Two investment advisers are comparing performance. One averaged a 19% return and the other a 16% return. However, the beta of the first adviser was 1.5, while that of the second was 1.a. Can you tell which adviser was a better selector of individual stocks (aside from the issue of general movements in the market)?
First Investment Advisor
Second Investment Advisor
Cannot be determined
b. If the T-bill rate were 6% and the market return during the period were 14%, which adviser would be the superior stock selector?
First Investment Advisor
Second Investment Advisor
Cannot be determined
c. What if the T-bill rate were 3% and the market return 15%?
First Investment Advisor
Second Investment Advisor
Cannot be determined
Answers
Answer:
a. Cannot be determined
b. Second Investment Advisor
c. Second Investment Advisor
Explanation:
a. Since all the information is not given in the question so we are not able to give advise. As abnormal return is calculated from subtracting the expected return from the return. But no such information is provided in the question.
b. We know that
Abnormal return = Return - expected return
Expected rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)
In case of First Investment Advisor:
The return is 19%
And, the expected return equal to
= 6% + 1.5 × (14% - 6%)
= 6% + 1.5 × 8%
= 6% + 12%
= 18%
So abnormal return = 19% - 18% = 1%
In case of Second Investment Advisor:
The return is 16%
And, the expected return equal to
= 6% + 1 × (14% - 6%)
= 6% + 1 × 8%
= 6% + 8%
= 14%
So abnormal return = 16% - 18% = 2%
So, Second Investment Advisor should be accepted as it has high abnormal return then first investment Advisor
c. In case of First Investment Advisor:
The return is 19%
And, the expected return equal to
= 3% + 1.5 × (15% - 3%)
= 3% + 1.5 × 12%
= 3% + 18%
= 21%
So abnormal return = 19% - 21% = -2%
In case of Second Investment Advisor:
The return is 16%
And, the expected return equal to
= 3% + 1 × (15% - 3%)
= 3% + 1 × 12%
= 3% + 12%
= 15%
So abnormal return = 16% - 15% = 1%
So, Second Investment Advisor should be accepted as it has high abnormal return then first investment Advisor
Related Questions
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Describe some products whose adoption rates have been affected by complexity, compatibility, relative advantage, observability, and/or trial-ability.
4. You are considering adding a microbrewery onto one of your firm's existing restaurants. This will entail an increase in inventory of $8700, an increase in accounts payables of $2300, and an increase in property, plant, and equipment of $48,000. All other accounts will remain unchanged. The change in net working capital resulting from the addition of the microbrewery is ________.
One of the themes that came out of the survey responses is that employees feel bored and unchallenged because they only do a narrow job. According to the job characteristics theory, What should you do to address this issue?
Answers
Answer:
1. Which firm has a greater FCF (free cash flow)?
- (A) Firm A
2. What is firm A’s (annual) tax shield?
- (B) $0.8
3. What is firm B’s (annual) tax shield?
- (C) $3.2
Explanation:
since firm A's debt is $20, its value is $100, then its equity = $80
since firm B's debt is $80, its value is $100, then its equity = $20
Firm A's cash flow = (EBIT - interest expense) x (1 - tax rate) = [$10 - ($20 x 10%)] x 0.6 = $4.80
Firm B's cash flow = (EBIT - interest expense) x (1 - tax rate) = [$10 - ($80 x 10%)] x 0.6 = $1.20
Firm A's annual tax shield = taxable interest x tax rate = ($20 x 10%) x 40% = $0.80
Firm B's annual tax shield = taxable interest x tax rate = ($80 x 10%) x 40% = $3.20
Final answer:
Firm B has a greater FCF compared to Firm A. Firm A has a tax shield of $0, and Firm B has a tax shield of $3.2.
Explanation:
1. Firm B has a greater Free Cash Flow (FCF) compared to Firm A. FCF is calculated as EBIT(1-TC) + TC(D-RD), and in this case, Firm B has a higher outstanding debt which leads to a higher tax shield, resulting in a greater FCF for Firm B.
2. Firm A's annual tax shield can be calculated by subtracting the debt payments from the earnings before interest and taxes (EBIT) and then multiplying the result by the tax rate. In this case, the annual tax shield for Firm A is $0, as the interest expense is greater than the taxable income.
3. Firm B's annual tax shield can be calculated in the same way as Firm A's. In this case, the annual tax shield for Firm B is $3.2. This is because the debt payments are lower than the taxable income and result in a tax shield.
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c. marginal.
d. switching.
Answers
Answer:
d. switching.
Explanation:
Since in the question it is mentioned that Mountain university used IBM computers also the apple computers offered them a better machiner at a lesser cost but the university did not buyed as the switching cost is too high
Bcz from exchanging from IBM computer to Apple computers the cost is high and that cost we called as switching
Hence, the correct option is d.
a. Prepare the entry to correct the prior year's depreciation, if necessary.
b. Prepare the entry to record depreciation for 2021.
Answers
Answer:
a. Prepare the entry to correct the prior year's depreciation, if necessary.
- When an asset's useful life is extended, the extension is done prospectively, not retrospectively. This means that past depreciation does not need to be adjusted.
b. Prepare the entry to record depreciation for 2021.
- Dr Depreciation expense 4,510
- Cr Accumulated depreciation - machinery 4,510
Explanation:
purchase cost of machinery $66,000
estimated useful life 8 years
estimated salvage value $4,400
depreciation has been recorded using the previous basis during the first 5 years, but now the estimated useful life was extended to 10 years and the salvage value = $4,950
depreciation expense per year (during first 5 years) = ($66,000 - $4,400) / 8 = $7,700 per year
accumulated depreciation up to year 5 = $7,700 x 5 = $38,500
the carrying value of the asset on January 1, 2021 = $66,000 - $38,500 = $27,500
the new depreciation expense per year = ($27,500 - $4,950) / 5 = $4,510
depreciation expense for 2021:
Dr Depreciation expense 4,510
Cr Accumulated depreciation - machinery 4,510
Answers
Answer:
$10.98
Explanation:
Dividend per year;
D1 to D2 = 0
D3 = 1.25
D4 = 1.25 (1.21) = 1.5125
D5 = 1.5125 (1.21) = 1.8301
D6 = 1.8301 (1.08) =1.9765
Find Present values of each dividend at 18% required return;
PV( D1 to D2) = 0
PV( D3) = 1.25/1.18³ = 0.7608
PV( D4) = 1.5125 / (1.18^4) = 0.7801
PV( D5) = 1.8301 / (1.18^5) = 0.8000
PV( D6 onwards)
PV( D6 onwards) = 8.6393
Next, sum up the PVs;
= 0 + 0.7608 + 0.7801 + 0.8000 + 8.6393
= 10.98
Therefore, this stock is valued at $10.98
Answers
Answer:
(17,900) net loss
Explanation:
51 - 16 = 35
Special order Contribution margin
28 sales price - 16 variable cost - 3 shipping cost = 9
Total contribution for the order
3,580 units x 9 CM= 32,220
3,580 x 14 fixed cost = (50,120)
(17,900) net loss
We should assume the fixed cost will increase because we are at full capacity.
Final answer:
Bargain Electronics would realize a loss of $17,300 by accepting the special order.
Explanation:
To determine the net income (loss) from accepting the special order, we need to calculate the cost of producing the units, including both variable and fixed costs, and subtract it from the revenue generated from selling the units to the foreign wholesaler. The cost to produce each unit is $16 variable cost + $14 fixed cost + $3 shipping cost = $33. So, the total cost to produce 3,580 units is $33 × 3,580 = $117,540.
The revenue from selling the units to the wholesaler would be 3,580 × $28 = $100,240. The net income (loss) is calculated by subtracting the total cost from the revenue: $100,240 - $117,540 = ($17,300). Therefore, Bargain Electronics would realize a loss of $17,300 by accepting the special order.
The primary topic of this question is calculating net income (loss) for a business.
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Interest Revenue 1,900
Net Sales Revenue 130,000
Cost of Goods Sold 81,000
Administrative Expenses 8,500
Required:
Prepare the multi-step income statement for the year ended December 31, 2018.
Answers
Solution and Explanation:
the following is the income statement for the year ending
Saturn motorcycle's
Income statement
year ending december 31, 2018
Particulars Amount
net sales revenue 130000
Less: cost of goods sold 81000
gross profit 49000
Less: operating expense:
Selling expenses 10400
adminstartive expenses 8500
Total operating expenses 18900
operating profit 30100
Non operating revenues ( expenses)
add: interest revenue 1900
total other revenue 1900
net income 32000
Note: every amount is in dollars
Final answer:
To prepare the multi-step income statement for Saturn Motorcycle for the year ended December 31, 2018, subtract the cost of goods sold from the net sales revenue to get the gross profit. Then, add the selling expenses and administrative expenses to get the operating expenses. Finally, add the operating income and other income to get the net income.
Explanation:
To prepare the multi-step income statement for Saturn Motorcycle for the year ended December 31, 2018, we need to include key components such as net sales revenue, cost of goods sold, selling expenses, administrative expenses, and interest revenue. Here is the breakdown:
- Gross Profit: Subtract the cost of goods sold from the net sales revenue. (130,000 - 81,000 = 49,000)
- Operating Expenses: Add selling expenses and administrative expenses. (10,400 + 8,500 = 18,900)
- Operating Income: Subtract operating expenses from gross profit. (49,000 - 18,900 = 30,100)
- Other Income: Include interest revenue. (1,900)
- Net Income: Add operating income and other income. (30,100 + 1,900 = 32,000)
The multi-step income statement for Saturn Motorcycle for the year ended December 31, 2018 is as follows:
Saturn Motorcycle Income Statement
Net Sales Revenue$130,000Cost of Goods Sold$81,000Gross Profit$49,000Operating Expenses$18,900Operating Income$30,100Other Income$1,900Net Income$32,000
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