Answers to Warm-Up Exercises E9-1. Answer: Weighted average cost of capital N 10‚ PV $20‚000 (1 0.02) $19‚600‚ PMT Solve for I 8.30% 0.08 $20‚000 $1‚600‚ FV $20‚000 E9-2. Cost of preferred stock Answer: The cost of preferred stock is the ratio of the preferred stock dividend to the firm’s net proceeds from the sale of the preferred stock. rp Dp Np rp (0.15 $35) ($35 $3) rp $5.25 $32 16.4% E9-3. Cost of common stock equity Answer: The cost of common stock equity can be found by dividing the dividend
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Question: Explain why it’s important for most senior managers to have a sound knowledge of cost behaviour ie fixed costs‚ variable costs‚ semi-variable costs and sunk costs. Answer: Understanding cost behaviour helps manager in anticipation of changes in cost when there is a change in their activities like production‚ sales‚ inventory pile up etc. It provides good assistance in planning‚ cost management and decision making. A number of behaviour patterns exist ranging from fixed to variable
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Cost leadership Strategy Strategy used by businesses to create a low cost of operation within their niche. The use of this strategy is primarily to gain an advantage over competitors by reducing operation costs below that of others in the same industry. For example‚ The Swedish furniture retailer Ikea revolutionized the furniture industry by offering cheap but stylish furniture. Ikea is able to keep its prices low by sourcing its products in low-wage countries and by offering a very basic level
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Transportation Cost & Pricing Transportation Cost & Pricing Compare and contrast the cost structures of rail‚ motor carriers‚ and air. When you compare the rail cost structure to that of the cost structures of the motor‚ and air carriers‚ you will see that the rail carriers have a high structure cost. “One of the characteristics of railroads as previously noted is the level of fixed costs present in their cost structures.” (Coyle‚ 2011) These fixed cost exists because the ownership of
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Costs and budgets The management of costs is a very important aspect of managing financial resources. If costs are not managed effectively‚ it can lead to profits being damaged and the business potentially unable today its expense. Keeping within a budget‚ increasing income in order to cope with change and making sure that working capital is available and money and set aside for emergencies is all part of the balancing exercise. Costs managed to budget McDonald’s budget was adverse as there
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the answer to the question is. A ball and bat cost $1.10. The bat costs $1 more than the ball. How much does the ball cost? If you’re like most people‚ your immediate answer was‚ "Ten cents." And you’d be wrong. Check it out. The bat costs $1 more than the ball. So if the ball costs ten cents‚ then the bat costs $1.10‚ and the total cost would be $1.20. That’s too much. We could try something lower. How about seven cents? Then the bat would cost $1.07‚ and the total would be $1.14. Closer
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Background Paper‚ Monitoring and evaluating knowledge management strategies. October 2009. About IKM Emergent In April 2007‚ a five-year research programme was approved for funding by the Directorate General for International Cooperation (DGIS)‚ which is part of the Dutch Ministry of Foreign Affairs. The programme‚ Emergent Issues in Information and Knowledge Management (IKM) and International Development‚ will be known as the IKM Emergent Research Programme. The objective of the programme is to
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lub Background Cost Club is a growing retailer‚ similar to Super Wal-Mart or Target. It provides discount merchandise and supermarket products in large stores located in many areas of the United States. Cost Club is administratively organized into regions‚ and each region is permitted to develop its own operational policies‚ as long as the bottom line of low cost and reasonable service to customers is maintained. There are many strong competitors to Cost Club‚ with some regions experiencing more
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management statement not to exceed 100 words. 13-5. (Flotation costs and issue size) D. Butler Inc. needs to raise $14 million. Assuming that the market price of the firm’s stock is $95‚ and flotation costs are 10 percent of the market price‚ how many shares would have to be issued? What is the dollar size of the issue? Market price of the firms stock $95 Flotation cost 10 percent of market price Stock price is $95‚ so the flotation Costs are $9.50 (10% x $95) the firm receives $95 - 9.50 = $85
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Medical Costs and the Impact on Us Professor Robert Hudson from the London School of Economics define the indifference curve as a graph showing different bundles of goods between which a consumer is indifferent. That is‚ at each point on the curve‚ the consumer has no preference for one bundle over another. One can equivalently refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer. Utility is then a device to represent preferences
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