The assumption that in the absence of contrary information a business entity will continue indefinitely is the Going concern assumption.
The going situation principle, additionally called continuing problem idea or continuity assumption, method that a business entity will keep performing indefinitely, or at the least for some other twelve months. The idea of going difficulty assumes that a business company might maintain to perform its operations indefinitely for a reasonably long period of time and could not be liquidated inside the foreseeable destiny.
Going challenge is an accounting term for an organization that has the sources had to preserve running indefinitely till it presents evidence to the contrary. The reliability principle ambitions to make certain that all transactions, activities, and enterprise sports supplied in the monetary statements are reliable. records are considered reliable if they can be checked, validated, and reviewed with objective evidence. Going concern assumption assumes that an agency will preserve in operation lengthy sufficient to carry out its current targets and commitments.
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What economic event began in 2007?
the Great Recession
O the Reconstruction
the Progressive Era
the Great Depression
Answer:
The Great Recession
Explanation:
The Great Recession began in December 2007 and ended in June 2009, which makes it the longest recession since World War II. Beyond its duration, the Great Recession was notably severe in several respects. Real gross domestic product (GDP) fell 4.3 percent from its peak in 2007Q4 to its trough in 2009Q2, the largest decline in the postwar era (based on data as of October 2013). The unemployment rate, which was 5 percent in December 2007, rose to 9.5 percent in June 2009, and peaked at 10 percent in October 2009. (Robert Rich, federalreservehistory.org)
i have a brainlest for anybody if the can tell me who won the wwe champoinship in 1996
What hands-on training program is required for doctors?
a fellowship
a residency
an apprenticeship
a vocational college
1.Briefly describe some of the continued risks associated with outsourcing to Stretchum along with benefits to Chatham by collaborating with the supplier?
2.Considering the long-term relationship between Chatham and Stretchum, what kind of relationship has been sustained over the past 10 years? Secondly, what kind of relationship should be developed, and how should Chatham approach Stetchum?
3. Given the case information relevant to dispersed procurement activities across OnTarget, briefly discuss the interconnections to potentially reducing costs using ERP and the SCOR model framework to connect information flows throughout OnTarget.
4. Explain the supply chain attributes and measures that can be implemented to maximize cost reductions across OnTarget?
5. Explain the benefits that could may come from implementing a Supply Chain Advisory Council to oversee OnTarget growth initiatives and continued cost reductions?
Outsourcing to Stretchum carries risks such as quality control and dependence on a single supplier, but it can also bring benefits such as cost savings and access to specialized expertise. The relationship between Chatham and Stretchum has likely been a long-term partnership, and Chatham should aim to develop a strategic partnership going forward.
1. Risks associated with outsourcing to Stretchum:
Quality control: There is a risk that the products or services provided by Stretchum may not meet Chatham's quality standards, which could lead to customer dissatisfaction and reputational damage.
Dependence on a single supplier: By outsourcing to Stretchum, Chatham becomes heavily reliant on them for the supply of goods or services.
Communication and coordination challenges: Outsourcing involves working with an external partner, which can introduce complexities in terms of communication, coordination, and alignment of goals and objectives.
Benefits of collaborating with Stretchum:
Cost savings: Outsourcing to Stretchum may provide cost advantages due to lower labor costs or economies of scale, enabling Chatham to reduce expenses and improve profitability.
Focus on core competencies: By outsourcing non-core activities to Stretchum, Chatham can concentrate its resources and expertise on its core competencies, leading to improved efficiency and innovation.
2. The sustained relationship between Chatham and Stretchum over the past 10 years can be characterized as a long-term partnership. This partnership has likely involved regular interactions, collaboration, and mutual trust.
For the future, Chatham should aim to develop a strategic partnership with Stretchum. This means going beyond a transactional relationship and working towards a deeper integration of operations, shared goals, and mutual benefits.
3. Dispersed procurement activities across OnTarget can benefit from using an Enterprise Resource Planning (ERP) system and the Supply Chain Operations Reference (SCOR) model framework to connect information flows throughout the organization. By implementing ERP, OnTarget can centralize procurement data, streamline processes, and improve visibility across the supply chain. This integration enables better coordination, inventory management, demand planning, and cost control.
4. To maximize cost reductions across OnTarget, several supply chain attributes and measures can be implemented:
Lean principles: Implementing lean practices such as just-in-time inventory management, waste reduction, and continuous improvement can lead to cost savings.
Supplier collaboration: Developing strong partnerships with suppliers, sharing information, and collaborating on cost-saving initiatives can help optimize the supply chain.
Demand forecasting and planning: Accurate demand forecasting and efficient planning can reduce inventory carrying costs and prevent stockouts or overstock situations.
5. Implementing a Supply Chain Advisory Council to oversee OnTarget's growth initiatives and continued cost reductions can bring several benefits:
Strategic guidance: The council can provide strategic advice and direction to align supply chain activities with the company's growth objectives.
Cross-functional collaboration: By involving representatives from different departments, the council facilitates collaboration, communication, and coordination across the entire organization.
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Identify a circumstance outside the economy that can cause unemployment.
A. The United States hosts the Olympic Games
B. A hurricane damages the Gulf Coast
O
C. A new museum opens in the city of Dallas
O
D. The northeast experiences a summer heat wave
Answer:
B. A hurricane damages the Gulf Coast
Explanation:
If a hurricane occurs, it would destroy businesses and this can cause unemployment.
If the United States hosts the Olympic Games and if a new museum opens in the city of Dallas, employment would increase
The money for federal tax withholding payments and fica payments must be made into a federal deposit account in a federal reserve bank at least how often?
The money for federal tax withholding payments and FICA payments must be made into a federal deposit account in a Federal Reserve Bank at least once per month.
Federal tax withholding payments are the amounts withheld from an employee's paycheck to cover federal income tax. FICA payments refer to the taxes withheld for Social Security and Medicare. These payments must be made by the employer into a federal deposit account in a Federal Reserve Bank. To ensure compliance with the law, these payments need to be made at least once per month. This frequency allows for regular and timely contributions to the federal deposit account.
Federal tax withholding and FICA payments must be made into a federal deposit account in a Federal Reserve Bank on a monthly basis. This helps ensure that the appropriate tax amounts are withheld and paid in a timely manner.
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.The most recent financial statements for GPS, Inc., are shown here:
Income Statement
Sales $20,926
Costs $14,428
Taxable Income ?
Taxes (40%) ?
Net Income ?
Balance Sheet
Assets $59,563 Debt $23,617
Equity ?
Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1,581 was paid, and the company wishes to maintain a constant payout ratio. Next year’s sales are projected to be $28,879.
What is the external financing needed?
External financing needed is -$3,728 (Surplus).
Given, Sales = $20,926
Costs = $14,428
Assets = $59,563
Debt = $23,617
Dividend paid = $1,581
Next year’s sales = $28,879
Proportion of sales = Costs/Sales = $14,428/$20,926 = 0.689
Taxable Income = Sales – Costs = $20,926 – $14,428 = $6,498
Taxes (40%) = Taxable Income × Tax Rate = $6,498 × 0.40 = $2,599
Net Income = Taxable Income – Taxes = $6,498 – $2,599 = $3,899
Equity = Assets – Debt = $59,563 – $23,617 = $35,946
Dividend payout ratio = Dividends / Net Income
Dividend = $1,581Net Income = $3,899
Payout ratio = Dividends / Net Income1,581 / Net Income = 0.40
Net Income = Dividends / 0.40$3,899 = Dividends / 0.40Dividends = $1,559 (constant payout ratio)
Next year’s sales are projected to be $28,879.
Proportion of sales = Costs/Sales = $14,428/$20,926 = 0.689
Costs = Proportion of sales × Sales = 0.689 × $28,879 = $19,889
Assets and costs are proportional to sales. So,
Assets = Proportion of sales × Sales = 0.689 × $28,879 = $19,889 + $35,946 = $55,835
External financing needed = Total assets – Total liabilities and equity
External financing needed = $55,835 – $23,617 – $35,946 = $-3,728 (Surplus)
Therefore, external financing needed is -$3,728 (Surplus)
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What are the similarities and differences in the purchasing
functions at a for profit versus a not for profit organization?
Explanation:
I hope this answer is helpful ):
1. According to this supply curve, 400 movie videos will be supplied at what price?
a. $12
b. $16
c.$14
d.$10
According to this supply curve, 400 movie videos will be supplied at what price 12 dollars.
What is a supply curve?A supply curve is a graphical representation of the relationship between the quantity of a good or service that a producer is willing to sell and the price at which they are willing to sell it. The curve is upward sloping, which means that as the price of a good or service increases, the quantity supplied by producers will also increase.
The opposite is also true, as the price of a good or service decreases the quantity supplied by producers will decrease. It is assumed that all other factors (technology, input prices, taxes and subsidies etc.) that affect production remain constant.
The position of the supply curve can also change depending on these factors. The supply curve is a fundamental concept in microeconomics, it is used to analyze market behavior and the determination of prices in a market.
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based on your reading of the following, how do you warehouses manage ment systems help companies?
a. they organized inventory randomly
b.they organize inventory and logical and easy to manage ways
c.they identify which employees will make the best warehouse workers
d.the get the best prices for the items they order
Answer:
b.they organize inventory and logical and easy to manage ways
Explanation:
A warehouse management system or (WMS) is a complex computer application software designed to improve the efficiency of managing inventory and supplies in an organization. The warehouse management system tracks the movement of inventory from the warehouse to the distribution chain. The systems complement the existing warehouse procedures and processes. It enables processes such as receiving, picking, and issuing of inventory logical, faster, and more accurate.
If the required direct materials purchases are 32000 pounds, the direct materials required for production is three times the direct materials purchases, and the beginning direct materials are three and a half times the direct materials purchases, what are the desired ending direct materials in pounds? a. 80000 b. 32000 c. 48000 d. 16000
The desired ending direct material for the given question is 48,000 pounds. Therefore, option C is the correct answer.
To calculate the desired ending direct materials:
Direct materials purchases = 32,000 pounds (Given)
Direct materials required for production = 3 times the direct materials purchases = 3 × 32,000 = 96,000 pounds (Given)
Direct materials in the beginning = 3.5 times the direct materials purchases = 3.5 × 32,000 = 112,000 pounds (Given)
Desired Ending Direct Materials = Direct Materials in the beginning+ Direct Materials Purchases - Direct Materials Required for Production
= 112,000 + 32,000 - 96,000
= 48,000 pounds
Therefore, the desired ending direct materials in pounds is 48,000 pounds.
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What is the primary duty of a public relations specialist?
A. To create advertising concepts
B. To deliver marketing messages
C. To communicate business activities with the press
D. To oversee graphic design tasks
Answer:
B. To deliver marketing messages
Explanation:
A public relation specialist is a professional who portrays goods and services in a good light/form to the public. This helps to create awareness and encourages the general public to buy such products.
Public relation specialist ensures that the company has a good relationship between the stakeholders, staffs and the general public thereby avoiding any type of clash.
true or false: according to fasb, governmental and business organizations share the purpose of providing goods and services at a profit or profit equivalent.
False. According to FASB, governmental organizations focus on providing goods and services for public benefit, while business organizations aim to generate profit or profit equivalent. Their purposes differ in terms of financial objectives.
False. According to FASB, governmental and business organizations do not share the purpose of providing goods and services at a profit or profit equivalent.
What is FASB?
The Financial Accounting Standards Board (FASB) is an independent, non-profit organization that establishes and enhances financial accounting and reporting standards for public and private companies, non-profit organizations, and state and local governmental agencies in the United States. According to FASB, governmental and business organizations do not share the purpose of providing goods and services at a profit or profit equivalent. The primary goal of governmental organizations is to provide public services, such as education, healthcare, infrastructure development, and environmental protection, while businesses aim to maximize profits by providing goods and services at competitive prices.
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Type the correct answer in the box. Use numerals instead of words. If necessary, use / for the fraction bar.
What is the closing balance of the accumulated depreciation account?
Accumulated Depreciation Account
Date Item $ Date Item $
Jan 1, 2012 Balance b/f 1,000
Dec 31, 2012 Depreciation Account 2,000
3,000 3,000
The closing balance of the Accumulated depreciation account is $
ANSWERRR IS 3000
In a disability income policy, from when the policy is issued, the period during which no benefits will be paid for illness of any kind is called the:
In a disability income policy, the period during which no benefits will be paid for illness of any kind is called the "elimination period."
In a disability income policy, the period during which no benefits will be paid for illness of any kind is called the "elimination period." The elimination period is a waiting period specified in the policy that must elapse before the policyholder can start receiving disability benefits. The elimination period typically ranges from 30 to 180 days and can be selected by the policyholder when purchasing the policy. The purpose of the elimination period is to prevent fraudulent claims and reduce the cost of the policy by shifting some of the risk to the policyholder. During the elimination period, the policyholder must continue to pay the premiums and provide medical evidence to support the claim for disability benefits. Once the elimination period has expired, the policyholder can start receiving disability benefits, which can continue for a specified period or until the policyholder returns to work.
In summary, the elimination period is a waiting period specified in a disability income policy, during which no benefits will be paid for illness of any kind, and it is designed to prevent fraudulent claims and reduce the cost of the policy.
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your estimate of the market risk premium is 7%. the risk-free rate of return is 4%, and general motors has a beta of 1.4. according to the capital asset pricing model (capm), what is its expected return? group of answer choices 11.7% 13.1% 10.4% 13.8%
The expected return seems to be the profit or loss that an investor anticipates on a known historical rate of return investment (RoR).
What is expected return?A capital asset pricing model (CAPM) is a model that is used to compute a theoretical required rate of an asset in order to decide whether or not to add assets to a well-diversified portfolio of investments.The expected return can be calculated using the Capital Asset Pricing Model (CAPM) using the following formula:
Expected return = risk-free rate + (Beta * Market ris premium)
Here given that,
4% risk-free rate of return
7% market risk premium
Beta = 1.4
When we plug the values into equation (1), we get:
4% expected return + (1.4 * 7%) = 13.8%
As a result, option D) 13.8% is the correct answer.
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ow are derivatives used? evidence from the mutual fund industry, journal of finance, 1999, vol. 54 (pg. 791-816)
In the journal article "Evidence from the Mutual Fund Industry" published in the Journal of Finance in 1999, the use of derivatives in the mutual fund industry is explored. Derivatives are financial instruments whose value is derived from an underlying asset or benchmark.
In the context of the mutual fund industry, derivatives are used for various purposes, including risk management, speculation, and enhancing returns. Here are some examples:
1. Risk management: Mutual funds use derivatives to hedge against potential losses. For instance, they can use futures contracts to protect against declines in the value of their portfolio holdings.
2. Speculation: Some mutual funds actively trade derivatives to speculate on market movements. This can involve taking leveraged positions or using options to profit from anticipated price changes.
3. Enhancing returns: Derivatives can be employed to enhance a fund's returns. For instance, a fund manager might use options strategies to generate income or reduce the fund's expenses.
It's important to note that the use of derivatives involves risks and complexities that require skilled management. Therefore, it's essential for investors to understand the underlying strategies and associated risks when investing in mutual funds that employ derivatives.
In summary, derivatives play a significant role in the mutual fund industry, enabling funds to manage risks, speculate on market movements, and potentially enhance returns.
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1) Nelson Company began operations on December 1, Year 1. The following transactions and adjustments were recorded in December and posted to the company’s ledger accounts:
5) Purchased $500 of supplies on account to be used in January
1.1) Acquired $3,800 cash from the issue of common stock to its stockholders
2.2) Provided services on account for $3,300
3.3) Paid $1,900 cash for land
4.4) Owed $1,400 of salaries expenses to employees for work done in December that will be paid during January
5.6) Collected $1,700 from customers
What is the total of the debit account balances that will be reported on the company's adjusted trial balance at December 31, Year 1?
A) $6,900
B) $9,000
C) $5,200
D) $3,500
The total of the debit account balances that will be reported on the company's adjusted trial balance at December 31, Year 1 is B) $9,000
Nelson Company Adjusted trial balance at December 31, Year 1
Debit side
Cash $3,600
($3,800+$1,700-$1,900)
Account Receiveble $1,600
($3,300-$1,700)
Supplies $500
Land $1,900
Salaries expenses $1,400
Total debit balance $9,000
Credit side
Account payable $500
Salaries payable $1,400
Common stock $3,800
Service revenue $3,300
Total Credit balance $9,000
Inconclusion The total of the debit account balances that will be reported on the company's adjusted trial balance at December 31, Year 1 is B) $9,000
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Gertrude takes out a $5,500 subsidized Stafford loan, which must be paid back in ten years. Gertrude will graduate four years after taking out the loan. If the loan has an interest rate of 6. 8%, compounded monthly, and Gertrude makes monthly payments, how much interest will she pay by the time the loan is repaid? Round all dollar values to the nearest cent. A. $4,462. 40 b. $1,213. 28 c. $1,713. 69 d. $2,094. 80.
The interest is the amount of payment that is given by the borrower to the lender of money, it is the excess amount that is paid for the use of money.
The amount of interest that Gertrude would pay is $2,908 to repay the total amount of the loan.
What is interest?Interest is the monetary charge for acquiring money, and it is mostly shown as a percentage, such as an annual percentage rate (APR).
Interest is the excess amount that is paid by the lender to use his money on a certain percentage, and it is repaid with the amount of principal.
Computation of Interest:
Given that,
Principal(P) = $5,550,
Interest Rate(i) = 6.8%,
\(\text{i} = \dfrac{6.8}{12\times100}\\\\\text{i} =0.005667\)
Number of monthly Installments(n)= 10×12 = 120.
Here, we apply the formula of E.M.I (Equated Monthly Installment):
\(\text{E.M.I.}= \dfrac{P\times i\times (1+i)^n}{(1+i)^n-1}\\\\\\\text{E.M.I.}=\dfrac{\$5,500\times 0.005667\times (1+0.005667)^1^2^0}{(1+0.005667)^1^2^0-1}\\\\\\\text{E.M.I.}=\$63.29\)
Here, the total installments of the loan are 120,
then the amount of total payment would be:
\(120\times\$63.29= \$7,594\)
Then, the amount of interest that is paid on the loan would be:
\(\text{Amount -Principal}= \text{Interest}\\\\\$7,594.28-\$5,500= \$2,094.28\\\\\\\text{Interest}= \$2,094.28\)
Therefore, the total amount of interest that Gertrude has to pay is $2,097.28.
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What equal payments in 3 years and 4 years would replace payments of $40,000 and $67,500 in 7 years and 8 years, respectively? Assume money can earn 3.48% compounded monthly.
Press CPT PV = 3071.582953 with P/Y=2 and C/Y=2 set to 4000 FV 9 I/Y 6 N. Thus, $3071.58 is now the equivalent of $4000.00 in payments.
Any sum of money subject to interest rates will increase over time. The concept of time worth of money is crucial. Equivalent value or dated value refers to the value of an original sum at any given moment. The original amount and interest accrued up to the dated value date are combined to create the comparable payment. Money amounts are not directly comparable if they are payable or due at separate times. A time period, known as the focal date or comparison date, must be selected in order to make the amount of money comparable. Any moment can be selected as the focal date to determine the Equivalent Payments in compound interest; the decision has no bearing on the results.
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Althoigh a franchise offers many upsides opening a franchise also has many downsides. From the lost below select the answers that are considered down sides
Answer:
the options are missing, but I can list several disadvantages or downsides of owning a franchise:
When you buy a franchise you enter a formal contract that requires you to perform different obligations and failing to perform can result in legal and economic problems (similar to all contracts signed).The franchise contract generally specifies a certain amount of years, and even if you are able to perform very well, nothing can assure you that the contract will be renewed. When you buy a franchise, you must follow all the rules, procedures and guidelines given to you by the franchisor, i.e. you own a business but someone else tells you what to do. These orders and restrictions given by the franchisor include what you can or cannot sell, and who will be your vendors (suppliers). Even if you do great, other franchisees might not operate properly and that will negatively affect your business. You have to pay royalties (a % of your gains) to the franchisor.which of these managerial actions is a concurrent mechanism that should deter employee theft
One of the concurrent mechanisms that should deter employee theft is implementing strong internal controls.
What are internal controls?Internal controls are procedures and policies put in place by management to safeguard company assets and prevent fraudulent activity.
These controls can include segregation of duties, regular audits, and monitoring employee behavior.
By having a system of checks and balances, employees are less likely to attempt theft as the risk of getting caught is high. Additionally, management can use incentives and promotions to reward employees who exhibit ethical behavior and report suspicious activity.
This can create a culture of honesty and integrity within the organization, further deterring employee theft.
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One important driver for organizational change is ________, meaning that leaders continually urge employees to strive for higher standards or better practices.
An important driver of organizational change is the influential power, which means that leaders continually encourage employees to seek higher standards or best practices.
What is the influential power?It is a characteristic related to organizational leadership, that is, the leader is responsible for driving organizational change through his own example and behaviors, which when positive, will reflect the behavior of employees, helping to motivate, productivity and create a favorable culture to development.
Therefore, it is essential that the leader drives organizational change through compliance with ethics, objective and direct communication and assistance to the needs of employees.
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Shelley was initially moderately in favor of a proposal to build a city bike path. At a meeting, she learns that not only will the path provide recreational opportunities and allow for some decrease in traffic, but that in towns with paths, the crime rate tends to go down and businesses along the path do better. She is now strongly in favor of the proposal. The theory that best explains her change of opinion is the __________ theory.
Answer:
The appropriate response is "Persuasive arguments".
Explanation:
A noninteractional concept or philosophy of community judgment predicting choice results via cognitive or conceptual claims produced by individuals before the debate is determined as Persuasive arguments theory.It doesn't see dialogue as an important element of judgment results, although as a potential mechanism for facilitating communication.Thus the above is the right answer.
Libby is a trainee accountant and has prepared a balance sheet for the accounting year. She valued all the assets of the company at their current
market price. Which accounting principle did she fail to comply with?
А. historical cost
B. accruals
C. matching
D. business entity
E. realization
which of the following below is not one of porter's five forces?
Answer:
Buyer power
Supplier power
Rivalry among existing competitors
Prices of major inputs
Explanation:
High when buyers have few choices of whom to buy from and low when their choices are many
Optimization of Shareholder wealth is not one of porter's five forces.
What is porter's five forces?Porter's Five Forces Framework is a method for analyzing a company's competitive operating environment. It derives five forces from industrial organization economics that determine the competitive intensity and, thus, the attractiveness of an industry in terms of profitability.
Porter's Five Forces is a model that identifies and analyzes five competitive elements that impact every industry and aids in determining the strengths and weaknesses of that industry. The Five Forces analysis is commonly used to determine business strategy by identifying the structure of an industry.
A framework for today ’s dynamic business environment is Porter's Five Forces.
Porter's Five Forces is a widely used framework for assessing the competitive forces that influence a wide range of business sectors.
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Francisco started a new job and wants to open a retirement account. He has heard about 401k and 403(b) accounts for retirement. His new job will only allow him to have a 403(b) account. What is the MOST likely reason for this? A. Francisco is a salesperson at a clothing shop. B. Francisco is a CEO of a Fortune 500 company. C. Francisco is a government employee. D. Francisco is an investment banker.
The MOST likely reason for Francisco's new job allowing him to have only a 403(b) retirement account is C. Francisco is a government employee.
Francisco, as a government employee, may be working in a public school. Under section 501(c) of the IRS code, Francisco's organization is a nonprofit, which is tax-exempt.
Thus, the main reason that Francisco can open a 401(k) but a 403(b) retirement account is because he is working in a 501(c) tax-exempt organization.
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Francisco is a government employee.
When establishing an ad campaign in a foreign country, what does the difference in currency exchange rate affect the most?
A)the cost structure of the ad campaign
B)the creative strategy of the ad
C)media used for the advertisement
D)the company’s brand name
Answer:
Option A. The cost structure of the ad campaign
Explanation:
The reason is that the currency exchange rate effects the transactions of money from home to foreign or foreign country to home country. So the option with money transaction is option A.
The rest of the options are planning and are things that are not associated with the foreign transactions. So the remainder options are not the one which will be effected by the currency exchange rate.
Answer: A. The cost structure of the ad campaign
Explanation:
You learned about the various types of information systems that revolve around the different data, knowledge, information, and decision-making activities at different levels in the organization. In this activity, identify and explain any three types of information systems related to specific functional areas of business that this lesson hasn’t mentioned.
An information system is a coordinated group of parts used to gather, store, and process data as well as to deliver knowledge, information, and digital goods. Information systems include the following, decision support system, transaction processing system, management information system.
Types of information systems includeDecision support system: A decision support system is an information system that analyzes business data and other information relevant to the firm.
Transaction processing system: The process of collecting, modifying, and retrieving transactions is automated by the transaction processing system. This type of information system's particular characteristic is that it improves the efficiency, dependability, and consistency of commercial transactions.
Management information system: The management information system helps managers. such as measuring and analyzing business performance, making choices, creating a business plan, and establishing processes. By examining the roles and duties, it also gives managers feedback.
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9. Based on the historical data, B Inc. has a beta of 1.5 against the S&P 500 return last ten years, Today, the risk-free rate is 3.8% (T-Bill), the return on the market portfolio (S&P 500) is 10.8%. Currently, B Inc.’s share is sold at $75 and it has 5 million outstanding shares. Also, B Inc. has issued 200,000 10 years semi annual coupon bonds 5% coupon rate last year. Now, its bonds is rated as AAA and it is traded at $1,010 in the market. The company’s margin tax rate is 27%. What is B Inc.’s after tax WACC? (25 Marks)
B Inc.'s after-tax WACC with company’s margin tax rate 27% is 10.59%.
To calculate B Inc.'s after-tax Weighted Average Cost of Capital (WACC), we need to consider the cost of equity and the cost of debt.
Cost of Equity:
The cost of equity can be calculated using the Capital Asset Pricing Model (CAPM) formula:
Cost of Equity = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)
Given:
Risk-Free Rate (RF) = 3.8%
Beta (β) = 1.5
Market Return (RM) = 10.8%
Cost of Equity = 3.8% + 1.5 * (10.8% - 3.8%)
= 3.8% + 1.5 * 7%
= 3.8% + 10.5%
= 14.3%
Cost of Debt:
The cost of debt can be calculated using the formula:
Cost of Debt = Coupon Rate * (1 - Tax Rate)
Given:
Coupon Rate = 5%
Tax Rate = 27%
Cost of Debt = 5% * (1 - 27%)
= 5% * 73%
= 3.65%
Weighted Average Cost of Capital (WACC):
WACC is the weighted average of the cost of equity and the cost of debt, taking into account the proportion of equity and debt in the company's capital structure.
Let's assume the proportion of equity (Equity Weight) is based on the market value of equity and the proportion of debt (Debt Weight) is based on the market value of debt.
Market Value of Equity = Share Price * Number of Outstanding Shares
= $75 * 5,000,000
= $375,000,000
Market Value of Debt = Bond Price * Number of Bonds
= $1,010 * 200,000
= $202,000,000
Total Market Value of Capital = Market Value of Equity + Market Value of Debt
= $375,000,000 + $202,000,000
= $577,000,000
Equity Weight = Market Value of Equity / Total Market Value of Capital
= $375,000,000 / $577,000,000
≈ 0.6505
Debt Weight = Market Value of Debt / Total Market Value of Capital
= $202,000,000 / $577,000,000
≈ 0.3495
After-tax WACC = (Equity Weight * Cost of Equity) + (Debt Weight * Cost of Debt)
= (0.6505 * 14.3%) + (0.3495 * 3.65%)
= 9.30635% + 1.279175%
≈ 10.585525%
Therefore, B Inc.'s after-tax WACC is approximately 10.59%.
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