The most likely reason link might not earn superior returns is: Model Risk
Modeling errors can lead to incorrect predictions because the model does not capture all the risks associated with an investment.
In finance, model risk is the risk of loss arising from the use of insufficiently accurate models for decision making and was originally associated with the valuation of financial stocks.
Model risk is the use of financial models to measure quantitative information such as the market risk and value trading of a firm, and the failure or poor performance of the model, resulting in adverse consequences for the firm.
Model risk generally refers to the potential risk of relying on a flawed model to make decisions. Financial institutions use a variety of models to predict losses, allocate capital, recommend trades, and more.
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has preferred stock that pays a dividend of $1.25every year. if the discount rate on investments like this is 6.2%, what is the value of the preferred stock?
A unique class of stock known as preferred stock does not grant voting rights but pays dividends according to a predetermined timetable. Preferred stock incorporates regular income and ownership in the company into one investment that has features of both common stock and bonds.
How is the preferred stock market value determined?Here is a simple equation to determine the value of preferred stock: Cost of Preferred Stock = Dividend on Preferred Stock (D) / Price of Preferred Stock (P). The amount used to determine the dividend is equal to the par value of one preferred stock share. In other terms, par value refers to a portion of stock's face value.Divide the dividend percentage by the par value of the preferred stock. For instance, if the stock was issued at $40 per share and the dividend rate is 7.5 percent, the yearly dividend is $3 per share.The amount used to determine the related dividend for each share of preferred stock is its par value. Because of this, the issuing corporation must pay $50 per year for as long as the preferred stock is outstanding if the par value of the shares is $1,000 and the dividend is 5%.To Learn more About Preferred stock refer to:
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the bank credited your account for a deposit that should have been deposited into another customer's bank account, not yours. this bank error should be a(n) blank on a bank reconciliation.
The bank credited your account for a deposit that should have been deposited into another customer's bank account, not yours. this bank error should be a deduction from a bank balance on a bank reconciliation.
What is bank reconciliationn?
A bank reconciliation is the process of reconciling an entity's books of account bank account balance with the balance reported by the financial institution on the most recent bank statement in bookkeeping.Bank statements are typically routinely produced by the financial institution and used by account holders to perform their bank reconciliations. Any difference between the two figures needs to be examined and, if necessary, rectified.
There are three main causes of differences between an organization's books of account and the bank's records: 1) Timing differences in recording entries2) Transactions that are not recorded by the account holder but are recorded by the bank.3) Errors in the records.
Occasionally, it may be simple to reconcile the difference by examining the entity's own accounting records (cash book) and the transactions in the bank statement since the last reconciliation to see if any of them match the difference that needs to be explained.Otherwise, it might be necessary to match every transaction that has occurred since the last reconciliation in both sets of records and determine which transactions remain unmatched.The necessary adjustments should then be made in the cash book, or if necessary, they should be reported to the bank, and any timing differences should be recorded to make future reconciliations easier.
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economist smith believes that changes in aggregate demand affect only the price level, and economist jones believes that changes in aggregate demand affect only real gdp. what do the ad and as curves look like for each economist?
The relationship between overall price levels and total demand is not always obvious or direct. However, in the broadest sense, rising aggregate demand is correlated with rising price levels.
When the components of aggregate demand—consumption spending, investment expenditure, government spending, and spending on exports less imports—increase, so does aggregate demand.
Aggregate demand and price level: what are they?The total amount of finished products and services that are demanded in an economy is measured by aggregate demand. The total amount of money exchanged for those goods and services at a particular price point and period is how this measurement is expressed.
The price level represents the average of the current pricing for all goods and services produced.
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knowing how much money an economy has matters because it helps determine:multiple choice question.interest rates and prices.productivity and employment.employment and prices.interest rates and employment.
Knowing the amount of money an economy has, matters because it helps determine interest rates and employment.
What is an economy?An economy can be described as the process of production as well as the consumption of the goods as well as the services that can be seen in a particular country is a given period of time.
It should be noted that Knowing how much money an economy do help[ alot to know about the interest rates in the economy and this will help the financial institutions to adjust in the economy.
Therefore, the last option is correct.
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elements of project planning include: question 20 options: identifying time-cost tradeoffs. determining the project critical path. comparing project schedule objectives. all of the above
Elements of project planning include all of the above.
In the field of business, project planning refers to the planning aspect of a project, the cost, implementation, the work required, the critical paths, etc.
Through project planning, managers can estimate how much the total cost of the project will be and make a budget accordingly. All the critical paths in relation to a project are determined in project planning so solutions for them are already present. Based on project planning, the project schedules are compared to check if deadlines are being met in accordance with the estimated time.
Hence, all of the above options are correct.
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jie consumes 3 units of broccoli and 6 units of rice each week. the price of broccoli is $2 per unit and the price of rice is $4 per unit. jie's marginal utility from the last unit of broccoli consumed is 4 utils while her marginal utility from her consumption of rice is 8 utils. if jie wants to maximize her utility, jie should:
Jie shouldn't vary how much rice or broccoli she eats if she wants to use her resources as effectively as possible.
Jie consumes three heads of broccoli and six bowls of rice each week; she shouldn't alter her consumption of either food to maximize her utility. $2 will buy you a head of broccoli, and $4 will get you a dish of rice. Jie's marginal value from her most recent bowl of rice is 8 utils, whereas her marginal utility from her most recent head of broccoli was 4.
The additional pleasure a customer has from owning one extra unit of an item or service is known as marginal utility. Economists utilize the idea of marginal utility to estimate the quantity of a good that customers will buy.
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What term is used to describe the practice of unloading materials from an incoming trucks or rail cars and loading these materials onto outbound trucks or rail cars, with little or no storage or warehousing in between?.
Consolidation is the logistics process of removing cargo off an incoming truck or railway and loading it immediately onto an outgoing truck or railcar with little or no storage in between.
What does supply chain cross docking entail?Cross-docking is the process of putting products straight onto outbound vehicles after they have been delivered to inbound vehicles.A person or business that transports freight for a single or a small group of shippers under contract. not required to assist the public. A person or firm that hauls its own goods as part of a venture that makes, uses, sells, or purchases the goods being transported.Cross docking is a lean concept since it saves some wasteful transit and the requirement to keep inventory. Reduced lot sizes and shipping numbers - By decreasing lot sizes and shipping quantities, a business can boost warehouse productivity and expedite shipping.To learn more about Cross-docking refer to:
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the marketing tactic that involves compensating consumers to talk about or promote products without disclosing that they are working for the company is referred to as .
The marketing tactic that involves compensating consumers to talk about or promote products without disclosing that they are working for the company is referred to as Influencer marketing .
What is Influencer marketing ?
Influencer marketing can be described as the practice that bis been used by the firm as well as the organization whereby the compensation is been given to the individuals that help i giving promotion to the a product or service on social media.
It should be noted that this type of marketing is been used by some of the firms that there consumers can be found on the internet, because most of this inluencer that help in making the promotion usually do this on the social media platform on this platforms , they usually have many followers that usually follow them and believe in the products they are advertising which can bring the firms many customer.
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________ flows are the physical products, raw materials, supplies, and so forth that flow along the chain.
Materials flows are the physical products, raw materials, supplies, and so forth that flow along the chain.
Transporting raw materials, prefabricated items, parts, components, integrated things, and finished goods as a flow of entities is referred to as material flow. The word primarily refers to supply chain management advanced modeling.
The material flow is a series of operations that starts with the extraction of raw materials, continues through their processing, reprocessing, and machining, and ends with the delivery of the finished product to the final customer.
Since materials are used to make products, the material flow is the most crucial element of a production organization. The factory can only break even if the goods are sold. Therefore, it is essential to move the material as rapidly and directly as possible through the necessary steps of the value chain.
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which of the following statements is true? multiple choice platform businesses have a major weakness: they are not very successful at value creation. a platform business exists to help make matches among users and facilitate the exchange of goods, services or social currency. a platform business usually must rely on pipeline businesses to connect it with consumers. platform businesses are dependent on electronic media and thus are a new development in the business world.
A platform business exists to help make matches among users and facilitate the exchange of goods, services or social currency.
Social currency refers to the actual and potential resources of our presence in both digital and offline social networks and communities.
Social currency is personal assets and attributes that help you succeed in interactive social channels. The term generally refers to online social networks, especially these days, but also to real life and the hybrid online/physical environments typical of modern life.
Social currency is basically "influence currency". Brand followers, likes, comments, shares, and views have a monetary value. It's the extent to which people basically share brand information or the lifestyle of influencers sharing parts of their daily lives.
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beth owns a 20-pay life participating policy. she has decided that the dividends should be applied toward future premiums. which dividend option did she choose?
Dividend options include the Paid-Up Option and the Application to Reduce Premiums. Beth has a participating 20-Pay Life insurance policy. She has selected the Settlement Option, which ensures payments over a predetermined time period and applies dividends toward future premiums.
What alternative for settlement is more typical? A one-time payment. The simplest and most typical type of life insurance settlement is a lump sum payment.The method through which a beneficiary selects to receive death benefits payable on a life insurance policy is referred to as a settlement option. In general, a recipient has the option of receiving the proceeds in one lump payment or over time.Options for Life Insurance Settlements : The life insurance policy's beneficiaries may decide how they want to receive the death benefit if there is no predetermined settlement option available at the time of the insured's passing. Lump Sum: The entire death benefit will be paid to the beneficiary all at once.The Beneficiary Chooses a Payment Method : The beneficiary has the option of choosing a lump payment or one of the other accessible alternatives. The portion of the death benefit given to the assignee in cases where the policy is pledged as collateral for a bank loan is paid in one lump amount.To Learn more About Settlement Option refer to:
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a sheep farm produces $30 worth of wool. a suit manufacturer produces $60 worth of suits. a retail outlet sells a suit to a customer for $180. the change in gdp would be
a firm has a market value equal to its book value. currently, the firm has excess cash of $200 and other assets of $7,000. equity is worth $7,200. the firm has 900 shares of stock outstanding and net income of $825. what will the new earnings per share be if the firm uses its excess cash to complete a stock repurchase?
The new earning per share of the firm uses its excess cash to complete a stock repurchase = $ 0.942 per share .
Earnings per share :
Earnings per share( EPS) is a company's net profit divided by the number of common shares it has outstanding. Earning per share indicates how important plutocrat a company makes for each share of its stock and is a extensively used metric for estimating commercial value.
Evaluating :
Price per stock = $7200 ÷ 900
=$8
With excess money we can buy 25 shares ($200 ÷ 8)
∴ Total remaining shares = 900-25
=875
Earnings per share = Net income ÷ Total outstanding shares
= $825 ÷ 875
=$ 0.942 per share
Hence earning per share = $0.942
Stock repurchase :
A share repurchase or buyback is a decision by a company to buy back its own shares from the business. A company might buy back its shares to boost the value of the stock and to ameliorate the fiscal statements. Companies tend to rescue shares when they've cash on hand and the stock request is on an upswing.
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the level of college education and wages earned are known to have a strong positive association. karen concluded that a college education causes higher earnings. is karen's conclusion valid? explain.
Karen's conclusion is not valid. The association between college education and wages earned could be due to a third factor, such as ability.
What is wages?
A wage is money paid to an employee by their employer for work completed over a certain amount of time. Wage payments include remunerative payments like prizes and tip payouts as well as compensatory payments like the minimum wage, prevailing wage, as well as annual bonuses. Wages are a component of the costs associated with operating a business. Regardless of the company's profitability, it is a duty to the employee. Payment by wage contrasts with salary, where the employer pays a set sum at regular intervals (such as a week month) regardless of the number of hours worked, commission, where pay is contingent on individual performance, and compensation based just on the company's performance as a whole.
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monty, a career criminal, steals a diamond from prime cut jewelers. he then sells it to adamas jewelers, who is unaware of the stolen nature of the diamond. if prime cut discovers that the diamond is with adamas, and reclaims the diamond, what warranty breach can adamas declare to recover the cost from monty?
The warranty breach can adamas declare to recover the cost from monty is warranty of title.
What is a warranty of title?A seller's assurance to a buyer that they have the authority to transfer ownership and that no other party has any claims to the property is known as a warranty of title. A warranty of title may also be used to ensure that the property being transferred is free of any third-party copyright, patent, or trademark claims. A warranty deed, which is employed to legally transfer property in a sale, contains a formal warranty of title. This agreement ensures that neither the Internal Revenue Service nor an ex-spouse have a lien or other claim to the property, and that the seller has the legal authority to sell the property.
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fatima is the manager of a barber shop that specializes in straight-razor shaves. recently she raised her prices for this service by 5 percent and reduced her sunday hours. she has noticed fewer customers coming in for a shave. to determine whether this is because of her increased prices or reduced sunday hours, fatima sent a survey out to all her customers. this is a form of
To determine whether the increased prices or the reduced Sunday hours have reduced the customer count, Fatima sent out a survey to all her customers as a form of feedback process.
What is a survey?The survey is described as a process through which valuable insights regarding a process, service, or product can be collected. A survey consists of questionnaires that are used to gather data from a target group.
Fatima is worried about the customer number reduction and is not sure whether it is due to the reduction in Sunday hours or due to the increase in prices by 5 percent. Hence, sending out a survey to all the customers is an effective means of collecting data from the customer. The customers will share their likes and dislikes about the service provided by Fatima.
It can be concluded that to determine whether the increased prices or the reduced Sunday hours have reduced the customer count, Fatima sent out a survey to all her customers as a form of the feedback process.
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coldpoint is a home appliance manufacturer. the company purchases a certain component for their products. southern electronics and electrotech are two companies that make the component, and their products and services are equal, so the component will be bought based solely on cost. both companies offer a discount policy based on order quantity. however, these two companies post different price schedules. for southern electronics, if the order quantity is less than 500 units, the price is $0.60 per unit; if the quantity is 500 or more but less than 1000, the unit price is $0.58; any quantity 1000 units or over has a unit price of $0.56. electrotech offers the same quantity range and prices. however, the discount rare applies only to the excess amount ordered. that is, if the order quantity is 500 units, the first 499 units cost $0.60 and the 500th unit cost $0.58. if 1000 units are ordered, the first 499 units cost $0.60 and the next 500 [500, 999] cost $0.58. any unit beyond the 1000th costs $0.56. the company estimates the cost of placing an order to be $20, and the uniform annual demand for this subcomponent is 800 units. inventory carrying cost is estimated to be 20 percent annually. a) plot the cost curve for southern electronics b) compute the minimum cost order quantity for southern electronics. c) plot the cost curve for electro tech d) compute the minimum cost order quantity for electro tech
The average cost per unit is greater than in the case of incremental discounts and equivalent to the all-units discount. discounts for all units. As before, our goal is to identify Q so that the average annual total cost is minimized.
Total cost is an economic metric that includes both the initial cash outlay and the opportunity cost of the decision-makers' options when calculating the costs incurred to produce a good, buy an investment, or acquire a piece of equipment. Depending on the subject matter, this phrase has a slightly different connotation.
It measures all fixed, variable, and overhead costs related to manufacturing a good, for instance, when defining production costs. Business owners and executives need to understand this key idea.
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by the middle of the nineteenth century, henry cort's system of puddling had resulted in group of answer choices britain greatly increasing its output of cotton. a quadrupling of british coal production. britain becoming by far the world's leading iron producer. the enhancement of pig iron impurities. an improvement in agricultural production.
By the middle of the nineteenth century, Henry Cort's system of puddling had resulted in Britain becoming by far the world's leading iron producer.
Henry Cort was an English manufacturer of ironware who had previously worked as a Navy pay agent. In England's Industrial Revolution, Cort started using cutting-edge production techniques to refine iron from pig iron to wrought iron. He obtained a patent for an improved version of the puddling technique for casting iron in 1784.
At the Fontley Works, Cort expanded his ideas, which led to the 1783 patent for a straightforward reverberatory furnace to refine pig iron and the 1784 patent for his puddling furnace, which contained grooved rollers that automated the traditionally tedious process.
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Margo’s team, at xy products, is completely self-directed and requires little management direction. Margo’s team can be described as operating at which stage of group development?.
Margo's team is completely self-directed and requires little management direction, so they can be described as operating at the performing stage of group development.
There are five stages of group development:
Forming. During this stage, team members are usually excited and eager to work. They may have a lot of questions and feel anxious. The goal during this stage is to create a team with a clear goal, structure, roles, and direction.Storming. During this stage, team members begin to work. They usually feel disappointed or frustrated because of the unfulfilled expectation/excitement. The goal during this stage is to refocus and, if needed, redefine.Norming. During this stage, team members begin to resolve any disappointment/frustration/discrepancy between the individuals to achieve harmony. They start to show an increase in productivity.Performing. During this stage, team members feel satisfied with the team. They make significant progress.Termination/ending. This stage happens when the team's work is done or the organization needs to change. Team members would feel sad and less focused.Learn more about organizational culture at https://brainly.com/question/20165755
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an adviser is creating a financial plan for retirement using a capital needs approach. which type of insurance policy would be recommended as part of the plan?
A variable life insurance policy might be suggested to a financial planner developing a retirement financial plan using a capital needs method.
What Is Variable Life Insurance?Variable life insurance refers to a permanent life insurance policy with an investment component. A cash-value account for the policy is invested in a selection of subaccounts that are offered by the policy. Similar to a mutual fund, a sub-account operates exclusively within a variable life insurance policy. A typical variable life policy will offer a number of sub-account possibilities, with some providing up to 50.
As the underlying investments in the policy's sub-accounts increase, there is a chance that the cash value account will increase as well. At the same time, the cash value may decrease if the underlying investments decline.
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in which item category would the sourcing strategies of ensuring availability of supply, focusing on relationship building, encouraging process integration and innovation, frequent communications, and establishing mutually agreeable supplier performance criteria, be appropriate? in which item category would the sourcing strategies of ensuring availability of supply, focusing on relationship building, encouraging process integration and innovation, frequent communications, and establishing mutually agreeable supplier performance criteria, be appropriate? non-critical items leverage items bottleneck items strategic items
The category in which the sourcing strategies of ensuring availability of supply, focusing on relationship building, encouraging process integration and innovation, frequent communications, and establishing mutually agreeable supplier performance criteria, would be appropriate is referred to as: strategic items.
What is supply chain management?Supply chain management and it can be defined as an effective and efficient management of the flow (supply) of goods and services, as well as all of the production processes that are involved in the transformation of raw materials into finished products, in order to meet the insatiable want and need of the consumers on a timely basis.
This ultimately implies that, the supply chain management (SCM) is a strategic process which encompasses all of the activities that are associated with planning, innovation, execution, frequent communications, and supply of finished goods and services to the consumers on a timely basis.
In conclusion, the sourcing strategies of ensuring availability of supply that is described above is known as strategic items.
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The goal of the accounts receivable methods is to adjust the allowance for doubtful accounts balance so that.
The goal of the account receivable methods is to adjust the allowance for doubtful accounts balance so that the estimate of the uncollectible accounts receivable is the same as the unadjusted balance.
Utilize A/R Aging Reports to Calculate ART. Provide flexible payment options to your clients. Right away, execute a contract or draft a purchase order. When reminding customers to make payments, be prompt. Automation by A/R. It is all a component of account receivable methods. The general ledger account balances at the conclusion of a reporting period are listed in the unadjusted balance, which is done before any adjusting entries are made to the balances to produce financial statements. Analysis of account balances and the creation of adjusting entries both begin with the unadjusted balance.
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differences across international markets in voltage patterns affect the blank element of the marketing mix. multiple choice question. promotion price product place
Differences across international markets in voltage patterns affect the product element of the marketing mix.
What is the marketing mix?This is the term that is used to refer to the combination of products that has to do with the price, the places and the promotions of the products as well.
It is a combination of all of the elements that I have mentioned above that is referred to as the four Ps.
The four elements in the marketing mix are known to have a strong dependency level within themselves.
Hence the product is the solution that we have here because it is the differences that lies in the voltage patterns.
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the book basis of depreciable assets for erwin co. is $900,000, and the tax basis is $700,000 at the end of 2026. the enacted tax rate is 17% for all periods. determine the amount of deferred taxes to be reported on the balance sheet at the end of 2026.
Deferred tax to be reported on the balance sheet at the end of 2026, will be $34,000, considering tax rate of 17%.
Given Information:
Book basis of assets = $900,000
Tax basis of assets = $700,000
Tax rate = 17%
Determination of deferred taxes,
Deferred taxes = (Book basis of asset - Tax basis of asset) * tax rate
= ($900,000 - $700,000)*17%
= $200,000*17%
= $34,000
Taxes that are due but won't be paid until a later time are recorded as a deferred tax liability on a company's balance sheet. Needed to a gap in time between when the tax was accrued and when it is due to be paid, the responsibility is delayed.
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a primary function of a central bank is to group of answer choices control the bond market. publish statistics on banking and related financial matters. regulate dividend payments by corporations. set monetary policy.
The primary function of a central bank is to set monetary policy.
Elaborate on monetary policy.To exercise control on the entire amount of money in circulation, put into action policies like raising interest rates and changing bank reserve requirements, promote economic growth, a nation's central bank implements various tools all together know as the monetary policy.
Under a twin mandate to increase employment while managing inflation, the Federal Reserve Bank of the U.S. carries out monetary policy
Monetary policy is the process of regulating both the total amount of money in an economy and the channels by which it is distributed.
Economic variables such as the GDP, inflation rate, and sector- and industry-specific growth rates have an impact on monetary policy strategy.
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you could reduce the size of your monthly loan payments by question content area bottom part 1 a. borrowing more money initially for the same period of time. b. lengthening the maturity of the loan. c. borrowing the same amount of money but for a shorter period of time. d. agreeing to a higher interest rate.
You could reduce the size of your monthly loan payments by lengthening the maturity of loan.
What is maturity?The phrase "maturity" or "maturity date" in finance refers to the deadline for making the final payment on a loan or other financial obligation, such as a bond or term deposit, at which point the principle (as well as any outstanding interest) must be paid.
The majority of financial instruments have a fixed maturity date, or a date by which they reach their full maturity. Such instruments include loans and debt instruments, regardless of how they are referred to, with fixed interest rates and variable interest rates, as well as other types of securities like redeemable preference shares, provided their terms of issuance indicate a maturity date. The phrase has a similar connotation to "redemption date."
Some financial instruments are referred to as "perpetual stocks" since they have no set maturity date and last forever.
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when a parent acquires a controlling, but less-than-100% interest in a subsidiary, the basic elements for establishing an acquisition-date subsidiary value include multiple select question. the fair value of the noncontrolling interest. the fair value of the controlling interest. the subsidiary's carrying value of the noncontrolling interest. only the consideration transferred by the parent.
the fair value of the noncontrolling interest. the fair value of the controlling interest.
In finance and economics, a hobby is a charge from a borrower or deposit-taking financial group to a lender or depositor of an amount above compensation of the essential sum (this is, the quantity borrowed), at a particular charge. It is wonderful from a price that the borrower may additionally pay the lender or a few third birthday parties. It is also distinct from dividend which is paid by means of an organization to its shareholders (proprietors) from its income or reserve, but not at a specific charge decided beforehand, rather on a seasoned-rata foundation as a percentage within the praise won via risk-taking marketers when the sales earned exceeds the whole costs. For example, a consumer could commonly pay interest to borrow from a bank, so that they pay the bank a quantity that is greater than the amount they borrowed; or a client may earn interest on their financial savings, and so they may withdraw greater than they firstly deposited.
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barlow and rusia own a nail salon. a manicure takes barlow 60 minutes to complete and takes rusia 45 minutes to complete. completing a pedicure takes barlow 45 minutes and takes rusia 30 minutes. who has a comparative advantage in pedicures?
Rusia takes 45 minutes to complete a manicure and 30 minutes to complete a pedicure, so Rusia has a comparative advantage in pedicures.
Rusia has a lower opportunity cost.
The opportunity cost is a concept used in microeconomic theory to describe the value or benefit lost by choosing one activity over another. Simply defined, it implies that you lose out on the opportunity to engage in another activity if you choose one. When economists refer to a resource's "opportunity cost," they indicate the value of the next-highest alternative usage. For example, you cannot watch a movie and then read a book at home while spending the money you would have spent on the movie on something else.
Simply described, opportunity cost is what a business owner forfeits while deciding between two courses of action. It enables the measurement of each option's benefits and downsides, leading to more profitable overall decision-making.
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which of the following entities must use fund accounting for external financial reporting purposes? a. businesses b. nonprofit organizations c. state and local governments d. federal government
State and local governments must use fund accounting for external financial reporting purposes. Hence Option C is the answer.
Explain external financial reporting.Providing prospective investors and shareholders with frequent financial updates is a practice known as "external financial reporting." In order for investors to make an investment choice, the reports generally consist of financial statements and other pertinent information about the company. Investors, creditors, and lenders frequently utilize this data to assess a company's performance and debt repayment capacity. What goals are there for external financial reporting?
The creation of financial reports for external parties, particularly financial statements for external purposes, is addressed by external financial reporting objectives. The financial and accounting books and records of a company serve as the basis for additional external financial reporting.
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kelso electric is an all-equity firm with 55,250 shares of stock outstanding. the company is considering the issue of $375,000 in debt at an interest rate of 9 percent and using the proceeds to repurchase stock. under the new capital structure, there would be 34,500 shares of stock outstanding. ignore taxes. what is the break-even ebit between the two plans?
Break even EBIT between two plans = $89864.46
What is EBIT?
EBIT (earnings before interest and taxes) is a measure of a company's profitability. EBIT is calculated as revenue less expenses minus tax and interest. Able to operate earnings, operating profit, and financial gains before interest and taxes are other terms for EBIT. EBIT is synonymous with operating income because it measures the profit generated by a company's operations. EBIT focuses exclusively on a company's ability to generate income from operations by ignoring variables such as tax burden and capital structure by ignoring taxes and interest expense. EBIT is a particularly useful metric for determining a company's capacity to generate enough earnings to be lucrative, pay down debt, and fund current operations.
All Equity firm
Earning per share (EPS) = EBIT ( 1- tax ) / number of shares outstanding
EPS = EBIT(1-0)/ 55250
EPS= EBIT/55250
Plan 2: Debt - Equity firm
EPS = (EBIT- Interest) (1-tax) / number of shares outstanding
EPS= (EBIT- 375000*9%)(1-0)/34500
EPS= (EBIT-33750)/34500
At break even level of EBIT
EBIT/55250 = (EBIT-33750)/34500
34500EBIT= 55250*EBIT-1864687500
1864687500= EBIT(55250-34500)
EBIT= 1864687500/20750= $89864.46
Break even EBIT between two plans = $89864.46
To learn more about EBIT
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