The opportunity cost amounts to $532,000. This represents the cost of the most preferable alternative that was not selected. In this case, rejecting the investment project meant foregoing the potential return of $532,000.
Policy 1: The price at the end of year 4 is calculated as D5/(rs-g) = 3 /(.12-.02) = 3/.10 = $30 per share. The current price is determined using PVF12%,4* Price at year 4 =.63552 * 30 = $19.07 per share. Policy 2: The price at the end of year 4 is D5/(rs-g) = 2 /(.12-.06) = 3/.06 = $50 per share. The current price is then calculated as PVF12%,4* Price at year 4 =.63552 * 50 = $31.78 per share. Policy 2 should be favored as it offers a higher market price per share.
A financial disadvantage of $150,000 is noted.
Ceasing the bilge pump product line will erase its variable costs; however, some fixed costs will remain intact. To determine the financial outcome of discontinuation, we must also account for any fixed costs that can be saved. The Contribution Margin is calculated from Sales minus variable costs, which excludes variable cost savings. Discontinuing won't impact overall factory overhead or total Purchasing Department expenses, so fixed cost savings will stem from Advertising, Salary of the product line manager, and inventory insurance.
Savings from fixed costs accumulate to $310,000. The Contribution Margin loss from discontinuation amounts to ($460,000). Including fixed costs saved, we calculate:
(460,000) + 310,000 = ($150,000). Thus, $150,000 remains in losses even after considering the fixed costs saved.
Response:
b. A reduction in the YTM.
Detail:
The valuation of the bond is derived from the present worth of expected cash flows. When determining these present values for cash inflows or the bond's price, the YTM is utilized for discounting. It is known that a higher interest rate results in a lower present value, whereas a lower interest rate yields a greater present value. Interest rates and present value have an inverse relationship. Thus, a decrease in YTM will enhance the bond's price.
$0.20 Explanation: To determine the adjustment in the future price, the initial step is calculating the loss, as follows: Loss = Initial Margin - Maintenance Margin = $4,000 - $3,000 = $1,000. The future price adjustment will then be Loss divided by the size of the contract, returning to $1,000 ÷ 5,000 ounces = $0.20. Thus, the future price rises by $0.20. If the margin call isn't satisfied, the broker will step in at the maximum price to prevent additional losses.
