a. Determine the average rate of return for a project that is estimated to yield total income of $570,720 over six years, has a cost of $603,500, and has a $52,500 residual value. Round to the nearest whole number.
%

b. A project has estimated annual net cash flows of $30,000. It is estimated to cost $123,000.
Determine the cash payback period. Round your answer to one decimal place.
years

Answers

Answer 1

The Average rate of return is 35%.

The cash payback period is 4.10 years.

What is the average rate of return?

Average rate of return is a capital budgeting method. It is used to determine if a firm should invest in a project or should not invest in a project

Average rate of return = average net income / average cost of investment

average net income =$570,720 / 6 = $95,120

Average cost of investment =( beginning book value of the investment - ending book value of the investment) / 2

(603,500 - 52,500) / 2 = $275,500

Average rate of return = ($95,120 /  $275,500) x 100 = 35%

What is the cash payback period?

Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows

Payback period = Amount invested / cash flow

Payback period = 123,000 / 30,000 =  4.10 years

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Related Questions

Q #2. Consider a closed economy with the following equations C = 200+ 0.16Y₁ I = 800 - 40 r G = 1000 L = 0.5Y - 60 r M/P= 700 tax rate = 0.50 (where, C = consumption, I = investment, G = government spending, L = demand for money, real money supply. Yd= disposable income, Y = output/income, r interest rate) find a) Autonomous spending. A (2 point).​

Answers

Explanation:

gifyudtsutfyl wcgimmnkybh hff uh397 y6cwmunw t dlc4n

define formula p(1+i)n-p​

Answers

Answer:

Or 1 hp =746 watt. Also, One Horsepower equals to 33,000 lb. ft/min. Horsepower formula is: Horsepower = \frac{Torque × speed}{ ...

Horsepower is a popular imperial unit of power of an engine. It is defined as the work done by a person or machine per unit amount of time. This term of Horsepower was invented by James Watt. It is a unit of power that compares the power of a machine to the muscle power of the horse.

In earlier days it was used to measure steam engine power output compared to the power of draft horses. But later on, its usage was expanded to different types of piston engines, electric motors, turbines, and other machinery.

Horsepower Formula

The formula for Horsepower calculation:

First, we will see some equations to help in calculating the horsepower:

Power = worktime

For the electric motors, we can calculate the power or horsepower from the torque and speed. For example, if we have a motor with 3,000 rpm and 6 in-lbf then the horsepower can be calculated below.

Horsepower = 300×663025

i.e. horsepower = 0.286

Here, 63025 is a constant when using rpm for speed and in-lbf for torque units. 5252 is another common constant if the speed is in rpm and torque is in ft-lbf. If the units are different then first we have to make the unit conversion.

Get the huge list of Physics Formulas here

The derivation of these constants is as follows:

33,000 ft-lbf /min = 1 horsepower.

Though horsepower units is a derivative of the 33,000 ft-lbf / min, it is not critical to understanding how to calculate motor horsepower for speed and torque.

Another common but popular unit of power that motors are rated in is watts. The conversion from watts to horsepower is:

745.7 watts = 1 horsepower

Or 1 hp =746 watt.

Also, One Horsepower equals to 33,000 lb. ft/min.

Horsepower formula is:

Horsepower = Torque×speed5252

With another computation,

Horsepower = weight × velocity(234)2

Solved Examples on Horsepower Formula

Q.1: Determine the horsepower of a vehicle which moves with a speed of 500 revolutions per minute and has a torque of 100 pound-foot.

Solution:

Given parameters in the problem are:

Torque = 100 pound foot

Speed = 500 revolutions per minute

Now we may apply the Horsepower formula as below:

Horsepower = Torque×Speed5252

Substituting the known values, we get

Horsepower = 100×5005252

= 500005252

Horsepower = 9.52 HP

Therefore the horsepower of the engine of the vehicle will be 9.52 HP.

If a vendor has correctly used marginal analysis to select its stock levels for the day (as in the newsperson problem in the text), and if the profit resulting from the last unit being sold (Cu) is $120 and the loss resulting from that unit if it is not sold (Co.) is $360, which of the following is the probability of the last unit being sold?

Answers

The probability of the last unit being sold is mathematically given as

x Greater than 0.75

What is the probability of the last unit being sold i?

Generally, the equation forthe  Probability  is  mathematically given as

[tex]P= P\leq C_{u}/(C_{u}+C_{o})[/tex]

Therefore

P = 120/(120+360)

P= 120/480

P=0.25

P represents the likelihood that a unit will not be sold, whereas 1-p represents the likelihood that a unit will be sold.

1-p = 1-0.25 = 0.75

In conclusion,  The likelihood of the last unit selling should be higher than 0.75

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The least-squares regression line for predicting the ribeye price from the corn price is y = 4.8188 + 1.3103x

Predict the ribeye price in a month when the corn price was $6.63 per bushel

$13.51 per lb
$14.37 per lb
$8.69 per lb
$12.83 per lb

Answers

The price of ribeye is option A. $13.51 per lb using Least Squares Regression

The Least Squares Regression Line is the line that minimizes the sum of the residuals squared. The residual is the vertical distance among the discovered factor and the anticipated factor, and it is calculated with the aid of subtracting.

The regression line is every so often known as the "line of fine fit" due to the fact it's miles the road that suits first-rate while drawn through the points. it is a line that minimizes the gap of the actual rankings from the anticipated rankings.

Ordinary least squares regression is a manner to find the line of satisfactory fit for a fixed of information. It does this by creating a model that minimizes the sum of the squared vertical distances (residuals). The distances are squared to keep away from the problem of distances with a poor signal.

The corn price (x)= $ 6.63

Commodity (ribeye price) =  4.8188 + 1.3103x

                                           = 4.8188 + 1.3103( 6.63)

                                        =  4.8188 +8.687289

                                       = $ 13.506089

                                        = $13.51

Hence the price of ribeye is option A. $13.51 per lb.

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In computing the cost of merchandise sold,does each of the following items increase or decrease that cost? (a) Transportation costs,(b) beginning merchandise inventory, (c) purchase discounts, (d) Ending merchandise inventory​

Answers

Answer: option (d)

Explanation:

Which of the following practices of dispensing single-service items prevents contamination?

Answers

The best practices of dispensing single-service items is: To Provide individually wrapped ware.

What is contamination?

Contamination is when something is infected which in turn can cause   diseases or foodborne illness.

Hence, The best method on how to  dispense single-service items so as to prevents contamination is to provide individually wrapped ware.

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2. Max z = 3X1 + 5X2+ 4X3 S.t.2X1 +3X2 ≤ 18 2X1 + X2 ≤ 10 3X1 + 2X+4X3 ≤ 15 X1, X2, X3 ≥ 0
Required: Solve the problem and interpret the result?

Answers

The interpretation of the result is that the maximum value of the objective function is 29

How to solve and interpret the result?

The objective function is given as:

Max z = 3x₁ + 5x₂+ 4x₃

The constraints are:

2x₁ +3x₂ ≤ 18

2x₁ + x₂ ≤ 10

3x₁ + 2x₂ +4x₃ ≤ 15

x₁, x₂, x₃ ≥ 0

Subtract the second inequality from the first

2x₁ - 2x₁ + 3x₂ - x₂ ≤ 18 - 10

Evaluate the like terms

2x₂ ≤ 8

Divide by 2

x₂ ≤ 4

Substitute 4 for x₂ in 2x₁ +3x₂ ≤ 18

2x₁ +3*4 ≤ 18

This gives

2x₁ + 12 ≤ 18

Evaluate the like terms

2x₁ ≤ 6

Divide by 2

x₁ ≤ 3

Substitute 4 for x₂ and 3 for x₁ in 3x₁ + 2x₂ +4x₃ ≤ 15

3*3 + 2*4 +4x₃ ≤ 15

This gives

17 +4x₃ ≤ 15

Evaluate the like terms

4x₃ ≤ -2

Divide by 4

x₃ ≤ -0.5

From the constraints, we have:

x₁, x₂, x₃ ≥ 0

So, we set all negative values to 0

This means that:

x₃ ≤ 0

Substitute these values in the objective function

Max z = 3 * 3 + 5 * 4 + 4 * 0

Evaluate

Max z = 29

Hence, the interpretation of the result is that the maximum value is 29

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Which action is an example of an expansionary monetary policy?
A. Selling Treasury securities

B. Lowering the discount rate
• C. Raising the interest on reserve rate

D. Raising the reserve requirement

Answers

Answer: B

Explanation:

The three key actions by the Fed to expand the economy include a decreased discount rate, buying government securities, and a lowered reserve ratio.

Household​ production, such as baking bread at​ home, is not included in gdp because it:.

Answers

Household​ production, such as baking bread at​ home, is not included in GDP  because it does not involve a market transaction.

What is GDP?

Gross domestic product (GDP) is a monetary indicator of the total market worth of all the finished products that nations create over a certain time period. This measurement is frequently changed before it can be trusted as an indicator because of how complicated and subjective it is.

The total amount of money spent during a specific time period by firms, consumers, and the government may be used to compute GDP. It may also be determined by adding up the total amount of money that each economic participant has received. The figure represents an estimate of "nominal GDP" under both scenarios.

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3.
(a)
(b)
(c)
What is Standard Cost?
Explain the two components of Standard Cost Variance.
State two advantages and two disadvantages of Standard Costing.

Answers

Answer:

The Standard course duration is the normal duration of the course for a full-time student.

advantages =Standard Costing is used to minimize costs, improve quality, and increase efficiency. It also enables managers to compare actual results with expected results

disadvantage =Standard costs are usually associated with a manufacturing company's costs of direct material, direct labor, and manufacturing overhead. The disadvantages include that implementing a standard costing system can be time consuming, labor intensive, and expensive.

Lands’ end allows customers buying shirts to choose from a variety of fabrics and types of collar and sleeve based on the customer’s specific measurements, capitalizing on new technologies to mass customize its products and services. This is an example of:.

Answers

This is an example of Micromarketing.

What is Micro Marketing?

As the name suggests, micromarketing is marketing on a small scale. It is a form of target marketing as well. That means you deliberately develop material that will speak to your targeted client niche rather than putting out advertisements and content with the intention of appealing to everyone. Micromarketing is far more specialized than standard marketing, and its straightforward definition is "targeted marketing to a niche or particular group."

Therefore, Lands’ end allows customers buying shirts to choose from a variety of fabrics and types of collar and sleeves based on the customer’s specific measurements, capitalizing on new technologies to mass customize its products and services, which is an example of Micro-Marketing.

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how to write memo cash flow statement problems and solutions

Answers

1. Start with the Opening Balance

For the first month, start with the total amount of cash your business has in its bank accounts.

2. Calculate the Cash Coming in (Sources of Cash)

Figure out all the money you expect to take in during the month. Only include actual money you will be receiving, not the sales you have made. For example, if you signed a contract for $100,000 over the next six months but are only receiving $15,000 of it this month, you would only count $15,000 for now because that would be the cash you have on hand.

Count everything coming in, including all collections of previous sales you made on credit, any transfers of your own personal money into the business, and any loans you might have taken during the period. Basically, you will include every single dollar coming into your business, whether from operations (sales of your goods or services), investments (sales of assets such as business equipment or land), or financing activities (equity you and/or shareholders are providing, or loans).
Add the figure you’ve arrived at in Step 2 to your opening balance from Step 1 to get your total cash balance for the period.

3. Determine the Cash Going Out (Uses of Cash)
Now, count up and enter all of the payments you expect to make for the month. Include items such as inventory, rent, salaries, taxes, loan payments, etc. Take into account everything you’ll spend money on this month.
If you have an annual bill for something like insurance, but have to pay for it all at one time or twice a year, you would count the payment as an expenditure during the month(s) in which you pay it. (You should still budget for it monthly, but you’ll have to come up with the cash during the month it’s actually due.)

4. Subtract Uses of Cash (Step 3) from your Cash Balance (sum of Steps 1 and 2)
The number you’re left with will be how much cash you have left at the end of the month. It will also be your Opening Balance at the start of the next month. If the number is negative, it means you will have a shortfall-not enough cash to cover your expenses.


2.How to Use a Cash Flow Statement

The biggest benefit to analyzing your cash flow is the information it provides about how to handle your expenses. While your business may be profitable in the long run, you may still have periods where you don’t have the money to pay your bills. This is especially true for companies that do a lot of invoicing.

Not all customers pay on time, and sometimes, they don’t pay at all. Because cash flow ONLY counts the money you’ve actually received, it can be more realistic than your profit and loss statement when it comes to figuring out the financials of your operation.

When you see the figures in black and white, you’ll realize the periods in which you either have to cut the amount of money you’re spending or increase the money coming in-whether it’s by booking more business, getting paid faster, or getting a loan or a line of credit.

Bearcat uses $1,200 of supplies in 2021. Record the adjusting entry for supplies at its year-end of December 31.

Answers

The adjusting entry is to debit "supplies expense" for $1,200 and a to credit "supplies" for $1,200.

What is an adjusting entry?

This refers to the journal entry that occurs at the end of a reporting period to record any unrecognized income or expenses for the period.

Hence, in this case, the adjusting entry is to debit "supplies expense" for $1,200 and a to credit "supplies" for $1,200.

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Explain how financial managers can assess the company’s debt structure and determine how reasonable it is.

Answers

The use of debt-to-equity ratio will allow managers to assess the company’s debt structure and determine how reasonable it is.

What is a debt-to-equity ratio?

This refers to the financial ratio of ordinary shareholders' equity and the stake of creditors in a company.

Hence, this use of debt-to-equity ratio will allow managers to assess the company’s debt structure and determine how reasonable it is.

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Discuss authority and responsibility in principles of management

Answers

Answer:

Authority of a manager is the right way of commanding subordinates, issuing orders, and getting the team to comply with them. Further, it is the right of the manager to make decisions and to act or refrain from acting based on his perception of the organization's objectives

Explanation:

West College
3880 29 Street NE
CALGARY, ALBERTA, T1Y6B6
TO: Limerick Corp. INVOICE 12-1
2 3880 34 St NW
East Brook, Alberta, July 1, 20XX
Attention: IIene Curan
21 Sessions Scheduled for July $ 42,000.00
G.S.T $ 2,100.00
Due this invoice $ 44,100.00

Answers

The journal entry to record this invoice is :

Date    Particulars                     Debit $                          Credit$

July 1     Accounts receivables      44100  

       To Service revenue                                                  42000

        To GST Payable                                                     2100

 (To record amount billed to customer)

Magazine access is a document of a commercial enterprise transaction in your commercial enterprise books. In double-entry bookkeeping, you make at least two journal entries for every transaction. because a transaction can create lots of adjustments in a commercial enterprise, a bookkeeper tracks all of them with journal entries.

Magazine access is the act of maintaining or making records of any transactions either financial or non-economic. Transactions are listed in an accounting magazine that indicates a company's debit and credit score balances. The journal entry can encompass numerous recordings, every of that's both a debit or a credit.

An example of a journal entry includes the acquisition of equipment by using us of a wherein the equipment account might be debited, and the cash account may be credited.

Disclaimer: The question is incomplete. Please read below to find the missing content.  

Question: How to record this in the invoice

West College

3880 29 Street NE

CALGARY, ALBERTA, T1Y6B6

TO: Limerick Corp. INVOICE 12-1

2 3880 34 St NW

East Brook, Alberta, July 1, 20XX

Attention: IIene Curan

21 Sessions Scheduled for July $ 42,000.00

G.S.T $ 2,100.00

Due to this invoice $ 44,100.00

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When a monopolist increases the amount of output that it produces and sells, average revenue.

Answers

Monopolists can increase the amount of output and sell easily because they are in no competition, the revenue is also great as their is no competition the price charged is not challenged by any other organization.

What is Monopoly?

Monopoly is when there is no competition in the market and the seller is the sole seller of the product or service and therefore all the customers in the market purchase products or services from the said organization.

The organization can charge any price for the products or services as there is no competition the prices are not challenged by the other organizations as the sole seller of the commodity is the organization and this sole seller in the entire market is called a monopoly business.

It is difficult to be in a competitive environment but it is comparatively easier being a monopolist.

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Which of the following are required, to perform an “authenticated” scan that only targets “severity 5” vulnerabilities? (choose all that apply)

Answers

To perform an “authenticated” scan that only targets “severity 5” vulnerabilities you require a Target host. This is further explained below.

What is Target host?

Generally, Any domain from which a request to Target is made is referred to as a host. On a website, the location is almost always the most important element.

In conclusion, You'll need a Target host if you want to run a "authenticated" scan that only looks for "severity 5" vulnerabilities.

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3 reason why loading and unloading a school bus is dangerous?

Answers

It is dangerous because the bus could brake the things could get stuck and the bus is to big

True or false: Personality tests tend to be the best and most useful way to assess someone's personality due to its objectivity and lower potential for bias/human error.

Answers

This Andrew is True because personality tests tend to be the best and most useful way.

Answer:

True!

Explanation:

By learning and observing different peoples personalities you can often learn how they're going to act in certain situations.

construction loan avoidable interest

Answers

Avoidable interest serves as one that is used in the estimation of interest without expenditure.

What is an avoidable interest?

Avoidable Interest can be regarded as the  computation  that can be used to find the  interest when trying to avoid expenditures .

To calculate the Avoidable interest , the equation that can be used is

(the weighted average accumulated expenditures ) *( the proper interest rate)

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When Subway uses selective stores around the country to introduce a new food item, the food item
is in the growth stage of its product life cycle.
Select one:
O True
O False

Answers

Answer: True

Explanation:

Because Subway is getting lot of profit on their selective stores around the country to introduce a new food item and from its growth stage.

Journal entry for accounting.

Answers

1. The number of shares outstanding at the end of the period is 19,604 shares.

2. The total paid-in capital is $726,100.

What is the total paid-in capital?

The total paid-in capital is the sum of the total common stock at par value and the paid-in capital in excess (that is, the excess received over the par value).

Data and Calculations:

Par value = $25

Total Common Stock = $490,100 ($230,000 + $127,000 + $53,100 + $80,000)

Number of outstanding shares = 19,604 ($490,100/$25)

Thus, the number of outstanding shares can be determined by dividing the total value of the common stock by the par value.

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Price controls on rents are frequently implemented by governments in an effort to protect renters from high housing prices. Differentiate the type of price control used from other potential price controls, and then formulate reasons as to why governments should be careful when implementing these types of controls.

Answers

The two primary varieties of price restrictions are known as price ceilings and price floors respectively.

What exactly are these pricing controls?

Price control is a technique that the government uses to guarantee that the price of a product or service on the market does not become too high or cheap.

Price controls may be broken down into two categories: price ceilings and price floors. Price floors and ceilings are used to determine the lowest and maximum amounts of a product's price, respectively. Price ceilings are used to determine the maximum amount of a product's price.

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As the attorney representing the 100 plaintiff employees, give the presiding judge three reasons why the company should be held liable for wrongful termination.
2) As the attorney representing the company, give the presiding judge three reasons why the company should not be held liable for wrongful termination

Answers

1)Three reason stated by an attorney on behalf of 100 plaintiff employee regarding why the company was held liable for the termination of  100 employees as follow :

1. The dismissal of the employee is avoidable and termination is not being made due to any faults by the employee.

2. No proper notice is served on employees or no opportunity of being heard is given to any employee.

3. Appropriate compensation has not been given to the employee and 30 days' salary will be given when the employee forgoes his right to go to court against the company.

2) Three reasons stated by an attorney of the Company in front of the presiding judge are as follows:

1. The company has restructured its business as a result of a restructuring plan. Hence future business does not require excess manpower.

2. Company has given the option to employees to opt for a 1-month salary. So that they can search for his job within one month.

3. Computer technology or automation by a computer system is eating out the job of mankind.

3)Considering the above case I would like to take the side of 100 employees as they have not been given sufficient time to search for their next job as well as the company has also not been given any other benefit.

The company might have taken such a restructuring plan to eliminate such 100 employees due to their age or any other factor.

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is natalie davis actively involved in the decisions of the business woolworths​

Answers

Yes.

Natalie Davis was appointed managing Director of Woolworths supermarket on October 2012.

Natalie joined the group in July in 2015 as director of customer transformation food group.

Many individuals have been to a corner market in a city and noticed soggy lettuce, a moldy cucumber or other far from fresh produce being offered to that community in that specific area. Until now, many may not have known that this is what is referred to as a Food Desert. Why is it that we do not see similar grocery stores in these areas as we do in more rural communities? As a result, what does this do to the health and well-being of the thousands of people living in that community? Discuss Food Deserts in this Discussion Thread focusing on why they exist in the first place and how we can improve the situation for generations to come.

Answers

The cucumbers are see threw and the flight of the agent is in sight which means 7)
7(6)•5

Food deserts are areas where people have limited access to affordable and nutritious foods. The lack of access to healthy food in food deserts can have several negative health consequences. People who live in food deserts are more likely to be obese and have diabetes, and other chronic diseases. They are also more likely to have poor overall health.

They are a major issue affecting millions of people in the United States, particularly in low-income, inner-city, and rural areas.

There are several reasons why food deserts exist. One reason is that grocery stores are less likely to locate in low-income areas because they are seen as less profitable.

This is due to several factors, including the fact that people in these areas tend to have less disposable income, and they may also be more likely to use food stamps or other forms of government assistance to purchase food.

Another reason for food deserts is that zoning laws in some cities make it difficult for grocery stores to locate in certain areas. For example, some cities have zoning laws that restrict the size of stores that can be built in certain areas. This can make it difficult for grocery stores to build large enough stores to be profitable.

There are several things that can be done to improve the situation in food deserts. One is to provide financial incentives to grocery stores to locate in these areas.

Another is to change zoning laws to make it easier for grocery stores to build in these areas. Additionally, community gardens and farmers' markets can help to provide people in food deserts with access to fresh, healthy food.

It is important to address the issue of food deserts because they have a significant impact on the health of millions of people. By taking steps to improve access to healthy food in these areas, we can help to improve the health and well-being of generations to come.

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If you buy a house for $150,000 and anticipate that the market value of the home will increase at 5 percent a year, how much will the house be worth in 14 years?

Answers

The house will be worth $296,989.70 after 14 years.

The future worth of the house is computed as

= Present worth x (1 + rate of increase)^time

Given,

= 150,000 x (1 + 5%)^14

= $296,989.70

The present value formula is PV=FV/(1+i)n, where you divide the future value FV by a factor of 1 + I for each period between the present and future dates. Input these numbers in the present value calculator for the PV calculation: The future value sum FV. A number of time periods (years) t, which is n in the formula.

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2. Mrs Marta is a financial executive with XYZ Enterprises. Although Mrs Msrts has not had any formal training in finance or accounting, she has a “good sense” for numbers and has helped the company grow from a very small company ($500,000 sales) to a large operation ($45 million in sales). With the business growing steadily, however, the company needs to make a number of difficult financial decisions in which Marta feels a little “over his head.” She therefore has decided to hire a new employee with “numbers” expertise to help her. As a basis for determining whom to employ, she has decided to ask each prospective employee to prepare answers to questions relating to the following situations she has encountered recently. Here are the questions.
a. In 2009, XYZ Enterprises negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were constructed on land owned by the company. On January 1, 2010, XYZ took possession of the leased property. 20-year lease is effective for the period January 1, 2010, through December 31, 2029. Advance rental payments of $800,000 are payable to the lessor (owner of facilities) on January 1 of each of the first 10 years of the lease term. Advance payments of $400,000 are due on January 1 for each of the last 10 years of the lease term. XYZ has an option to purchase all the leased facilities for $1 on December 31, 2029. At the time the lease was negotiated, the fair market value of the truck terminals and freight storage facilities was approximately $7,200,000. If the company had borrowed the money to purchase the facilities, it would have had to pay 10% interest. Should the company have purchased rather than leased the facilities?
b. Last year the company exchanged a piece of land for a non-interest-bearing note. The note is to be paid at the rate of $15,000 per year for 9 years, beginning one year from the date of disposal of the land. An appropriate rate of interest for the note was 11%. At the time the land was originally purchased, it cost $90,000. What is the fair value (Present value) of the note?

Answers

The Present Value of Lease is $6,449,579, the Fair value of the note is $83,055.75 and the cost of credit is 12.12%.

Present Value of Lease and fair value

Year        Cash flows PV Factors Discounted cash flow

0-9             800,000       6.75902     5,407,216

10-19           400,000      2.60590      1,042,360

20

Total                                                      6,449,579

Present Value of Lease = $6,449,579

Purchase price = $7,200,000

Based on the above cash flow the company should lease the facility based on the fact that the present value of cash payment  of the amount of $6,449,579 is lower that the purchase price of the amount of $7,200,000.

b. Fair value of the note

Using this formula

Fair value of the note=Amount×PVOA

Let plug in the formula

Fair value of the note=$15,000×5.53705

Fair value of the note=$83,055.75

c. Cost of credit

Using this formula

Cost of credit=Discount/(1-Discount)×360/Allowed payment day-Discounted day

Let plug in the formula

Cost of credit=1/(1-100)×360/30

Cost of credit =1/99×360/30

Cost of credit=0.1212×100

Cost of credit =12.12%

The cost of funds which is 10%  is lower than the cost of credit which means that the company should not continue the policy but should instead choose the lease.

Therefore the Present Value of Lease is $6,449,579, the Fair value of the note is $83,055.75 and the cost of credit is 12.12%.

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When the insured knows more about their circumstances than the insurer, there is

A. adverse selection.

B. All of these

C. propitious selection.

D. moral hazard.

E. asymmetric information.

Answers

When the insured party knows more about his or her circumstances than the insurer, then there is: B. All of these.

What is an insurance company?

An insurance company is a business firm that is establish to collect premium from all of the insured for losses which may or may not occur, so they can easily use this cash to compensate or indemnify for losses incurred by those having high risk.

In Economics, when the insured party knows more about his or her circumstances than the insurer, then there is:

Adverse selectionPropitious selectionMoral hazardAsymmetric information

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