Suppose that there are drastic technological improvements in shoe production in Home such that shoe factories can operate almost completely with computer-aided machines. Consider the following data for the Home country:
Shoes: Sales revenue = Ps x Qs = 100 , Payments to labor = W x Ls = 10 , Payments to labor = R x Ks = 90 , Percentage increase in the price = ∆Ps/Ps = 40%
Computers: Sales revenue = Pc x Qc = 100, Payments to labor = W x Lc = 50 , Payments to capital = R x Kc = 50, Percentage increase in the price = ∆Pc/Pc= 0%
a. Which industry is capital-intensive?
b. Given the percentage changes in output prices in the data provided, calculate the percentage change in the rental on capital.
c. How does the magnitude of this change compare with that of change in the earnings of labor?
d. Which factor gains in real terms, and which factor loses? Are these results consistent with the Stohlper-Samuelson theorem?
Using a diagram of relative labor demand (RD), show the effect of a decrease in the relative price of computers in Foreign. What happens to the wage relative to the rental? Is there an increase in the labor-capital ratio in each industry? Explain.
In: Economics
Problem 16-23
An 11-year maturity zero-coupon bond selling at a yield to
maturity of 5.75% (effective annual yield) has convexity of 171.9
and modified duration of 10.06 years. A 30-year maturity 9.5%
coupon bond making annual coupon payments also selling at a yield
to maturity of 5.75% has nearly identical duration—10.04 years—but
considerably higher convexity of 264.3.
a. Suppose the yield to maturity on both bonds
increases to 6.75%. What will be the actual percentage capital loss
on each bond? What percentage capital loss would be predicted by
the duration-with-convexity rule? (Input all amounts as
positive values. Do not round intermediate calculations. Round your
answers to 2 decimal places.)
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b. Suppose the yield to maturity on both bonds
decreases to 4.75%. What will be the actual percentage capital loss
on each bond? What percentage capital loss would be predicted by
the duration-with-convexity rule? (Input all amounts as
positive values. Do not round intermediate calculations. Round your
answers to 2 decimal places.)
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In: Finance
George Johnson recently inherited a large sum of money; he wants to use a portion of this money to set up a trust fund for his two children. The trust fund has two investment options: (1) a bond fund and (2) a stock fund. The projected returns over the life of the investments are 8% for the bond fund and 20% for the stock fund. Whatever portion of the inheritance George finally decides to commit to the trust fund, he wants to invest at least 40% of that amount in the bond fund. In addition, he wants to select a mix that will enable him to obtain a total return of at least 5.5%.
a.Formulate a linear programming model that can be used to determine the percentage that should be allocated to each of the possible investment alternatives. If required, round your answers to three decimal places. Let B = percentage of funds invested in the bond fund S = percentage of funds invested in the stock fund
Max
|
B | + | S | |||
| s.t. | ||||||
| B | ≥
|
Bond fund minimum | ||||
| B | + | S | ≥
|
Minimum return | ||
| B | + | S | =
|
Percentage requirement |
b.Solve the problem using the graphical solution procedure. If required, round the answers to one decimal place. Optimal solution:
B =
S =
Value of optimal solution is= %
In: Math
| Consider the following income statement for the Heir Jordan Corporation: |
|
HEIR JORDAN CORPORATION Income Statement |
|||||||
| Sales | $ | 48,800 | |||||
| Costs | 34,800 | ||||||
| Taxable income | $ | 14,000 | |||||
| Taxes (30%) | 4,200 | ||||||
| Net income | $ | 9,800 | |||||
| Dividends | $ | 3,200 | |||||
| Addition to retained earnings | 6,600 | ||||||
|
The balance sheet for the Heir Jordan Corporation follows. Based on this information and the income statement, supply the missing information using the percentage of sales approach. Assume that accounts payable vary with sales, whereas notes payable do not. (Leave no cells blank - be certain to enter "0" whenever the item is not a constant percentage of sales. Enter each answer as a percent rounded 2 decimal places, e.g., 32.16.) |
|
HEIR JORDAN CORPORATION Balance Sheet |
||||||||||||||
|
Percentage of Sales |
Percentage of Sales |
|||||||||||||
| Assets | Liabilities and Owners’ Equity | |||||||||||||
| Current assets | Current liabilities | |||||||||||||
| Cash | $ | 2,650 | _______ | Accounts payable | $ | 2,400 | ______ | |||||||
| Accounts receivable | 3,600 | _______ | Notes payable | 5,300 | ______ | |||||||||
| Inventory | 9,000 | _______ | ||||||||||||
| Total | $ | 15,250 | _______ | Total | $ | 7,700 | _______ | |||||||
| Long-term debt | $ | 24,000 | _______ | |||||||||||
| Owners’ equity | ||||||||||||||
| Common stock and paid-in surplus | $ | 18,000 | _______ | |||||||||||
| Retained earnings | 3,950 | _______ | ||||||||||||
| Fixed assets | ||||||||||||||
| Net plant and equipment | $ | 38,400 | ________ | Total | $ | 21,950 | _______ | |||||||
| Total assets | $ | 53,650 | ________ | Total liabilities and owners’ equity | $ | 53,650 | _______ | |||||||
In: Accounting
Problem 2-25 (Algorithmic)
George Johnson recently inherited a large sum of money; he wants to use a portion of this money to set up a trust fund for his two children. The trust fund has two investment options: (1) a bond fund and (2) a stock fund. The projected returns over the life of the investments are 8% for the bond fund and 20% for the stock fund. Whatever portion of the inheritance he finally decides to commit to the trust fund, he wants to invest at least 40% of that amount in the bond fund. In addition, he wants to select a mix that will enable him to obtain a total return of at least 5.5%.
| Let B | = | percentage of funds invested in the bond fund |
| S | = | percentage of funds invested in the stock fund |
| B | + | S | ||||
| s.t. | ||||||
| B | Bond fund minimum | |||||
| B | + | S | Minimum return | |||
| B | + | S | Percentage requirement |
In: Advanced Math
A $1,000 par value bond was issued five years ago at a coupon rate of 6 percent. It currently has 8 years remaining to maturity. Interest rates on similar debt obligations are now 8 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.
a. Compute the current price of the bond using an assumption of semiannual payments. (Do not round intermediate calculations and round your answer to 2 decimal places.)
b. If Mr. Robinson initially bought the bond at par value, what is his percentage capital gain or loss? (Ignore any interest income received. Do not round intermediate calculations and input the amount as a positive percent rounded to 2 decimal places.)
c. Now assume Mrs. Pinson buys the bond at its current market value and holds it to maturity, what will be her percentage capital gain or loss? (Ignore any interest income received. Do not round intermediate calculations and input the amount as a positive percent rounded to 2 decimal places.)
d. Why is the percentage gain larger than the percentage loss when the same dollar amounts are involved in parts b and c?
In: Finance
The University of Arkansas recently approved out of state tuition discounts for high school students from any state. The students must qualify by meeting certain standards in terms of GPA and standardized test scores. The goal of this new policy is to increase the geographic diversity of students from states beyond Arkansas and its border states. Historically, 90% of all new students came from Arkansas or a bordering state. Ginger, a student at the U of A, sampled 180 new students the following year and found that 157 of the new students came from Arkansas or a bordering state. Does Ginger’s study provide enough evidence to indicate that this new policy is effective with a level of significance 10%? What would be the correct decision?
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Reject H0; conclude that the new policy does not increase the percentage of students from states that don’t border Arkansas |
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Fail to reject H0; conclude that the new policy increases the percentage of students from states that don’t border Arkansas |
||
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Reject H0; conclude that the new policy increases the percentage of students from states that don’t border Arkansas |
||
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Fail to reject H0; conclude that the new policy does not increase the percentage of students from states that don’t border Arkansas |
In: Math
Consider the following income statement for the Heir Jordan Corporation: HEIR JORDAN CORPORATION Income Statement Sales $ 46,200 Costs 34,200 Taxable income $ 12,000 Taxes (30%) 3,600 Net income $ 8,400 Dividends $ 2,800 Addition to retained earnings 5,600 The balance sheet for the Heir Jordan Corporation follows. Based on this information and the income statement, supply the missing information using the percentage of sales approach. Assume that accounts payable vary with sales, whereas notes payable do not. (Leave no cells blank - be certain to enter "0" whenever the item is not a constant percentage of sales. Enter each answer as a percent rounded 2 decimal places, e.g., 32.16.) HEIR JORDAN CORPORATION Balance Sheet Percentage of Sales Percentage of Sales Assets Liabilities and Owners’ Equity Current assets Current liabilities Cash $ 2,450 Accounts payable $ 4,000 Accounts receivable 4,000 Notes payable 8,400 Inventory 9,000 Total $ 15,450 Total $ 12,400 Long-term debt $ 21,000 Owners’ equity Common stock and paid-in surplus $ 14,000
Retained earnings 5,650 Fixed assets Net plant and equipment $ 37,600 Total $ 19,650 Total assets $ 53,050 Total liabilities and owners’ equity $ 53,050
In: Finance
|
Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now experiencing a severe cash shortage. For this reason, it is requesting a $500,000 long-term loan from Gulfport State Bank, $100,000 of which will be used to bolster the Cash account and $400,000 of which will be used to modernize equipment. The company’s financial statements for the two most recent years follow: |
| Sabin Electronics | ||||
| Comparative Balance Sheet | ||||
| This Year | Last Year | |||
| Assets | ||||
| Current assets: | ||||
| Cash | $ | 70,000 | $ | 150,000 |
| Marketable securities | 0 | 18,000 | ||
| Accounts receivable, net | 480,000 | 300,000 | ||
| Inventory | 950,000 | 600,000 | ||
| Prepaid expenses | 20,000 | 22,000 | ||
| Total current assets | 1,520,000 | 1,090,000 | ||
| Plant and equipment, net | 1,480,000 | 1,370,000 | ||
| Total assets | $ | 3,000,000 | $ | 2,460,000 |
| Liabilities and Stockholders Equity | ||||
| Liabilities: | ||||
| Current liabilities | $ | 800,000 | $ | 430,000 |
| Bonds payable, 12% | 600,000 | 600,000 | ||
| Total liabilities | 1,400,000 | 1,030,000 | ||
| Stockholders' equity: | ||||
| Common stock, $15 par | 750,000 | 750,000 | ||
| Retained earnings | 850,000 | 680,000 | ||
| Total stockholders’ equity | 1,600,000 | 1,430,000 | ||
| Total liabilities and equity | $ | 3,000,000 | $ | 2,460,000 |
| Sabin Electronics | ||||
| Comparative Income Statement and Reconciliation | ||||
| This Year | Last Year | |||
| Sales | $ | 5,000,000 | $ | 4,350,000 |
| Cost of goods sold | 3,875,000 | 3,450,000 | ||
| Gross margin | 1,125,000 | 900,000 | ||
| Selling and administrative expenses | 653,000 | 548,000 | ||
| Net operating income | 472,000 | 352,000 | ||
| Interest expense | 72,000 | 72,000 | ||
| Net income before taxes | 400,000 | 280,000 | ||
| Income taxes (30%) | 120,000 | 84,000 | ||
| Net income | 280,000 | 196,000 | ||
| Common dividends | 110,000 | 95,000 | ||
| Net income retained | 170,000 | 101,000 | ||
| Beginning retained earnings | 680,000 | 579,000 | ||
| Ending retained earnings | $ | 850,000 | $ | 680,000 |
|
During the past year, the company introduced several new product lines and raised the selling prices on a number of old product lines in order to improve its profit margin. The company also hired a new sales manager, who has expanded sales into several new territories. Sales terms are 2/10, n/30. All sales are on account. |
|
Assume that Paul Sabin has asked you to assess his company’s profitability and stock market performance. |
| Required: | |
| 1. |
You decide first to assess the company’s stock market performance. For both this year and last year, compute: |
| a. |
The earnings per share. There has been no change in common stock over the last two years.(Round your answers to 2 decimal places.) |
| b. |
The dividend yield ratio. The company’s stock is currently selling for $40 per share; last year it sold for $36 per share. (Do not round intermediate calculations. Round your percentage answers to 1 decimal place (i.e., 0.123 should be entered as 12.3).) |
| c. |
The dividend payout ratio. (Do not round intermediate calculations. Round your percentage answers to 1 decimal place (i.e., 0.123 should be entered as 12.3).) |
| d. |
The price-earnings ratio. (Do not round intermediate calculations. Round your answers to 2 decimal places.) |
| e. |
The book value per share of common stock. (Round your answers to 2 decimal places.) |
| 2. |
You decide next to assess the company’s profitability. Compute the following for both this year and last year: |
| a. |
The gross margin percentage. (Round your percentage answers to 1 decimal place (i.e., 0.123 should be entered as 12.3).) |
| b. |
The net profit margin percentage. (Round your percentage answers to 1 decimal place (i.e., 0.123 should be entered as 12.3).) |
| c. |
The return on total assets. (Total assets at the beginning of last year were $2,300,000.) (Round your percentage answers to 1 decimal place (i.e., 0.123 should be entered as 12.3).) |
| d. |
The return on equity. (Stockholders’ equity at the beginning of last year was $1,329,000.) (Round your percentage answers to 1 decimal place (i.e., 0.123 should be entered as 12.3).) |
| e. | Is the company’s financial leverage positive or negative? | ||||
|
In: Accounting
Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now experiencing a severe cash shortage. For this reason, it is requesting a $620,000 long-term loan from Gulfport State Bank, $160,000 of which will be used to bolster the Cash account and $460,000 of which will be used to modernize equipment. The company’s financial statements for the two most recent years follow:
| Sabin Electronics | ||||
| Comparative Balance Sheet | ||||
| This Year | Last Year | |||
| Assets | ||||
| Current assets: | ||||
| Cash | $ | 118,000 | $ | 270,000 |
| Marketable securities | 0 | 30,000 | ||
| Accounts receivable, net | 633,000 | 420,000 | ||
| Inventory | 1,065,000 | 715,000 | ||
| Prepaid expenses | 30,000 | 34,000 | ||
| Total current assets | 1,846,000 | 1,469,000 | ||
| Plant and equipment, net | 1,969,200 | 1,490,000 | ||
| Total assets | $ | 3,815,200 | $ | 2,959,000 |
| Liabilities and Stockholders Equity | ||||
| Liabilities: | ||||
| Current liabilities | $ | 820,000 | $ | 420,000 |
| Bonds payable, 12% | 850,000 | 850,000 | ||
| Total liabilities | 1,670,000 | 1,270,000 | ||
| Stockholders' equity: | ||||
| Common stock, $15 par | 810,000 | 810,000 | ||
| Retained earnings | 1,335,200 | 879,000 | ||
| Total stockholders’ equity | 2,145,200 | 1,689,000 | ||
| Total liabilities and equity | $ | 3,815,200 | $ | 2,959,000 |
| Sabin Electronics | ||||
| Comparative Income Statement and Reconciliation | ||||
| This Year | Last Year | |||
| Sales | $ | 5,600,000 | $ | 4,710,000 |
| Cost of goods sold | 3,995,000 | 3,570,000 | ||
| Gross margin | 1,605,000 | 1,140,000 | ||
| Selling and administrative expenses | 677,000 | 572,000 | ||
| Net operating income | 928,000 | 568,000 | ||
| Interest expense | 102,000 | 102,000 | ||
| Net income before taxes | 826,000 | 466,000 | ||
| Income taxes (30%) | 247,800 | 139,800 | ||
| Net income | 578,200 | 326,200 | ||
| Common dividends | 122,000 | 101,000 | ||
| Net income retained | 456,200 | 225,200 | ||
| Beginning retained earnings | 879,000 | 653,800 | ||
| Ending retained earnings | $ | 1,335,200 | $ | 879,000 |
|
During the past year, the company introduced several new product lines and raised the selling prices on a number of old product lines in order to improve its profit margin. The company also hired a new sales manager, who has expanded sales into several new territories. Sales terms are 2/10, n/30. All sales are on account. |
|
Assume that Paul Sabin has asked you to assess his company’s profitability and stock market performance. |
| Required: | |
| 1. |
You decide first to assess the company’s stock market performance. For both this year and last year, compute: |
| a. |
The earnings per share. There has been no change in common stock over the last two years.(Round your answers to 2 decimal places.) |
| b. |
The dividend yield ratio. The company’s stock is currently selling for $50 per share; last year it sold for $45 per share. (Do not round intermediate calculations. Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) |
| c. |
The dividend payout ratio. (Round intermediate calculations to 2 decimal places. Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) |
| d. |
The price-earnings ratio. (Round intermediate calculations to 2 decimal places. Round your answers to 2 decimal places.) |
| e. |
The book value per share of common stock. (Round your answers to 2 decimal places.) |
| 2. |
You decide next to assess the company’s profitability. Compute the following for both this year and last year: |
| a. |
The gross margin percentage. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) |
| b. |
The net profit margin percentage. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) |
| c. |
The return on total assets. (Total assets at the beginning of last year were $2,919,000.) (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) |
| d. |
The return on equity. (Stockholders’ equity at the beginning of last year was $1,679,000.) (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) |
| e. | Is the company’s financial leverage positive or negative? | ||||
|
In: Accounting