Consider an individual making choices over two goods, x and y with initial prices px= 2 and py= 1, with income I= 100: (a) If an individual has the utility function u(x;y) = 3x+y. what would the total, income and substitution effects of a price of x increase to 5? Show your work (b) If an individual has the utility function u(x;y) =x^2+y^2; what would the total, income and substitution effects of a price of x decrease to 0:50? Show your work

An individual owns a car that is worth $20,000, and is considering buying insurance. However, the only insurance which is available has a maximum coverage of $15,000, i.e. the policy will pay only $15,000 if the car suffers a total loss in an accident. The price of the policy is $1,800. There is a 10% chance of having an accident in which the car is a total loss. The focus here is to calculate the expected values with and without insurance. It is not necessary to calculate the variance and standard deviation, as it is obvious that there is less risk with insurance.

(a) Will a risk-averse individual buy the insurance? Show your work and explain.

(b) Will a risk-neutral individual buy the insurance? Show your work and explain.

(c) Will a risk-loving individual buy the insurance? Show your work and explain.

(d) How would your answer to (a)-(c) change if the policy paid $20,000 if the car was a total loss? Explain.

Question 2: Exponential distribution

The time (X) that an infected patient with COVID19 may infects other people in a gathering, if he/she is not wearing a mask, is exponentially distributed with mean (µ= 6) minutes. Answer the following questions:

1. What is the probability that an infected and unmasked patient infects others in less than 5 minutes?
2. What is the probability that an infected and unmasked patient infects others in more than 10 minutes?
3. The Department of Health stated that there is 90% chance that a healthy individual will be infected by an infected and unmasked patient in less than 15 minutes in a gathering. Check if the Department of Health is correct. Show your work.
4. If the mean time to infect a healthy individual (µ) by an unmasked infected patient is unknown, but we know that the probability that the time to infect a healthy individual to be more than 20 minutes is 0.41. What was the mean time to infect a healthy individual?

7. Let X be the random variable denoting the height of a randomly chosen adult individual. If the individual is male, then X has a normal distribution with mean of µ1 = 70 inches with standard deviation of σ1 = 3.5 inches; while if the individual is female, then X has a normal distribution with mean µ0 = 66 inches and standard deviation of σ0 = 3 inches. [Note: For computing probabilities and quantiles for the normal distribution, use the R functions pnorm, dnorm, and qnorm.] (f) Suppose that you want a rule to classify an individual into male or female depending on the person’s height. Consider the classification rule given by: Classification Rule: Classify individual into male if the height of the person is at least c inches. What should be c so that the probability that you will classify a male person as female (an error in decision, called Type I) is 0.05? (g) For the classification rule in (f), what is the probability that a female person will be classified as male (also an error of decision called Type II)? (h) If you want to decrease the probability of a Type II error to be equal to 0.05, what should c be and what will then happen to the probability of a Type I error?

In December of 1903, Wilbur and Orville Wright made history with their bi-plane contraption that managed to do the seemingly impossible: it gave man the ability to fly. The concept was so unearthly, in fact, that private aviation first took off not as a means of transportation, but as a sideshow of sorts. In those pioneer days, seeing a man use technology to overcome gravity was such a novelty that early aviators made their living mostly through exhibition flights.

Seven years after the Wright Brothers proved flight was possible, a car salesman by the name of Clyde Cessna found himself awestruck by one such exhibition in Oklahoma. He’d heard tales of men taking to the skies in these machines (and making thousands of dollars in the process), and now that he’d seen one in person he was certain: Clyde Cessna was going to build an airplane of his own.

The Cessna Aviation Company was an American general aviation aircraft manufacturing corporation headquartered in Wichita, Kansas. Cessna produced small, piston-powered aircraft, as well as business jets. For many years the company was one of the highest-volume producers of general aviation aircraft in the world. The company was founded in 1927.

The following information is available concerning a firm's capital:

Debt: 500,000 bonds with a face value of $1000 and an initial 20-year term were issued five years ago with a coupon rate of 8%. Today these bonds are selling for $846.30.

Preferred stock: 200,000 shares of preferred stock paying an annual dividend of $9.50 are outstanding. The shares currently trade at $79.16.

Common equity: Two hundred thousand shares of common stock are outstanding which are now selling for $22.50 per share. An annual dividend of $1.70 was just paid and is expected to grow indefinitely at 6%.

The combined federal and state tax rate is 40%.

Required:

Calculate the firm's WACC.

Timpanogos Inc. is an accrual-method calendar-year corporation. For the current year 2017, it reported financial statement income after taxes of $1,552,000. Timpanogos provided the following information relating to its current year activities:

Life insurance proceeds as a result of CEO’s death $ 200,000

Revenue from sales (for both book and tax purposes) 2,000,000

Premiums paid on the key-person life insurance policies (the policies have no cash surrender value) 21,000

Charitable contributions 180,000

Interest income on tax-exempt bonds 40,000

Interest paid on loan obtained to purchase tax-exempt bonds 45,000

Rental income payments received and earned in current year 15,000

Rental income payments received in last year but earned in current year 10,000

Rental income payments received in current year but not earned by year-end 30,000

MACRS depreciation 55,000

Book depreciation 25,000

Net capital loss 42,000

Federal income tax expense for books in current year 400,000

Required:

1. Parts A and B are done in a Word table – one page single sided.

2. Parts C and D are done on Form M-1.Fill in information form www.irs.gov

3.

A. Reconcile book income to taxable income for Timpanogos Inc. Be sure to start with book income and identify all of the adjustments necessary to arrive at taxable income.

B. Identify each book–tax difference as either permanent or temporary.

C. Complete Schedule M-1 for Timpanogos.

D. Compute Timpanogos Inc.’s tax liability.

Upon starting your new job after college, you’ve been confronted with
selecting the investments for your 401(k) retirement plan. You have four
choices for investing your money:
• A money market fund that has historically returned about 0.50% per year.
• A long-term bond fund that has earned an average annual return of 4.0%.
• A conservative common-stock fund that has earned 6.0% per year.
• An aggressive common-stock fund that has earned 9.0% per year.
a. If you were to contribute $5,500 per year for the next 35 years, how
much would you accumulate in each of the above funds?
b. Now, change your worksheet so that it allows for less than annual
investments (monthly, biweekly, etc.). The annual investment will be
the same, but it will be made in smaller, more frequent, amounts.

In part b, use annual, quarterly, monthly, bimonthly (2 times a month), and weekly). To set up your spreadsheet for part c, you just need to have a cell reference for number of payments per year. Then create the 5 scenarios.
c. Set up a scenario analysis that shows your accumulated value in each
fund if you were to invest quarterly, monthly, biweekly, and weekly.
Create a scenario summary of your results.
d. What relationship do you notice between the frequency of investment
and the future value? Create a Column chart of the results that more
clearly shows the outcome from more frequently investing.

Use the following chart to answer the next two questions.

QUESTION 1

What is the percentage appreciation/depreciation of the Euro from the US point of view from 2/17 to 2/18? Round intermediate steps and your final answer to four decimals.

QUESTION 2

What is the percentage appreciation/depreciation of the dollar from the Japanese point of view from 2/18 to 2/19?

SHOW STEPS, THANKS.

Ruth Thomas owns a home that has been pledged to First Bank and Trust to secure a mortgage debt of $60,000. Ruth Thomas sells her home to John Kendall, who purchases the home and assumes the mortgage held by First Bank and Trust. John Kendall subsequently sells the home to Mark Murphy, who purchases the home subject to the First Bank and Trust loan. The First Bank and Trust loan goes into default. Can First Bank and Trust Company foreclose on the home? Can First Bank and Trust Company sue Mark Murphy for the debt? Can First Bank and Trust Company sue John Kendall for the debt? Can First Bank and Trust Company sue Ruth Thomas for the debt? In the event Ruth Thomas pays the bank in full, what remedies does she have against John Kendall or Mark Murphy or against the real property?

James Adam has been the CEO in the company for the past 12 years. Before that, Mr. Adam had worked for a large organization for 10 years. He has implemented a number of changes that have earned him a great deal of respect and admiration from both companies' employees and surrounding community

Perhaps more than anything else, James is known for establishing progressive human resources practice. He strongly believes that the company's employees are its most important assets and continually searches for ways to increase both employee satisfaction and productivity. He thinks that all employees should try to continually improve their skills and abilities. Therefore, he trains employees and send many of them to courses and conferences. Regarding employee compensation, James firmly believes that employees should be paid according to their contribution to organizational success.

Most important James previous experiences in company “XXX”, has guided him as a current CEO. James recall that in his previous company, he implemented a result-based pay system under which employees could earn a bonus from 0 to 10 percent each year, depending on their job performance. Bonuses are typically determined by the company's HR committee during November and are granted to employees on January first of each year. In addition to granting employees several rewards according a scheme that was designed recently in the company. Further the company also began giving cost of living raises. James was opposed to this idea originally but had to agree to it.

As a result, few rumors started to appear in relation to the fairness of the performance-based raise. XXX company has always been proud of its performance management system. As a policy, at the begging of each year, every employee and his/her supervisor develop goals for the employee to achieve over the following 12 months, with a follow – up meeting after six months to assess progress and take remedial action. Rumors were suggesting that the policy is not being implemented fairly. Some supervisors agree with their subordinated on very simple goals which requires minimal efforts were as other supervisors formulated complicated goals. Some of the staff even said that they do not see the results of their evaluation before the following January.  

One December, another competitor company in town. An alarming observation was made by one of the supervisors; XXX lost four of its employees to the new company in the first four months of its operation. Further James started to hear for the first-time rumors about complains about employee's salaries. Several staff complained that other employees in similar positions in other companies in the market are receiving better compensation than their compensation. To his surprise, he started to hear complaints from all departments. An exception was the dealers group department.

James has been always well respected. People admired him, many employees did not raise an official complains or made formal demands for raise but rumors about complaints were hard not to be noticed by an experienced boss who pays attention to human resources issues.

James was determined to be proactive and to take measures before the company loses its competitive position. Upon enquiring from the HR committee, he was informed that everything is fine. Actually, one member of the committee said that that "our dealers are the happiest in the market, they are being paid an average of $ 200 a month more than dealers in the other companies".

James was not comfortable to this idea. He also was curious of whether the new HR committee leader has influenced the committee to introduce changes in the company HR practices that were not in line with his vision. He was thinking of restructuring the committee and may be establishing a new HR structure. In the middle of his thinking another issue was brought to him.   The HR committee of the company met to determine what should be done regarding the dealer’s bonuses. They knew that none of the dealers had been told how much their bonus would be but that they were all expecting both performance award and cost of living raise. They also realized that, if other employees learned that the dealers were being overpaid in relation to market, conflict could develop, and morale might suffer. They knew that it was costing the Company over $ 30,000 extra to pay the dealers. Finally, they knew that as a group the XXX’s dealers were highly competent, and they did not want to lose any of them.

1. What XXX company can do to clarify the truth in relation to the rumors that employees of similar positions in other companies in the market are receiving better compensations?