To forecast stockholders' equity, we can use the percent of sales method. This method uses the historical relationship between sales and stockholders' equity to forecast future stockholders' equity.
In this case, we know that sales are expected to grow by 10.1% next year. We also know that the historical relationship between sales and stockholders' equity is 60%. This means that for every $1 of sales, Jim's Espresso has $0.60 of stockholders' equity.
Using these two pieces of information, we can forecast that stockholders' equity will be $127,436 next year.
b. Accounts payable
To forecast accounts payable, we can also use the percent of sales method. This method uses the historical relationship between sales and accounts payable to forecast future accounts payable.
In this case, we know that sales are expected to grow by 10.1% next year. We also know that the historical relationship between sales and accounts payable is 15%. This means that for every $1 of sales, Jim's Espresso has $0.15 of accounts payable.
Using these two pieces of information, we can forecast that accounts payable will be $22,759 next year.
Here is a table that summarizes the forecast results:
| Item | Forecasted Value |
|---|---|
| Stockholders' equity | $127,436 |
| Accounts payable | $22,759 |
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On January 1 2017, George Company purchased a new building. George paid $25,000 as a down payment and issued a long-term note to finance the balance. The note, which carries an interest rate of 4%, requires George to make annual payments of $55,000 for six years, with the first payment due on December 31, 2017. What amount should George record as the cost of the new building (rounded to the nearest whole dollar)
The amount that George should record as the cost of the new building is $313,315.50.
Here, we are to determine the amount that George should record as the cost of the new building using the information given below.
Given Information
$25,000 paid as a down payment
interest rate of 4%
Required to make annual payments of $55,000 for 6 years and first payment due on Dec. 31, 2017.
PV factor of $1 annuity = (1 - (1 + i)^-n) / i
PV factor of $1 annuity = (1 - (1.04)^-6) / 0.04
PV factor of $1 annuity = 0.20968547427 / 0.04
PV factor of $1 annuity = 5.2421
Present value of payments = Annual payments to be made * PV factor of $1 annuity
Present value of payments = $55,000 * 5.2421
Present value of payments = $288,315.50
Cost of the new building = Cash down payment + Present value of payments
Cost of the new building = $288,315.50 + $25,000
Cost of the new building = $313,315.50
Therefore, the amount that George should record as the cost of the new building is $313,315.50.
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Describe the parliamentary meeting procedure and its purpose.
Answer: Only one issue is discussed at a time
Members have equal and basic rights (vote, oppose and heard)
Minority rights are protected
Explanation:
The parliamentary meeting procedure is as follows;
- Only one issue is discussed at a time
- Members have equal and basic rights (vote, oppose and heard)
- Minority rights are protected
- The chairman authorizes anyone to speak
- The chairperson is impartial.
- Votes decides decisions
- Every member on the floor can contribute
The purpose;
They are rules to ensure businesses are operated in the right order
Answer: If this is an edge question; this is the answer for you: Parliamentary procedure is mainly proven rules that were designed to move a business along during a meeting. This would all occur while maintaining order and controlling satisfactory communication.
The purpose of these rules is simple; help groups accomplish tasks through an orderly "democratic process".
Explanation:
Rightway Construction's project manager has been given the task of planning and implementing the construction of a playground for the city of Northville. All construction plans and documents have been provided as well as a budget amount and completion date. Based on the above scenario, and assuming the project manager has studied all construction plans and documents and reviewed the budget, the next step for the manager will be to __________.
Explanation:
create a project schedule flow chart
Adnan Hassan earned 5% commission as a sales trainee. After
promotion to a sales associate, he earned 8% commission. His year-end
report showed $673,874 in total sales and $45,006.52 in commission.
What did his sales total as (a) a sales trainee and (b) a sales associate?
Answer:
He earns $296780 as a Sales Trainee and $377094 as a Sales Associate
Explanation:
Given
Let x represents his sales as a sales trainee
Let x represents his sales as a sales associate
Total Sales: \(x + y = 673874\)
Total Commission: \(0.05x + 0.08y = 45006.52\)
Required
Find x and y
Equations
\(x + y = 673874\) --- (1)
\(0.05x + 0.08y = 45006.52\) --- (2)
Make y the subject of formula in (1)
\(x + y = 673874\)
\(y = 673874 - x\)
Substitute this in (2)
\(0.05x + 0.08y = 45006.52\)
\(0.05x + 0.08(673874 - x) = 45006.52\)
Open Bracket
\(0.05x + 53909.92 - 0.08x = 45006.52\)
Collect Like Terms
\(0.05x - 0.08x = 45006.52 - 53909.92\)
\(- 0.03x = -8903.4\)
Divide through by -0.03
\(x = \frac{-8903.4}{-0.03}\)
\(x = 296780\)
Recall that
\(y = 673874 - x\)
\(y = 673874 - 296780\)
\(y = 377094\)
Hence;
He earns $296780 as a Sales Trainee and $377094 as a Sales Associate
Government plays a role in all economic systems.
a
True
b
False
Based on different economic system analyses, it is true that government plays a role in all economic systems.
How does Government play a role?Generally, whether capitalist economic system socialist economic system, the government still plays a role.
For example, in the capitalist economic system, government plays the role of regulatory and complementary responsibilities.
While in a socialist economic system, the government takes more comprehensive roles such as production and distribution.
Hence, in this case, it is concluded that the correct answer is "True."
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40 points
Why is hospitality important in business?
2. What types of things does a hospitality manager do?
3. What courses or information would be helpful for a hospitality manager?
4. What do you think you'd like best about working as a hospitality manager?
Answer:
Hospitality provides essential services (i.e., lodging and food) for travelers, whether they are on the move for reasons of necessity, leisure or luxury. Hospitality is a major factor in every vacation and business trip, and is thus important to individual customers and to businesses.
fill in the blank. the term____is difficult to define and apply to products, and one can think about it from an organizational, consumer, or even a legal perspective. multiple choice question. 'preference'
One can consider the phrase "new" from an organizational, consumer, or even legal standpoint, but it can be challenging to define and apply to products.
What categories of consumers exist?An individual or group that does not directly engage in entrepreneurial or business operations but who intends to order or uses purchased items, products, or services primarily for personal, social, family, or household needs is referred to as a consumer. A consumer is someone who buys a thing for personal use and then uses or consumes it. Although a consumer cannot resell the good, product, or service, they may use it to support themselves and their business. Consumer definition. The person who actually uses any goods or services is the consumer.Consumers can be divided into four categories: omnivores, carnivores, herbivores, and decomposers. Living things called herbivores rely solely on plants for their nutrition and energy needs.To learn more about consumer, refer to:
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The term "preference" is difficult to define and apply to products, and one can think about it from an organizational, consumer, or even a legal perspective.
This term refers to the subjective choice that a consumer makes based on their personal preferences and individual tastes.
It is often used to describe how a consumer chooses one product over another based on their personal preferences, such as brand loyalty, quality, price, or other factors.
From an organizational perspective, preference can be used to describe the choices that a company makes regarding which products to produce, and market based on consumer demand and market trends.
From a legal perspective, preference can be used to describe the legal rights and protections that a consumer has when making purchasing decisions.
Overall, preference is a complex and multifaceted term that is used in many different contexts within the world of business and marketing.
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The unqualified rate of a product produced by a factory is 0.03. Now the products are packed into boxes. If the probability of at least 100 qualified products in each box is not less than 0.9, how many products should be packed in each box at least?
To ensure a probability of at least 0.9 for having 100 qualified products in each box, a minimum of 120 products should be packed in each box.
In order to determine the minimum number of products that should be packed in each box to ensure a probability of at least 0.9 for having 100 qualified products, we need to consider the probability distribution of qualified products.
The unqualified rate of the product is given as 0.03, which means that the probability of a product being unqualified is 0.03. Consequently, the probability of a product being qualified is 1 - 0.03 = 0.97.
Now, let's consider the number of qualified products in each box as a random variable X, following a binomial distribution. The binomial distribution is appropriate in this case since each product can be considered as an independent trial, with a fixed probability of success (0.97 in this case) and a fixed number of trials (the number of products packed in each box).
To find the minimum number of products that should be packed in each box, we need to calculate the cumulative probability of having at least 100 qualified products in each box. We can then determine the minimum number of products at which this cumulative probability exceeds or equals 0.9. Using statistical software or a binomial probability calculator, we can find that when packing 120 products in each box, the cumulative probability of having at least 100 qualified products is approximately 0.938. This exceeds the required probability of 0.9, so the minimum number of products that should be packed in each box is 120.
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Finished goods ______. Multiple choice question. is the same as cost of goods manufactured consists of completed, unsold goods consists of goods that require additional processing before being sold consists of goods that have been sold to customers during the period
Finished goods consist of completed unsold goods which have not been sold to customers.
What is Finished goods?Finished goods refer to completed goods or product that have pass through all the manufacturing process and completed they but have not be sold to the intending consumers.
They are completed processed products.
Therefore, Finished goods consist of completed unsold goods which have not been sold to customers.
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Samira is a freshman basketball player who hopes to go to college on a basketball scholarship. She is offered the chance to play on her school’s varsity basketball team, which plays in tournaments during holiday breaks. Samira usually spends her breaks working at the local hardware store. After careful consideration, Samira decides to stay on the freshman basketball team and keep working over breaks.
The fact that Samira may miss out on a scholarship opportunity by staying on the freshman team illustrates
a cause.
minor consequences.
a tradeoff.
unexpected risk.
Answer: a trade off
Explanation:
A trade-off (or tradeoff) is regarded as a situational decision which occurs when one loses a particular thing in order to gain something else.
A trade off is regarded as a form of compromise. An increase in a particular thing brings about a decrease in something else. The fact that Samira may miss out on a scholarship opportunity by staying on the freshman team illustrates trade-off.
Answer: is this one
a tradeoff
Explanation:
hope helps
jerry, a partner with 30 percent capital and profits interest, received his schedule k-1 from plush pillows, lp. at the beginning of the year, jerry's tax basis in his partnership interest was $54,000. his current-year schedule k-1 reported an ordinary loss of $19,000, long-term capital gain of $3,400, qualified dividends of $2,400, $900 of non-deductible expenses, a $14,000 cash contribution, and a reduction of $4,400 in his share of partnership debt. what is jerry's adjusted basis in his partnership interest at the end of the year?
At the end of the year, Jerry's adjusted basis in his partnership interest is $44,600. It is important to note that these calculations assume no other adjustments or transactions occurred during the year that would affect his basis.
Jerry's adjusted basis in his partnership interest at the end of the year can be calculated by considering the various components that affect his basis. Let's break down each element:
Beginning Tax Basis: Jerry's starting tax basis in his partnership interest was $54,000.
Ordinary Loss: The reported ordinary loss of $19,000 decreases Jerry's tax basis. Therefore, his basis is now $54,000 - $19,000 = $35,000.
Long-Term Capital Gain: The long-term capital gain of $3,400 does not affect the tax basis since it is a gain, not a loss.
Qualified Dividends: Similarly, the qualified dividends of $2,400 do not impact Jerry's tax basis.
Non-Deductible Expenses: The $900 non-deductible expenses also do not affect Jerry's basis.
Cash Contribution: Jerry's $14,000 cash contribution increases his tax basis. Therefore, the basis is now $35,000 + $14,000 = $49,000.
Reduction in Partnership Debt: The $4,400 reduction in Jerry's share of partnership debt further decreases his basis. Consequently, his basis is $49,000 - $4,400 = $44,600.
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Dan just lost his job. At 44 years old, he worked as a middle manager at a well-known advertising firm for 14 years. Due to a significant loss of clients, the company had to downsize despite Dan being an exemplary employee and winning several awards. The company decided to let Dan go instead of another middle manager who was in a minority group. In a business setting, this occurrence is referred to as
In a business setting, the given occurrence we called the reverse discrimination
Reverse discrimination is the non-fair treatment of members who belong to the majority group in the workplace that depends upon race, gender, etc.
Reverse discrimination might arise at the time when the majority group like white or males are to be overlooked for following things
JobsPromotionsOther types of opportunitiesThese should provide the preference to the minority group like for women
So therefore we can conclude that In a business setting, the given occurrence we called the reverse discrimination
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in year 4, a taxpayer purchased a house for $240,000 to use as their principal residence. capital improvements costing $15,000 were made in year 8. after living in the home for 5 years, the taxpayer sold it in year 9 for $400,000. what is the tax treatment of the sale of the taxpayer's home in year 9?
The tax treatment of the sale of the taxpayer's home in year 9 will depend on whether they qualify for the capital gains exclusion and the amount of the capital gains realized from the sale. A tax professional should be consulted for specific guidance.
The sale of the taxpayer's home in year 9 will have tax implications based on the capital gains tax rules in the United States. Under the Internal Revenue Code, taxpayers can exclude up to $250,000 of capital gains from the sale of their primary residence if they meet certain ownership and use requirements. For married couples filing jointly, the exclusion limit is $500,000.
In this scenario, the taxpayer owned and used the house as their primary residence for 5 out of the 9 years of ownership. Therefore, they meet the ownership and use requirements and may be eligible for the capital gains exclusion. The amount of the exclusion will depend on the amount of capital gains realized from the sale of the property.
To calculate the capital gains, the taxpayer will need to subtract the cost basis of the property (purchase price plus any capital improvements) from the sale price. In this case, the cost basis would be $255,000 ($240,000 purchase price + $15,000 capital improvements). The capital gains would be $145,000 ($400,000 sale price - $255,000 cost basis).
If the taxpayer qualifies for the full $250,000 capital gains exclusion, they would not owe any taxes on the sale of their home. However, if the capital gains exceed the exclusion amount, the taxpayer will owe capital gains tax on the excess. The capital gains tax rate will depend on the taxpayer's income level and other factors, but it can be as high as 20% for high-income taxpayers.
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A credit union is a financial institution that:
A. accepts deposits and makes loans without earning profits.
B. offers short-term loans with high interest rates.
C. specializes in financial services for small businesses.
D. uses a person's car as collateral to secure a loan.
A credit union is a financial institution that accepts deposits and makes loans without earning profits. Thus the correct option is A.
What is a financial institution?A financial institution is structured authority that allows an individual to deposit and withdraw cash and allow them to borrow funds with a fixed interest rate for the purpose of investment.
With the offering of goods at reasonable fees and rates, financial institutions serve their members. This is how the credit union becomes a non-profit organization by converting interest and fees into things it delivers.
Real estate lending is a specialty of savings and loan organizations and savings banks, notably loans for separate homes and other residential properties.
Therefore, option A is appropriate.
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1. What is the required rate of return for Apple stock?
Apple covariance with the market is 0.71875
Market variance is 0.0625
Risk Free Rate *ANNUAL RATE is 3.75%
The annual market rate of return the last 4 years:
a. –25%
b. 30%
c. 15%
d. 5%
The required rate of return for Apple stock is 32.5%.
To calculate the required rate of return for Apple stock, we can use the Capital Asset Pricing Model (CAPM). The formula for CAPM is:
Required Rate of Return = Risk-Free Rate + Beta * (Market Rate of Return - Risk-Free Rate)
Given the information provided:
- Apple's covariance with the market is 0.71875.
- The market variance is 0.0625.
- The risk-free rate (annual rate) is 3.75%.
- The annual market rate of return in the last 4 years are: -25%, 30%, 15%, and 5%.
To calculate the beta, we need to find the average market rate of return first:
Average Market Rate of Return = (-25% + 30% + 15% + 5%) / 4 = 6.25%
Now we can calculate the beta:
Beta = Covariance / Market Variance = 0.71875 / 0.0625 = 11.5
Finally, we can calculate the required rate of return for Apple stock using CAPM:
Required Rate of Return = 3.75% + 11.5 * (6.25% - 3.75%) = 3.75% + 11.5 * 2.5% = 3.75% + 28.75% = 32.5%
Note: Please note that this calculation assumes that past market performance is a reliable indicator of future market performance, and it may not accurately predict the actual required rate of return. Additionally, this calculation does not consider other factors such as company-specific risks.
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(Please no links! and help ASAP!) An extract of a balance sheet is given. What are the debt-equity ratio and the quick ratios?
The debt equity ratio is ___. (correct to 2 decimal places)
A. 1.56
B. 2.10
C. 1.38
The quick ratio is ___. (correct to 2 decimal places)
A. 0.92
B. 0.91
C. 0.25
I'd love to see all the math done as well if possible.
Answer:
Explanation:
i think
1. its c
2. a
which of the following is added to net income as an adjustment under the indirect method of preparing the statement of cash flows?multiple choicesalaries payable increase.inventory increase.gain on the sale of land.accounts receivable increase.
Under the indirect method of preparing the statement of cash flows, adjustments are made to net income to convert it to cash flows from operating activities. One of these adjustments is to add back non-cash expenses and subtract non-cash revenues. Out of the multiple choices given, only the gain on the sale of land i.e. option c would be added to net income as an adjustment under the indirect method.
The other options listed, such as salaries payable increase, inventory increase, and accounts receivable increase, are all changes in working capital accounts that would be subtracted from net income when converting it to cash flows from operating activities under the indirect method. This is because an increase in these accounts means that cash was used for these purposes and therefore needs to be subtracted to determine the true cash inflows and outflows of the business.
Overall, it is important to understand the adjustments made under both the direct and indirect methods of preparing the statement of cash flows in order to accurately analyze a company's cash flows and financial health.
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Angela is a married individual filing a separate return. If she has no wage income and earnings from self-employment of $200,000, her additional Medicare tax liability is ______.
A) $0
B) $675
C) $1,800
Production and Purchases Budgets Drainage Solutions Culverts produces small culverts for water drainage under two-lane dirt roads. Budgeted unit sales for the next several months are: Month Sales September 2,300 October 1800 November 1,100 December 800 At the beginning of September, 575 units of finished goods were in inventory. During the final third of the year, as road construction declines, plans are to have an inventory of finished goods equal to 25 percent of the following month's sales. Each unit of finished goods requires 600 pounds of raw materials at a cost of $5 per pound. Management wishes to maintain month-end inventories of raw materials equal to 50 percent of the following month's needs. Five hundred thousand pounds of raw materials were on hand at the start of September Required a. Prepare a production budget for September, October, and November Do not use a negative sign with your answers. Drainage Solutions Culverts Production Budget For the Months of September, October, and November Sept. Oct. Nov. Dec. Budgeted sales Plus desired ending inventory Total inventory Less beginning inventory requirements Budgeted production
Budgeted production for September is 2175, October is 1625, November is 1025, Budgeted purchases for sept and October is 6462500 and 3975000.
The sales forecast and the anticipated quantity of inventory of finished goods to be on hand are combined to create the production budget, which determines the number of items that must be made. To track the value of the firm's operations and the quantity of goods sold, a purchasing budget is developed. You can use it to keep track of your monthly target ending inventory value as well. The budget for purchases is frequently only a portion of the overall business budget and is frequently included in the master budget
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In the context of writing formal reports, a researcher intending to enhance his credibility must?
Context provides meaning and clarity to the intended message. Context writing clues in a literary work create a relationship between the writer and reader, giving a deeper understanding of the intent and direction of the writing.
In a formal report, the introduction comes first before the body. The introduction establishes the context for the report, explains the need(s) that drove it, and aids the reader in comprehending the format of the report. Make certain the report identifies the actual problem. Organize your data such that it leads naturally to your findings or suggestions. Clarify any technical terms so that the reader may understand the topic. Always use an energetic voice when speaking. Every report should start with the preparation of a mission statement that outlines its main points and serves as a benchmark for keeping the project on track.
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Select the correct text in the passage.
What sentences in the following passage indicate increased expenses for developing the advertisement?
An exercise equipment company decided to create demand for its latest plece of equipment through a TV commercial. For this purpose, it hired
an ad agency reputed for its creative skills. This agency pitched five different concepts to its client. After an extensive internal discussion, the
client gave approval for one of the ideas. The next step was to write script for the ad. Using in-house cloud-based scripting software, the agency
wrote scripts in real time. This made it easier for company to communicate effectively with the ad makers. The company also approved the
tagline and storyboard for its product. The agency hired professional actors for enacting the scene.
paragraph 2 I hope sorry if it's wrong
Answer:
For this purpose, it hired an ad agency reputed for its creative skills
and The agency hired professional actors for enacting the scene
Explanation:
both requires money. to hire someone you need money which shows a increase of expenses
Which of the following choices incur speculative risk?
a.stocks
b.fire insurance on a house
c.options
d.life insurance
e.high interest savings account
Answer: correct option is A.
Explanation: A speculative risk can be defined as risk that is taken willingly either it results in profit or loss and the stocks involve in probability of gain and loss making it a speculative risk.
Stocks incur speculative risk. Therefore option A is correct.
What are Stocks?A stock usually referred to as equity, is a type of investment that denotes ownership in a portion of the issuing company. Shares, also known as units of stock, entitle their owners to a share of the company's assets and income in proportion to the number of shares they possess.
Common stock and preferred stock are the two primary categories of stocks.
Owners of common stock are entitled to dividends and the right to vote at shareholder meetings.
Common stockholders often do not have voting rights, while preferred stockholders typically get dividend payments ahead of time and are given preference over common investors in the event of a firm bankruptcy and asset liquidation.
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View the Amortization Table and use it to answer each question. According to the chart, Demarco and Tanya will pay a total of in interest over the life of their loan. This means their total cost, including the purchase price, is approximately . This amount is than what they would pay in total using the fixed-rate mortgage.
Answer:According to the chart, Demarco and Tanya will pay a total of
✔ $195,104
in interest over the life of their loan.
This means their total cost, including the purchase price, is approximately
✔ $365,104
.
This amount is
✔ higher
than what they would pay in total using the fixed-rate mortgage.
Explanation:
MAKE THIS THE BRAINLY
Answer:
According to the chart, Demarco and Tanya will pay a total of
✔ $195,104
in interest over the life of their loan.
This means their total cost, including the purchase price, is approximately
✔ $365,104
This amount is
✔ higher
than what they would pay in total using the fixed-rate mortgage.
Explanation:
I took this and these were the correct answers. :)
Type the correct answer in the box. Spell all words correctly. The demand curve has what kind of slope?
Answer:
Usually slopes downwards
Explanation:
in a negative association
Kristina works at a coffee shop. She can produce 200 coffee drinks in four hours. What is her productivity for one hour?
Answer: She can produce 50 drinks in 1 hour, 200/4 = 50
Answer:
50
Explanation:
divide 200 by 4
hope this helps dont 4get to like and star
-mercury
Which of the following describes the purpose and activities of a parallel team? Multiple Choice to provide recommendations and resolve issues not specifically connected to production to perform complex tasks that take place in highly visible or challenging circumstances to produce a one-time output (product, service, plan, design, etc.) to integrate activities of subunits across business functions
Answer:
Provide recommendations and resolve issues not specifically connected to production
Explanation:
Parallel teams can be regarded as highly task-focused team ,which is been drawn on individuals ranging different functional areas as well as locations. This team are usually generally make completion to their work base on defined schedule. In most cases, parallel teams are not usually disbanded but they could be there so they can handle a subsequent set of tasks. It should be noted that One of the the purpose and activities of a parallel team is to Provide recommendations and resolve issues not specifically connected to production.
Select the correct answer from the drop-down menu. which type of listening takes place when the listener tries to discern the deeper meaning of a speaker’s words? listening takes place when the listener tries to discern the deeper meaning of a speaker’s words.
The type of listening that takes place when the listener tries to discern the deeper meaning is Therapeutic Listening
Therapeutic listening is a term used to describe issues with health, psychology, and/or emotion. It's a type of listening that aids the person being heard in solving his difficulty. When an expert or professional, such as a counsellor, offers guidance to a patient on a specific circumstance in addition to the feedback given, therapeutic listening typically occurs.
This tone treatment was created to help people of all ages who struggle with sensory processing. The hearing system is stimulated when specially adjusted audio is used. Empathic listening, also known as therapeutic listening, entails putting oneself in the speaker's shoes in order to fully comprehend their point of view.
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Demand for plumbing services for the last 3 years, from furthest past to most recent, was $44 million, $42 million, and $38 million. A graph of this trend would have a slope that is:
Answer:
Negative
Explanation:
Because the services are going down
A graph of this trend would have a slope that is negative, as Demand for plumbing services for the last 3 years, from the furthest past to most recent, was $44 million, $42 million, and $38 million.
What is slope in graph?A line's inclination with regard to the horizontal is quantified quantitatively. In analytical geometry, a line, ray, or line segment's slope is the ratio of the vertical to horizontal distance between any two points on the line, ray, or line segment "slope equals rise over run".
The % slope is calculated by multiplying the distance between two points by the difference in elevation between them. The height difference between two sites is referred to as "rise." The distance between the sites is known as the run. The formula for percent slope is (rise / run) x 100.
Thus, it is negative.
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Define ''limited in stock''
Answer:
Explanation:
it means that the product wont be around aymore since its limited to retailer?
ABC Traders opened an account to short sell 700 shares of XYZ Company. The initial margin requirement was 60%. (The margin account pays no interest.) A year later the price of XYZ Company has fallen from $40 to $33, and the stock has paid a dividend of $1.5 per share. Maintenance margin is 30%.
(a) Compute the remaining margin in the account
(a) Will ABC Traders receive a margin call?
(b) Compute the return on investment.
ABC Traders opened a short selling position of 700 shares of XYZ Company with an initial margin requirement of 60%.
After a year, the price of XYZ Company has fallen from $40 to $33, and a dividend of $1.5 per share was paid. The maintenance margin is set at 30%. To determine the remaining margin in the account, we need to calculate the value of the short position, subtract the value of the margin requirement, and account for the dividend. Additionally, we need to determine if a margin call will be received and calculate the return on investment.
To compute the remaining margin in the account, we first calculate the initial value of the short position by multiplying the initial price of $40 by the number of shares, resulting in $28,000. The initial margin requirement is 60%, so the initial margin held in the account is 60% of $28,000, which is $16,800.
Next, we calculate the value of the short position at the current price of $33, which is $23,100. The remaining margin is then calculated by subtracting the value of the short position from the initial margin, resulting in $16,800 - $23,100 = -$6,300. Since the remaining margin is negative, ABC Traders would not have sufficient margin to cover the losses.
A margin call occurs when the remaining margin falls below the maintenance margin requirement. In this case, the maintenance margin is 30%, so we compare the remaining margin to 30% of the value of the short position at the current price, which is 30% of $23,100 = $6,930. Since the remaining margin is -$6,300, which is lower than the maintenance margin, ABC Traders would receive a margin call.
To compute the return on investment, we need to consider the initial investment and the final value of the short position. The initial investment is the initial margin requirement of $16,800. The final value of the short position is the current price of $33 multiplied by the number of shares, resulting in $23,100. The return on investment is then calculated as (Final Value - Initial Investment) / Initial Investment * 100%. Plugging in the values, we get ($23,100 - $16,800) / $16,800 * 100% = 37.5%. Therefore, the return on investment for ABC Traders in this short selling position is 37.5%.
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