Answer:
Wage-rate compression.
g last year art charged $1,736,533 depreciation on the income statement of andrews. if early this year art purchased a new depreciable asset, the effect on andrews's financial statements would be (all other items remaining equal):
Last year art charged $1,736,533 depreciation on the income statement of andrews. If early this year art purchased a new depreciable asset, the effect on andrews's financial statements would be (all other items remaining equal) increase
net cash from operations.
Since the assets was purchased early in the
year, depreciation will be charged on it in
the income statement for the year at the end
of the year. Since depreciation is a non-cash
item, it will added back to the net income in
the indirect Cash Flow Statement method
as one of the adjustments to the net income
under the Cash from operations. This adding
back of the depreciation will therefore lead
to an Increase Net Cash from operations.
So, last year art charged $1,736,533 depreciation on the income statement of andrews. If early this year art purchased a new depreciable asset, the effect on andrews's financial statements would be (all other items remaining equal) increase
net cash from operations.
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if changes in monetary policy are going to help stabilize the economy, they must
If changes in monetary policy are going to help stabilize the economy, they must be timely, effective, well targeted, credible and flexible.
1. Be timely: Monetary policy changes should be implemented promptly when economic indicators show a need for intervention to prevent instability.
2. Be effective: The chosen policy should have a strong impact on the economy, addressing the root causes of instability, such as inflation or unemployment.
3. Be well-targeted: Monetary policy should focus on specific economic issues and be designed to achieve desired outcomes without causing additional disruptions.
4. Be credible: Central banks should communicate their intentions and policy changes clearly to the public and financial markets to ensure confidence in their actions.
5. Be flexible: Policymakers must be willing to adapt and adjust their strategies as economic conditions evolve, ensuring that the chosen policies remain effective in achieving their goals.
By adhering to these principles, changes in monetary policy can contribute to economic stability and promote sustainable growth.
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HELP PLEASE!!!!
In general, reducing the monthly payment (P) of a credit card but keeping the interest rate (i) and present value (PV) the same will __________.
a. decrease the number of periods (n) needed to pay off the debt
b. increase the number of periods (n) needed to pay off the debt
c. eliminate the number of periods (n) needed to pay off the debt
d. have no effect on the number of periods (n) needed to pay off the debt
The answer is B. Just took the test
Answer:
B. ¯\_(ツ)_/¯ᵐᵃʸᵇᵉ cause yeah
Reducing the monthly payment (P) of a credit card but keeping the interest rate (i) and present value (PV) the same will increase the number of periods (n) needed to pay off the debt.
What is an Interest rate?Interest is paid by a borrower and this is the amount of money that is added to the money borrowed.
Interest is usually recovered with the money borrowed in bits and the rate or amount is determined by the lender.
There is a given period to pay a loan depending on the amount borrowed the more you pay the lesser the time of repayment.
Therefore, reducing the monthly payment (P) of a credit card but keeping the interest rate (i) and present value (PV) the same will increase the number of periods (n) needed to pay off the debt.
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To perform the analysis correctly, how we
should order the alternatives?
To perform the analysis correctly, it is important to order the alternatives based on a predetermined set of criteria. This could include factors such as cost, feasibility, impact on stakeholders, and overall effectiveness.
By prioritizing these criteria and using them to rank the alternatives, the analysis can be conducted in a logical and systematic manner, allowing for a more accurate assessment of the options available. Ultimately, the order in which the alternatives are presented can have a significant impact on the outcome of the analysis, so careful consideration and planning is necessary to ensure that the process is as objective and comprehensive as possible.
To perform the analysis correctly, you should order the alternatives by first identifying your evaluation criteria, then ranking each alternative based on those criteria, and finally, comparing the alternatives to determine the best option.
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According to a survey conducted by Puffer, McCarthy, and Naumov, which of the following beliefs is held by Russian managers?
The present trend toward a shorter workweek should be discouraged.
Group activities always distract workers.
Workers have no part to play in decision making.
A person must stand alone to be superior.
According to a survey conducted by Puffer, McCarthy, and Naumov, it was found that Russian managers, particularly those from the former Soviet Union, hold the belief that "A person must stand alone to be superior." This study aimed to explore the attitudes and beliefs of Russian managers regarding management practices.
The survey involved 165 managers from the region and shed light on their perspectives. Alongside the belief that an individual must stand alone to be superior, the managers also expressed other views on management and workers. These views included the belief that workers should work more than 8 hours a day, the recognition that group activities can both distract workers and enhance organizational performance, and the belief that workers should have no involvement in decision-making processes.
The findings from the survey highlight a tendency towards individualism among Russian managers. This mindset suggests a preference for autonomous and independent work styles, where individual achievements are highly valued. It also indicates a relatively traditional approach to management, with limited worker participation in decision-making.
In summary, the study conducted by Puffer, McCarthy, and Naumov reveals that Russian managers hold the belief that "A person must stand alone to be superior." This belief, along with other perspectives on management and workers, provides insights into the attitudes and mindset of Russian managers regarding individualism, work hours, group activities, and decision-making processes.
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n instrument that is payable to cash or to whomever may have possession of the instrument is known as _______ paper.
Answer: bearer instrument
Explanation:
Bearer instrument is an instrument that is payable to cash or to whomever may have possession of the instrument. The bearer instrument is also referred to as the bearer bond.
It is a security whereby there is no record of ownership information and the security is typically issued to the purchaser in physical form and whoever holds it is believed to be the owner.
Name the choreographic element that encourages dancers to rely on musical cues, visual connections, and emotional phrasing.
The choreographic element that encourages dancers to rely on musical cues, visual connections, and emotional phrasing includes the time, energy, and space
What is the meaning of Choreography?In art, a choreography means the way in which an idea is expressed physically through dance. When developing this concept, the users usually relies on important principles of organization to ensure that the idea takes a clear, appropriate, and aesthetically pleasing form.
These are principles that comprises the basic ingredients for the dancers' movements and patterns and help the choreographer utilize space, express intention and the music, and organize the dancers.
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Which type of account does not grow tax deferred? a utma account b 529 plan c coverdell esa d health savings account
UTMA Account does not grow tax deffered in nature.
UTMA refers to Uniform Transfers to Minors Act
The term UTMA refers to the law which allows any minor to receive gifts without the help of a guardian or any trustee. Gifts can include different types of items such as money, real estates, patents, royalties, and fine art.
An UTMA account allows the giver of the gift or any appointed custodian to manage the minor's account until the minor becomes of age of 18. It also protects the minor from tax consequences on the gifts, up to a specified value.
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Which situation best illustrates the effects of inflation?
A. A factory lowers its employees' wages to $8 per hour.
B. A restaurant owner sells her business for $200,000,
C. The cost of rice at a market rises by 20 percent over three years.
O
D. An entrepreneur receives a $10,000 loan from a bank.
Answer: C: The cost of rice at a market rises by 20 percent over three years.
Explanation:
inflation is a measure of the rate of rising prices of goods and services in an economy.
The cost of rice at a market rises by 20 percent over three years best illustrates the effects of inflation. The correct option is C.
What causes inflation?As household incomes improve as a result of more jobs and higher earnings and an increase in consumer spending, the potential for price increases by businesses to raise the cost of their goods and services increases. The result is a spike in inflation when it occurs across a wide range of industries and businesses.
Inflation refers to the general increase in prices of goods and services in an economy over time. Therefore, situation C best illustrates the effects of inflation, as the cost of rice at a market rises by 20 percent over three years. This means that the same amount of money will buy less rice over time, which is an example of the erosion of purchasing power due to inflation.
Therefore, option C, "The cost of rice at a market rises by 20 percent over three years," is the most accurate answer.
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A Bank with the following capital levels: common equity of 47,000, Tier 1 of 38,000, Tier 2 of 17,000. If total assets are 850,000 and risk adjusted assets are 650,000, the capital classification of the bank is
The capital classification of the bank would be "Adequately Capitalized" as its Tier 1 capital ratio.
To determine the capital classification of the bank, we need to compare its capital levels to the risk-adjusted assets. The capital classification is typically based on regulatory requirements and ratios set by the relevant financial authorities.
One common capital adequacy ratio used for classification is the Tier 1 capital ratio.
The Tier 1 capital ratio is calculated by dividing Tier 1 capital (including common equity) by risk-adjusted assets. Let's calculate the Tier 1 capital ratio:
Tier 1 capital ratio = (Tier 1 capital / Risk-adjusted assets) * 100
In this case:
Tier 1 capital = 38,000
Risk-adjusted assets = 650,000
Tier 1 capital ratio = (38,000 / 650,000) * 100
= 5.846%
Now, let's determine the capital classification based on the Tier 1 capital ratio:
Well-Capitalized: Tier 1 capital ratio ≥ 6%
Since the calculated Tier 1 capital ratio is 5.846%, it does not meet the well-capitalized threshold.
Adequately Capitalized: Tier 1 capital ratio ≥ 4%
The calculated Tier 1 capital ratio is above the adequately capitalized threshold, which is 4%.
Undercapitalized: Tier 1 capital ratio < 4%
Since the calculated Tier 1 capital ratio is above 4%, the bank is not classified as undercapitalized.
Therefore, based on the given information, the capital classification of the bank would be "Adequately Capitalized" as its Tier 1 capital ratio exceeds the minimum regulatory requirement of 4%.
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Temporary accounts include assets, expenses, and the owner's drawing account.
Temporary accounts include assets expenses and the owner's drawing account that is False.
Temporary accounts include assets expenses and owner subscription accounts. The raffle account is a permanent account. Temporary accounts are also called nominal accounts. Temporary accounts must start each taxable period with a zero balance.
The drawing account will be used again in the following year to track next year's distributions. This means that the draw account is a temporary account and not a permanent account. temporary account. Income Statement Accounts closed with a zero balance at the end of an accounting period. permanent account. A balance sheet account that maintains a permanent balance.
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From the list below select the business and in retail industry
The business in the retail industry from the list below is: C. Department store.
What is the retail industry?The retail industry involves businesses that sell finished goods directly to customers for personal or household consumption. Therefore, the business from the list that is in the retail industry is the one that sells finished goods.
A. City Park is a public recreational area and does not sell finished goods, so it is not in the retail industry.
B. A Doctor's office provides medical services and does not sell finished goods, so it is not in the retail industry.
C. A Department store is a retail business that sells a wide variety of finished goods such as clothing, footwear, accessories, home furnishings, appliances, and electronics, among others, so it is in the retail industry.
D. A Car Repair Shop provides automotive repair and maintenance services and does not sell finished goods, so it is not in the retail industry.
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The complete question is:
From the list below select the business and in retail industry
O A. City Park
O B. Doctor's office
O C. Department store
O D. Car Repair Shop
A country produces 3000 new capital goods in a week. 500 of those replace worn out capital goods. what is the net investment made?
A country produces 3000 new capital goods in a week. 500 of those replace worn out capital goods. The net investment made is 2500.
An asset or object acquired with the intention of creating income or recognition is referred to as an investment. A purchase of goods that are not consumed right away but will be utilized to create wealth down the road is referred to as an investment in an economic outlook.
A company makes a capital investment when it buys tangible assets to utilize in achieving its long-term goals and objectives. Among the assets that are bought as capital investments are real estate, factories, and equipment.
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as corporations are going more global advertising is still a local concern. T/F
True. As corporations expand globally, advertising continues to be a local concern. While corporations may have a global presence and marketing strategies,
Advertising often needs to be tailored to specific local markets and cultural contexts. Consumer behavior, preferences, and communication channels can vary significantly across different regions and countries. Therefore, companies need to adapt their advertising campaigns to resonate with local audiences and effectively communicate their brand message. This localization of advertising ensures that it is relevant, relatable, and culturally sensitive, ultimately increasing its effectiveness in reaching and engaging target customers in different markets.
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Establishments that sell alcoholic beverages to go are called?
Establishments that sell alcohol ic beverages to go are called off premise. There are several examples of off premise, such as convenience stores, gas stations, grocery stores, and also liquor stores.
In the economic and business, off-premise sales generally can be defined as a something sold from a business that's consumed or used away from the four walls of the establishment. The term of off premise is usually used for alcohol sales, such as convenience stores, gas stations, grocery stores, and also liquor stores. There are several product that can be promoted by off premise, such as wine, spirit, or beer promotions.
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consider the following returns and states of the economy for tz com economy probability return weak 20 7 normal 20 4 strong 60 17 what is the standard deviation of tz's returns
The standard deviation of TZ com's returns is 7.02%. This indicates that the returns are relatively volatile, with a significant level of variability in returns from year to year.
Investors should consider this when making investment decisions and diversifying their portfolio to manage risk. To calculate the standard deviation of the returns for the TZ com economy, we need to first calculate the expected return and variance of the returns.
Expected return = (probability of weak state * return in weak state) + (probability of normal state * return in normal state) + (probability of strong state * return in strong state)
= \((0.20 * 7) + (0.20 * 4) + (0.60 * 17) = 11.2%\)
Variance = (probability of weak state * (return in weak state - expected return)^2) + (probability of normal state * (return in normal state - expected return)^2) + (probability of strong state * (return in strong state - expected return)^2)
=\((0.20 * (7 - 11.2)^2) + (0.20 * (4 - 11.2)^2) + (0.60 * (17 - 11.2)^2) = 49.28%\)
Standard deviation = square root of variance
= square root of 49.28%
= 7.02%
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Examine the elements of the Five Forces Framework.
Which of the five forces do you think has the most significant impact on profitability? Explain your answer and give examples to illustrate your point.
Will your answer to Question 2 change depending on the type of industry? Why or why not? Provide examples to support your position.
The Five Forces Framework, developed by Michael Porter, analyzes the competitive dynamics of an industry. The five forces are: Threat of New Entrants: The ease or difficulty for new competitors to enter the industry. Factors such as barriers to entry, economies of scale, and brand loyalty can impact this force.
Bargaining Power of Suppliers: The suppliers' ability to influence pricing, quality, or supply of inputs. If there are few alternative suppliers or if suppliers have strong bargaining power, they can impact profitability.
Bargaining Power of Buyers: The buyers' ability to negotiate lower prices, better terms, or switch to alternative products or services. Strong buyer power can limit profitability.
Threat of Substitute Products or Services: The availability of alternative products or services that can satisfy the same customer needs. If there are many substitutes, it can limit the pricing power and profitability of existing firms.
Intensity of Competitive Rivalry: The degree of competition among existing firms in the industry. Factors such as the number of competitors, industry growth, product differentiation, and exit barriers affect this force.
In terms of impact on profitability, the intensity of competitive rivalry often has the most significant influence. In highly competitive industries where firms aggressively compete for market share, pricing power and profit margins can be eroded. For example, the airline industry experiences intense rivalry, leading to price wars and thin profit margins.
However, the answer to Question 2 may change depending on the type of industry. For example, in industries with high barriers to entry and limited competition, the threat of new entrants may be the most significant force impacting profitability. In industries where suppliers have a strong hold on key resources or inputs, the bargaining power of suppliers can greatly influence profitability. Therefore, the most influential force on profitability can vary depending on the specific industry dynamics and competitive landscape.
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Zelda’s day consists of checking her e-mail, holding meetings, and organizing and reviewing text. Which Arts, A/V Technology, and Communication career pathway is Zelda working in?
Answer:
The correct answer will be "Printing technology".
Explanation:
Printing technology has become a course of study which always entails comprehensive evaluation as well as operator of email messages, as well as editing manuscripts to ensure that the interests of customers.A profession where certain you accomplish or conduct for something and communicate with other people.The Bureau of Labor Statistics would categorize a person as ________ if they were temporarily away from their job because they were ill. Group of answer choices employed unemployed a discouraged worker out of the labor force
The Bureau of Labor Statistics would categorize a person as "employed" if they were temporarily away from their job because they were ill.
This is because the definition of "employed" by the BLS includes people who are temporarily absent from their jobs due to illness, vacation, or other reasons. The BLS uses specific criteria to categorize individuals in the labor force. The labor force includes both employed and unemployed individuals who are actively seeking work. Those who are not in the labor force are not seeking work and include discouraged workers and those who are retired, disabled, or have other reasons for not seeking employment.
In this case, a person who is temporarily away from their job due to illness is still considered employed because they have a job and an employer, even though they are not currently working.
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The price of a coupon bond and the yield to maturity are ________ related; that is, as the yield to maturity ________, the price of the bond ________.
Based on the relationship between the above mentioned measures, the following is true:
Price and yield to maturity are inversely related. When YTM rises, the price of the bond falls. What is Yield to Maturity?It is the discount rate on the bond. It shows the riskiness of the bond.When the YTM is high, it means that the bond is more risky which leads to it having a lower price to compensate for the risk. The reverse is true.
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How do the events of the nation affect the national debt?
Answer: Growing debt has a direct effect on economic growth and the opportunities available to every individual in the country. If excessive levels of debt crowd out private or public or mutual investments in capital goods or works, workers would have less to use and get from their jobs, which would translate to lower productivity work and, therefore, lower wages in multiple aspects of the country's work done. High levels of debt would affect many other aspects of the economy in the future. For eq, higher interest rates result from increased borrowing from multiple agencies and invite under the various segments of college education house loan work loan. Less education and work opportunities will need skills up for various degrees and work to be followed under any scheme.
Explanation:
If we fail to act before a stipulated time the long time fiscal challenges will remain unaddressed and unchanged. The economic crisis and the overall economic environment weaken as confidence suffers, the access to capital funds gets reduced, interest costs crowd out key investments in our future, the conditions for growth deteriorate, and our nation is put at greater risk of economic crisis. If our long-term fiscal imbalance is not addressed, our future economy will be minimized, with fewer economic opportunities for families and workers down there in their own country.HELP ASAP
A company had sales revenue of $1,000,000 last year. Its operating expenses were $100,000 and its income tax expense was
$10,000. Additionally, the company had $20,000 in sales returns and cost of goods sold of $500,000. What was its gross profit?
Answer: 480,000
This should be the gross profit, but if I'm wrong please let me know and ill try to fix it. :)
1 point
Danny receives a salary of $660 a month and a 7.5% commission on all
sales above his monthly quota of $15,000. His sales for the month totaled
$32,000. What was his gross income for the month? *
$3,060
$1,275
$2,400
$1,935
Answer:
1935
Explanation:
32,000-15,000 = 17,000
17,000 x 0.075 = $1275 (this is his commission)
1275 + 660 = $1935
$1935 is his gross income for the month
What will be the nature of balance of trade if imports are of manufactured goods?
A)Neutral
b)Positive
c)Negative
Answer:
b). Positive
Explanation:
The nature of the balance of trade if imports are of manufactured goods is POSITIVE
Considering that Balance of trade is a term that is used to describe the difference between the imports and exports value of a country over a given period.
Hence, when a country manufactured goods instead of importing them, the balance of trade is believed to be Positive.
On the other hand, when a country imports goods instead of manufacturing them, the balance of trade is believed to be negative.
for+a+mixture+of+40+mol%+ethylene,+40+mol%+propylene+and+20+mol%+1-butene+determine+the+lower+flammability+limit+for+the+mixture+at+200°c.(hint+do+200°c+adjustment+first)
The correct mixture volume % from Heat of Combustion Flammability in air Compound Formula is 1.81 vol %, option C.
The amount of heat produced when a certain amount of something is burned is known as its heating value (also known as its energy value or its calorific value; see food energy).
When a substance undergoes complete combustion with oxygen under standard conditions, the total amount of energy released as heat is known as its calorific value. Typically, the chemical reaction involves a reaction between oxygen and a hydrocarbon or other organic molecule to produce carbon dioxide, water, and heat. It could be communicated with the amounts:
energy/mole of fuelenergy/mass of fuelenergy/volume of the fuelThere are two sorts of enthalpy of burning, called high (er) and low (er) heat (ing) esteem, contingent upon how much the items are permitted to cool and whether mixtures like H₂O are permitted to consolidate. A bomb calorimeter is usually used to measure the high heat values. Test data with a high heat value are used to calculate low heat values.
L = \(\frac{100}{\sum \frac{x_1}{LFL} }\)
= \(\frac{100}{67.315 }\)
= 1.4856
LFL(mix) = 1.4856 vol% = 1.81 vol%.
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Complete question;
Heat of Combustion Flammability in air Compound Formula Lower, Upper, LFL25 UFL25 FP, °C AIT, kJ/mol kJ/mol vol.% vol% °C Ethylene C2H4 1,322.6 1,411.2 2.7 36.0 -136 450 Propylene C3H6 1,925.7 2,057.3 1.0 11.0 -108 455 1-Butene C4H8 2,541.2 2,716.8 1.6 9.3 -79 384 N.B. 4.184 kJ = 1.0kcal For a mixture of 40 mol% ethylene, 40 mol% propylene and 20 mol% 1-butene determine the Lower flammability limit for the mixture at 200°C.(hint do 200°C adjustment first) Select the correct mixture volume % from the answer choices. 2.52 V1% 1.13 volº 1.81 vol% 0.52 volº
Imprudential, Inc. , has an unfunded pension liability of $583 million that must be paid in 15 years. To assess the value of the firm’s stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 7. 6 percent, what is the present value of this liability?
If the relevant discount rate is 7. 6 percent, then the present value of this liability is $265,420,560.74
Given,
Pension liability = $583
Time duration = 15 years
Discount rate = 7. 6 percent
Thus, the computation of the present value of this liability is done below:
As we know that,
Future value = Present value × (1 + rate)^the number of years
However,
Present value = Future value ÷ (1 + rate)^the number of years
= $583,000,000 ÷ (1 + 7.6%)^15
= $568,000,000 ÷ 2.14
= $265,420,560.74
Hence, if the relevant discount rate is 7. 6 percent the present value of this liability is $265,420,560.74
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Katie Company had 40,700 shares of $2 par value common stock outstanding prior to a 40% common stock dividend declaration and distribution. The market value of the common stock on the declaration date was $10. Which of the following statements incorrectly describes the effect of recording the common stock dividend?Additional Paid in capital increased $130,240.Total stockholders' equity remained the same.Additional paid-in capital remained the sameRetained earnings decreased $32,560.
The statement "Additional paid-in capital remained the same" incorrectly describes the effect of recording the common stock dividend.
When a company declares a stock dividend, it distributes additional shares of stock to its existing shareholders. As a result, the total number of shares outstanding increases, but the proportional ownership of each shareholder remains the same.
In this case, Katie Company had 40,700 shares of $2 par value common stock outstanding before the dividend declaration. With a 40% stock dividend, an additional 16,280 shares (40% of 40,700) would be distributed. After the dividend, the total number of shares outstanding would be 57,980 (40,700 + 16,280).
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What is the W-4 form used for?
filing taxes with the federal government
determining the amount of money an employee has paid out in taxes
calculating how much tax should be withheld from a person's paycheck
calculating how much income was paid in the previous year
Answer:
C. calculating how much tax should be withheld from a person's paycheck
Explanation:
In order to ensure that, all employees pay taxes on the income earned throughout the year, the internal revenue service (IRS) has made it compulsory and mandatory for all employers to make available a W-4 Form to all their employees, so as to enable these employees fill out how much income tax is to be withheld from their respective paycheck in relation to their filing status.
Hence, a W-4 form is used for calculating how much tax should be withheld from a person's paycheck and submitted to the internal revenue service (IRS).
Additionally, any employee who defaults in the payment of his or her income tax would be faced with stiff penalties such as failure-to-file, paying a fine etc.
Answer:
its c
Explanation:
just took the unit test on edge
The rate of return expected on alternative investments similar in risk to an investment being evaluated:
a) Opportunity cost rate
b) Periodic rate
c) Stated rate
d) Expected rate
The rate of return expected on alternative investments similar in risk to an investment being evaluated is typically referred to as the "opportunity cost rate" Therefore, the correct option is A.
By investing in the best alternative opportunity with comparable risk, it represents the potential return that can be achieved. The opportunity cost rate is used as a standard by which to measure the potential return on a project under consideration. Investors can use it to determine whether an investment is likely to offer a competitive return by comparing it to the return offered on the next best investment option.
Therefore, the correct option is A.
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Equipment can be leased at $18000 per year (first payment at beginning of year) for eight years or purchased at a cost of $100000. A bank has indicated that it would be willing to make the loan of $100000 at a cost of 9%. There is no salvage value. Now assume a marginal tax rate of 21%. Should the firm buy or lease? The PV of the depreciation expense is 70% of the original investment. Assume a 7.11% discount rate after tax.
The discounted cash flows and considering the after-tax cash flows, it would be more beneficial for the firm to lease the equipment rather than buying it.
To determine whether the firm should buy or lease the equipment, we need to compare the present value of costs for both options and consider the after-tax cash flows.
Leasing option:
The annual lease payment is $18,000 for eight years.
The present value of the lease payments can be calculated using the discounted cash flow formula:
PV_Lease = Lease payment * (1 - (1 + r)^-n) / r
r = Discount rate
n = Number of years
Assuming a discount rate of 7.11% after tax, the present value of the lease payments is:
PV_Lease =\($18,000 * (1 - (1 + 0.0711)^-8) / 0.0711\)
PV_Lease ≈ $108,509.34
Buying option:
The cost of purchasing the equipment is $100,000. Since there is no salvage value, we can consider the entire cost as an investment.
The annual depreciation expense can be calculated as 70% of the original investment:
Depreciation expense = 0.70 * $100,000 = $70,000
The tax savings from depreciation can be calculated as the depreciation expense multiplied by the tax rate of 21%:
Tax savings = Depreciation expense * Tax rate = $70,000 * 0.21 = $14,700
The after-tax cash flow each year is the difference between the tax savings and the cash flow for depreciation:
After-tax cash flow = Tax savings - Depreciation expense = $14,700 - $70,000 = -$55,300
The present value of the after-tax cash flows can be calculated using the discounted cash flow formula:
PV_Buy = After-tax cash flow \(* (1 - (1 + r)^-n) / r\)
Using the same discount rate of 7.11% after tax, and considering eight years, the present value of the after-tax cash flows is:
PV_Buy = \(-$55,300 * (1 - (1 + 0.0711)^-8) / 0.0711\)
PV_Buy ≈ -$304,285.33
Comparing the present values of the two options, we can see that PV_Lease ($108,509.34) is less negative than PV_Buy (-$304,285.33).
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