point of disposal and the the disposal value.
Gains/(Loss)= Disposal value - carrying value
The carrying value is the difference between the historical cost and the accumulated depreciation till date.
Carrying value = Historical cost - Accumulated depreciation till date
Carrying value = 290,000 - 145,000 = 145 ,000
Gains/Loss= 145,000 - 145,000 = 0.
Company would recognize a no loss or gain on the disposal i.e Nil
Kansas Enterprises purchased equipment for $73,500 on January 1, 2021. The equipment is expected to have a five-year service life, with a residual value of $6,450 at the end of five years. Using the double-declining balance method, depreciation expense for 2022 would be
Answer:
The answer is $17,640
Explanation:
Equipment was bought on Jan. 1, 2022 for $73,500. This is the historical cost of the asset.
Residual value is $6,450. This is the amount the equipment is being expected to sell for at the end of its useful life.
Useful life is 5 years.
To know the percentage to be used for the depreciation, we have:
100percent / 5 years
= 20 percent
Double-declining is 40 percent(20 percent x 2)
Depreciation for 2021 is
$73,500 x 40 percent
= $29,400.
Carrying amount at the end of 2021 which will also be for the beginning of 2022 is $44,100 ($73,500 - $29,400)
Depreciation for 2022:
$44,100 x 40 percent
$17,640.
Therefore, the depreciation for 2022 is $17,640.
During the month of March, Blossom Company’s employees earned wages of $60,000. Withholdings related to these wages were $4,590 for Social Security (FICA), $7,031 for federal income tax, $2,906 for state income tax, and $375 for union dues. The company incurred no cost related to these earnings for federal unemployment tax but incurred $656 for state unemployment tax.
1. Prepare the necessary March 31 journal entry to record salaries and wages expense and salaries and wages payable. Assume that wages earned during March will be paid during April.
2. Prepare the entry to record the company’s payroll tax expense.
Answer:
1.
March 31,
DR Salaries and Wages Expense ....................$60,000
CR FICA taxes payable ........................................................$4,590
CR Federal income tax payable .........................................$7,031
CR State income tax payable ..............................................$2,906
CR Union dues payable .......................................................$375
CR Salaries and Wages payable ..........................................$45,098
Working
Salaries and Wages payable = 60,000 - 4,590 - 7,031 - 2,906 - 375
= $45,098
2.
DR Payroll taxes payable ...................................$5,246
FICA taxes payable .................................................................$4,590
State unemployment taxes payable ....................................$656
Working
Payroll taxes payable = 4,590 + 656
= $5,246
A NASDAQ security is bid at $30.25 and offered at $30.75. An over-the-counter trader effects a trade at $30.75 and charges a commission of $.50 to the customer. The price that will show on the tape is:
Answer:
$30.75
Explanation:
Given that
Security bidding = $30.25
Offered price = $30.75
over the counter trading = $30.75
Commission charged = $0.50
based on the above information, the price that shows on the tape is equivalent to the over the counter trading price i.e $30.75 also it does not include the commission charged i.e $0.50
Hence, the price is $30.75
"One of the ten IG principles is a Continuous improvement. What is the importance of this principle to the organization program"
Answer:
the importance is to provide periodic program review and necessary adjustments against gaps and it short comings
Explanation:
Information governance is a full way of managing information in a corporation by the implementation of a series of processes, controls and roles. It can be simply said to be a process of managing information assets as this will cause a balance between security and usage.
continuous improvement is one of its 10 principles. And it simply means that programs in information governance have to go through continuous reviews and updates as doing such will help to reduce shortcomings.
A publisher is deciding whether or not to invest in a new printer. The printer would cost $900, and would increase the cash flows in year 1 by $500 and in year 3 by $800. Cash flows do not change in year 2.If the interest rate is 12% Is the investment in the new printer feasible?
Answer:
Yes, since NPV>0
Explanation:
The computation of the net present value is shown below:
= Present value of cash inflows - initial investment
where,
Present value of cash inflows is
= $500 ÷ (1 + 0.12)^1 + $800 ÷ (1 + 0.12)^3
= $446.43 + $569.42
= $1,015.85
And the intial investment is $900
So, the net present value is
= $1,015.85 - $900
= $115.85
Since the net present value comes in positive so the investment in new printer is feasible
Which of the following perspectives from the balanced scorecard approach helps managers answer the question, "How do we look to shareholders?
a. Learning and growth perspective
b. Internal business perspective
c. Customer perspective
d. Financial perspective
Answer:
d. Financial perspective
Explanation:
-Learning and growth perspective focuses on the measures that the company can take to improve its performance.
-Internal business perspective indicates if the internal performance is allowing to meet the customers' needs.
-Customer perspective shows if the company is focused on the customers and on delivering value to them.
-Financial perspective indicates if the company's strategy is providing benefits and value to the shareholders.
According to this, the answer is that the perspective from the balanced scorecard approach that helps managers answer the question, "How do we look to shareholders?" is the financial perspective because it indicates the shareholders if the company is getting the economic results that are expected.
fremont which uses the high-low method reported total cost of $10 per unit its lowest production level, 5000 units. when production tripled to its highest level, the total cost per unit dropped to $5 variable cost per unit
Answer:
$2.50
Explanation:
Calculation for the estimation of variable cost per unit
Units Total cost
High method 15,000×$5 per units =$75,000
(5,000*3)=15,000
Low method 5,000*$10 per units=$50,000
Difference 10,000 $25,000
Variable cost per unit =$25,000/10,000
Variable cost per unit=$2.50
Note: Based on the information given we were told that production tripled to its highest level which means the high method units will be 15,000 units (5,000 units*3)
Therefore Fremont would estimate its variable cost per unit as: $2.50
Bandar Industries Berhad of Malaysia manufactures sporting equipment. One of the company’s products, a football helmet for the North American market, requires a special plastic. During the quarter ending June 30, the company manufactured 3,400 helmets, using 2,346 kilograms of plastic. The plastic cost the company $15,484. According to the standard cost card, each helmet should require 0.64 kilograms of plastic, at a cost of $7.00 per kilogram. Required: 1. What is the standard quantity of kilograms of plastic (SQ) that is allowed to make 3,400 helmets? 2. What is the standard materials cost allowed (SQ × SP) to make 3,400 helmets? 3. What is the materials spending variance? 4. What is the materials price variance and the materials quantity variance?
Answer:
1. What is the standard quantity of kilograms of plastic (SQ) that is allowed to make 3,400 helmets?
3,400 helmets x 064 kgs per helmet = 2,176 kgs
2. What is the standard materials cost allowed (SQ × SP) to make 3,400 helmets?
2,176 kgs x $7 per kg = $15,232
3. What is the materials spending variance?
$15,484 - $15,232 = $252 unfavorable (because total expenditures on materials were higher than budgeted)
4. What is the materials price variance and the materials quantity variance?
materials price variance = [($15,484/2,346) - $7] x 2,346 = -$938 favorable (the purchase price per kg was lower than budgeted)
materials quantity variance = (2,346 - 2,176) x $7 = $1,190 unfavorable
A company budgets administrative salaries at $5,000 at a sales level of 1,000 units. At a sales level of 1,200 units, budgeted administrative salaries will be $
Answer:
$5,000
Explanation:
Based on the information given we were told that the company had budgets administrative salaries at the amount of $5,000, which means that the amount of $5,000 will be the company budgets administrative salaries.
Therefore the company budgeted administrative salaries will be the amount of $5,000
Ray's Satellite Emporium wishes to determine the best order size for its best-selling satellite dish (model TS111). Ray has estimated the annual demand for this model at 1,500 units. His cost to carry one unit is $80 per year per unit, and he has estimated that each order costs $22 to place.
Using the EOQ model, how many should Ray order each time?
Answer:
28.72 units
Explanation:
Calculation of how many should Ray order each time using EOQ model
Using this formula
EOQ= √2DS/H
Where,
D=Annual demand 1,500 units
S=Order costs $22
H=Holding Costs $80 per unit
Let plug in the formula
EOQ=√2*1,500*$22/$80
EOQ=√66,000/$80
EOQ=√825
EOQ=28.72 units
Therefore Using the EOQ model, Ray should order 28.72 units each time.
Assuming a 360 -day year the maturity value of a 15000, 9%,60-day note receivable dated February 10th is:
Answer:
the maturity value of the note receivable is $15,225, and includes both principal plus interest revenue.
Explanation:
when the note is collected on April 11, the journal entry should be:
April 11, collection of notes receivable
Dr Cash 15,225
Cr Notes receivable 15,000
Cr Interest revenue 225
interest revenue = $15,000 x 9% x 2/12 = $225
Endor Company begins the year with $110,000 of goods in inventory. At year-end, the amount in inventory has increased to $118,000. Cost of goods sold for the year is $1,300,000. Compute Endor’s inventory turnover and days’ sales in inventory. Assume that there are 365 days in the year
Answer:
11.40
32 days
Explanation:
Inventory turnover and days of sales of inventory are examples of activity ratios.
They are used to measure the efficiency of performing daily tasks
inventory turnover = Cost of goods sold/ average inventory
Average inventory = ($118,000 + $110,000) / 2 = $114,000
Inventory turnover = $1,300,000 / $114,000 = 11.40
days of sales of inventory = 365 / inventory turnover = 365 / 11.40 = 32 days
Fertile Acres Inc., Growers Farm Co-op, and Harvest Orchards agree to exchange information, conduct an advertising campaign, and set certain regulatory standards to govern their operations. This association is
Answer: a. subject to analysis under the rule of reason.
Explanation:
The Rule of Reason is used to interpret whether he Sherman Act which is an anti-trust law has been breached. This Rule was established so as not to unfairly close down all monopolies and Monopolies are not illegal, price fixing is.
If companies therefore come together as Fertile Acres Inc., Growers Farm Co-op, and Harvest Orchards have done, the Government under the Rule of Reason will check to see if the actions of these firms was done in order for them to go against free trade practices. If it was not then the agreement might be allowed to stand.
What is the beta for a company with a 12% expected return, while treasury bills are yielding 5% and the market risk premium is 7%
Answer:
The beta for the company is 1.
Explanation:
A beta is the measure of systematic risk associated to a stock or the portfolio. Systematic risk is the market risk that affects all the stocks in the market due to factors that are uncontrollable. Such a risk is what the companies compensate the investors for. Using the CAPM equation, we calculate the expected rate of return of a stock. The equation is,
r = rRF + Beta * rpM
Where,
rRF is the risk free raterpM is the risk premium on marketWe already have the values for r, rRF and rpM. Plugging them in the formula, we calculate the beta to be,
0.12 = 0.05 + Beta * 0.07
0.12 - 0.05 = Beta * 0.07
0.07/ 0.07 = Beta
Beta = 1
Costs which can be eliminated in whole or in part if a particular business segment is discontinued are called:
Answer:
Avoidable costs
Explanation:
An avoidable cost is defined as one that an entity will not incur if a particular activity is not undertaken.
In business operations avoidable costs are usually variable costs. These are costs that vary or change in the cost of production. For example wages, cost of raw materials, and labour. These can be avoided depending on business needs.
Costs that are not avoidable are fixed cost. For example rent, insurance, and utilities.
These costs are paid wether production occurs or not.
Tyler Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $127.20 per unit. Sales volume (units) 5,000 6,000 Cost of Sales $419,000 $502,800 Selling and Administrative costs $186,000 $202,200 The best estimate of the total contribution margin when 5,300 units are sold is: Group of answer choices $230,020 $51,410 $146,810 $32,330
Answer:
The correct answer is A.
Explanation:
Giving the following information:
The company sells the product for $127.20 per unit.
Sales volume (units) 5,000 6,000
Cost of Sales $419,000 $502,800
First, we need to determine the unitary variable cost:
unitary variable cost= 419,000/5,000= $83.8
unitary variable cost= 502,800/6,000= $83.8
Now, the unitary contribution margin:
Unitary contribution margin= 127.2 - 83.8= $43.4
Finally, the total contribution margin:
total contribution margin= 5,300*43.4= $230,020
The best estimate of the total contribution margin when 5,300 units are sold is option A $230,020.
Total Contribution Margin
To Calculate the Contribution Margin, we need to find the value of the unitary variable cost, and their margin. We are provided with these information:
Selling price $127.20 per unit.
Sales volume 5,000, & 6,000
Cost of Sales $419,000 & $502,800
To find the value of Total Contribution margin:
Step 1: Unitary Variable Cost= 419,000/5,000= $83.8
Step 2: Unitary Variable Cost= 502,800/6,000= $83.8
Step 3: Unitary Contribution Margin= 127.2 - 83.8= $43.4
Step 4: Total contribution margin when 5300 units are sold= 5,300×43.4= $230,020.
Hence, option A is correct.
Learn More about Contribution Margin here:
https://brainly.com/question/24309427
A company had the following cash flows for the year: (a) Purchased inventory, $60,000 (b) Sold goods to customers, $90,000 (c) Received loan from a local bank, $150,000 (d) Purchased land, $180,000 (e) Purchased treasury stock, $40,000 (f) Paid dividends, $10,000 (g) Sold delivery truck, $30,000 What amount would be reported for net investing cash flows on the Statement of Cash Flows (for a negative number put a minus in front of the number)?
Answer:
The amount would be reported for net investing cash flows on the Statement of Cash Flows is –$190,000, that is, minus $190,000.
Explanation:
Cash flow from investing activities refers to the section of the cash flow statement that provides amount of cash that is generated or spent on investing activities.
Investing activities comprises of purchases or sales property plant, and equipment (PP&E), marketable securities (i.e., stocks, bonds, etc.), and among others.
From the question, the amount of net investing cash flows can be computed as follows:
Particulars Amount ($)
Purchased land –180,000
Purchased treasury stock –40,000
Sold delivery truck 30,000
Net cash flow from investing activities –190,000
Therefore, the amount would be reported for net investing cash flows on the Statement of Cash Flows is –$190,000, that is, minus $190,000.
dazzle, inc. produces beads for jewelry making use the journal entry to record production activities for direct labor usage is
Answer:
Debit Work in Process Inventory $180,000; credit Factory Wages Payable $180,000.
Explanation:
The journal entry to record the direct labor usage is shown belwo:
Work in process inventory Dr
To factory wages payable
(Being the direct labor usage is recorded)
For recording this we debited the work in process as it increased the assets and credited the factory wages payable as it also increased the liabilities
Moreover, when the wages is applied in the production level so the respective account is debited and credited
(Table) If Jake and Sue are the only buyers of the local pizzeria's pizza, what is the market demand for pizzas at each of the prices listed, starting at the market price of $5? QJ is the quantity demanded at each price by Jake, and QS is the quantity demanded at each price by Sue.
Answer:
This is the table that the question is referring to:
Price QJ QS
5 4 2
10 3 1
15 2 0
20 1 0
Total market demand is the sum of the individual market demands. In this market, it is the sum of the market demand of Jake and Sue.
Market demand at the price of $5 is 7 pizzas.
Market demand at the price of $10 is 4 pizzas.
Market demand at the price of $15 is 2 pizzas.
Market demand at the price of $20 is 1 pizza.
Which of the following statements is CORRECT? a. Commercial paper can be issued by virtually any firm so long as it is willing to pay the going interest rate. b. Short-term debt is favored by firms because, while it is generally more expensive than long-term debt, it exposes the borrowing firm to less risk than long-term debt. c. Commercial paper is a form of short-term financing that is primarily used by large, strong, financially stable companies. d. Trade credit is provided only to relatively large, strong firms. e. Commercial paper is typically offered at a long-term maturity of at least five years.
Answer: Commercial paper is a form of short-term financing that is primarily used by large, strong, financially stable companies.
Explanation:
Commercial papers a promissory notes which are issued by companies on a short term basis that are unsecured. It should be noted that that they are used by the strong, large, and financially stable companies.
Commercial paper are issued in order to finance payroll, and also meet a company's short-term liabilities.
The firm receives an average of $20,000 in checks per day. The weighted average delay in clearing the checks received is 3 days. Meanwhile, the firm writes an average of $17,000 in checks to pay its suppliers per day. The usual clearing time for the checks the firm wrote is 2 days. The current interest rate is 0.015 percent per day. What is the most the firm should be willing to pay today (in a lump sum today) to eliminate its float entirely? A) 3000 B) 26000 C) 34000 D) 37000 E) 60000
Answer:
$26000
Explanation:
from the question;
check per day; 20000
delay: 3 days
checks to pay suppliers; 17000
clearing time 2 days
we first calculate collection flaot:
collection flaot = average amount of check x outstanding days
= 20000 x 3
= 60000
now we have to calculate disbursements float:
average amount of check x days to clear
= 17000 x 2
= 34000
with these two values we can get the net float
= collection flaot - disbursements float
= 60000 - 34000
= $26000
