BEC - sim 1

Ruby Exports, a United States company, has a significant amount and number of accounts receivable denominated in foreign currencies. Ruby wants to mitigate its exchange risk and will likely use which of the following instruments to hedge its exposure? Forward contract to sell the foreign currency at a specific rate. Forward contract to buy the foreign currency at a specific rate. Futures contract to sell the foreign currency at a specific rate. Futures contract to buy the foreign currency at a specific rate.

!. forward contracts are used for relativce large transaction amts. A forward contract to sell a foreign currency at a specific price will hedge the risk that the currency collected in satisfaction of a receivable may have weakened in relation to the dollar at the settlement date. Forward contracts tend to be used for larger groups of transactions (such as a large volume of accounts receivable), while futures contracts hedge a specific transaction.

formula for effective annual interest rate

(1+ (stated rate /interest period))^2 the effective annual interest rate is equal to one plus the stated interest rate divided by the interest periods raised the power of the compounding periods. For semi-annual interest, divide the stated interest rate expression by 2 and square it. Subtract 1 and arrive at the effective annual rate

The Carters signed an agreement with an effective annual interest rate of 7.740% Interest is payable semi-annually What was the stated rate?

=(1+.0774)^.5 =1.03798-1= =3.798% * 2 +7.6

Consider the market for sport utility vehicles. Suppose there is a large increase in the price of gasoline as well as an increase in the price of steel (an input in the production of sports utility vehicles). What is the predicted effect of these events on the equilibrium quantity and price of sport utility vehicles? o o o Equilibrium quantity will fall and equilibrium price will rise. Equilibrium quantity will rise and equilibrium price will fall. Equilibrium quantity will fall and equilibrium price may rise, fall, or stay the same. Equilibrium quantity may rise, fall, or stay the same and equilibrium price will rise.

As a result, a large increase in the price of gasoline would cause the demand curve for sport utility vehicles to shift left, leading to a decrease in both the quantity and price of sport utility vehicles. Steel is an input in the production of sport utility vehicles. An increase in input costs would cause the supply curve for sport utility vehicles to shift left, leading to a decrease in quantity and an increase in price. Both events cause equilibrium quantity to fall. However, the two events have an ambiguous effect on price. answer 3 is correct

Dolly Corporation has identified critical success factors and strategic goals that specifically relate to each dimension of its operations. The company has also determined measures that quantify the achievement of the strategic goals that it will capture and report monthly. This form of regular reporting and evaluation of performance is referred to as:

Balanced scorcard A balanced scorecard normally classifies activities of an organization into major headings and identifies the critical success factors and related strategic goals whose achievement will ensure meeting the requirements of those factors. Typically, there are both financial and non-financial measures that are evaluated regularly in a format that shows the dimensions of the business. The dimensions of the business are frequently human capital, customer service, internal business processes, and finance.

Government economists are concerned with "full employment." Which of the following best defines the term "full employment"? e The level of employment when there is no cyclical unemployment. The level of employment when there is no normal unemployment. T he level of employment when everyone in the labor force is employed. The level of employment when cyclical unemployment equals normal unemployment.

Choice "1" is correct. The level of employment when there is no cyclical unemployment is the definition of "full employment." Cyclical unemployment occurs because of economic cycles (expansion and contraction).

Evermore Corporation is computing its cost of using retained earnings for long-term financing under the CAPM model. The risk- free rate of return is 2%, and the market rate of return is 9%. Evermore's stock fluctuated 3% at the same time the market fluctuated 5%. The cost of retained earnings computed using the CAPM is:

Choice "2" is correct. The CAPM is used to compute the cost of retained earnings (kre) using the following formula: kre = Risk-free rate + Risk premium kre = krf +[beta × (km − krf)] krf = the risk-free rate of return beta = a measure of volatility equal to the change in market values to individual stock value km = the market rate of return required for investments of similar risk The facts of the problem, placed in the formula in columnar format, are as follows: Risk-free rate of return=2.00% Risk premium= Change in stock value 3.00% ÷ Change in market 5.00% Beta= .6 Market rate 9.00% Less Risk-free rate (2.00%) Rate differential × 7.00% Risk premium 4.2% Total cost of retained earnings (CAPM) 6.2% Choices "4", "3", and "1" are incorrect, per the above calculations.

Eco Corporation wants to use the Economic Order Quantity to determine its optimal inventory order amount. To compute this measure, Eco will need to know each of the following, except: e Cost per purchase order. Carrying cost per unit. Annual sales revenue. Insurance costs.

Choice "3" is correct. To compute the economic order quantity, take the square root of two times the annual sales (in units) times the cost per purchase order divided by the carrying cost per unit (an amount that frequently includes insurance costs). There is no need to know the annual sales revenue. Choice "1" is incorrect. Cost per purchase order is a required element of the economic order quantity formula. Choice "2" is incorrect. Carrying cost per unit is a required element of the economic order quantity formula. Choice "4" is incorrect. Insurance costs are normally a component of the carrying cost per unit and is a required element of the economic order quantity formula.

Corbin, Inc. can issue three-month commercial paper with a face value of $1 for $980,000. Transaction costs would be $1 ,200. The effective annualized percentage cost of the financing, based on a 360-day year, would be:

The cost to issue the commercial paper is the $20,000 original issue discount ($1 million − $980,000), plus transaction costs of $1,200 for a total of $21,200. Therefore, it costs $21,200 to borrow $980,000 for 3 months. The 3-month quarterly interest cost is 2.16% (21,200 / 980,000). The annual interest cost is 8.65% (2.16% × 4).

Clay co has excessive manufaturing capacity . a special job order josts includes moh fc- 21k vc-33k The fixed costs include a normal $3,700 allocation for in-house design costs, although no in-house design will be done. Instead, the job will require the use of external designers costing $7,750. What is the total amount to be included in the calculation to determine the minimum acceptable price for the job?

The minimum acceptable selling price should include only the incremental costs associated with the order: $33,000 variable costs + $7,750 external designers costs = $40,750. Note that this is a special order (won't affect regular sales) and there is idle capacity.

Bendernet Corporation budgeted production at 6,000 units and charged $42,000 to its factory overhead account. Bendernet applies variable overhead at $3.00 per direct labor hour and assumes that each unit takes one direct labor hour to produce. The company applied $40,000 of its overhead to work-in-process based on 5,000 hours. If the company actually required 5,500 hours to produce 5,000 units, what was the total overhead variance and to what extent did volume variances contribute to or offset that variance: Total overhead variance? Volume variance?

Total overhead variance= Amount of overhead applied- amount actually charged 40K-42K = (2k) under applied Volume variance=The volume variance is the difference between the amount applied and the budgeted fixed overhead plus standard hours allowed applied variable at the budgeted rate. Step 1.- derive rates (variable rate is given at $3)) 40k appplied based on 5000hrs 40k/5k=$8.00 (tatal rate per hour) Fixed rate =8-3= $5 2) budgeted fixed costs = 6000*1hr*5=30k 3)Budget variable costs =3*5000 hrs =15000 4) Budget Total MOH cost = 15k + 30K=45K Volume variance = Applied MOH-Budgeted =$5k-40k=5K Total overhead variance?= (2k) Volume variance?=(5k)

An investor with risk-averse behavior will seek to reduce risk by mixing investments in a portfolio with different or offsetting risks. This technique is most effective to reduce: e Unsystematic risk. Systematic risk. Non-diversifiable risk. Market risk.

Unsytematic risk (akak firm-specific risk or non-mk risk) can be reduced by diversification The terms systematic, market, and non-diversifiable risk are all synonymous and refer to risks that can not be mitigated by investment in different securities.

Quality programs normally include a number of techniques to find and analyze problems. The technique commonly used to rank and analyze the individual and cumulative causes of defects is called a: e Control chart. Pareto diagram. Fishbone diagram. Value chain analysis.

a pareto --key word rank Pareto diagram represents an individual and cumulative graphical analysis of errors by type. Individual error types are represented on a histogram (bar graph), while the cumulative number of errors is presented on a line graph. The Pareto diagram is used to prioritize process improvement efforts.

A bond with face value of $10,000 maturing in two years pays annual interest of 6 percent. The market interest rate at the time of issuance is 5 percent. The bond's price at the time if issuance is closest to:

ecause the bond pays a higher coupon rate than market rate, it will be issued at a premium to par. The bond's price can be calculated as follows: Year 1 payment: 600/1.05 = $571.43 Year 2 payment: (600 + 10,000)/(1.05)2 = $9,614.51 Total value: $571.43 + $9,614.51 = $10,185.94

Repatriation restrictions

exist when a company invests money in a foreign company but is restricted from bringing that money back to its home country. These restrictions would affect the cash inflows expected from the investment.

Bendernet Corporation budgeted production at 6,000 units and charged $42,000 to its factory overhead account. Bendernet applies variable overhead at $3.00 per direct labor hour and assumes that each unit takes one direct labor hour to produce. The company applied $40,000 of its overhead to work-in-process based on 5,000 hours. If the company actually required 5,500 hours to produce 5,000 units, what was the total overhead variance and to what extent did volume variances contribute to or offset that variance Total overhead variance ? Volume variance?

he total overhead variance is an unfavorable $2,000 (the overhead account has a $2,000 debit balance). The volume variance contributed a $5,000 unfavorable. Total overhead varianceThe total variance is the extent to which overhead was underapplied. Total overhead charged to the overhead account was $42,000, the amount applied was $40,000, the difference, $2,000, is the total unfavorable overhead variance. Volume varianceThe volume variance is the difference between the amount applied and the budgeted fixed overhead plus standard hours allowed applied variable at the budgeted rate. Derive ratesThe budgeted rates are derived from the $40,000 applied based on 5,000 hours. The total rate is $8.00 per hour ($40,000/5,000). The $3.00 variable rate is given, so the fixed rate must be $5.00. Fixed costs Budgeted fixed costs are the budgeted production of 6,000 units times 1 hour times the $5.00 rate or $30,000. Variable costsVariable overhead based on allowed hours is $3.00 times 5,000 or $15,000. The budget based on standard hours allowed is, therefore, $45,000 ($30,000 fixed plus $15,000 variable). Variance computationThe volume variance is the difference between the $45,000 allowed and the $40,000 actually applied, $5,000 underapplied. Expressed in tabular form, the computation is as follows: Budget @ standard hours allowed: Fixed 5.00 × 6,000 30,000 Variable 3.00 × 5,000 15,000 Overhead applied 45,000 Overhead applied: Fixed 5.00 × 5,000 25,000 Variable 3.00 × 5,000 15,000 0head applied 40,000 Net overapplied (underapplied) volume (5,000) Net overapplied (underapplied) overhead (2,000) Note that the volume variance is entirely comprised of differences between budgeted and applied fixed overhead.

In using a process cost system, a production report is usually generated that fully accounts for all units and costs. The physical flow of units is fully accounted for by:

production report is normally formatted to prove units at the beginning of the period plus units transferred in are equal to the units transferred out plus ending inventory as follows: SampleProductionReport Units in process, beginning Units transferred in = Total units charged to department Units transferred out Units in process, ending = Total units to be accounted for

A U.S. parent company is reviewing the cash flows from its international subsidiaries. In addition to exchange rate risk, which of the following items would be a primary consideration in the company's cash flow analysis? e Default risk premium. Foreign trade deficit. Repatriation restrictions. American depository receipts.

repatriation restrictions exist when a company invests money in a foreign company but is restricted from bringing that money back to its home country. These restrictions would affect the cash inflows expected from the investment. hoice "1" is incorrect. The default risk premium is the additional return that a lender requires from a borrower to compensate for the risk that the borrower may not be able to make interest or principal payments. This exists in most lending arrangements and is not specific to international transactions. Choice "2" is incorrect. A foreign trade deficit is relevant at a macro level and occurs when imports exceed exports. Choice "4" is incorrect. American depository receipts (ADRs) are securities of non-U.S. companies that trade in U.S. financial markets. Because they trade like regular shares of stock on U.S. exchanges and are denominated in U.S. dollars, they carry lower levels of risk than direct investments in foreign entities.

Consider the market for sport utility vehicles. Suppose there is a large increase in the price of gasoline as well as an increase in the price of steel (an input in the production of sports utility vehicles). What is the predicted effect of these events on the equilibrium quantity and price of sport utility vehicles? e Equilibrium quantity will fall and equilibrium price will rise. Equilibrium quantity will rise and equilibrium price will fall. Equilibrium quantity will fall and equilibrium price may rise, fall, or stay the same. Equilibrium quantity may rise, fall, or stay the same and equilibrium price will rise.

s a result, a large increase in the price of gasoline would cause the demand curve for sport utility vehicles to shift left, leading to a decrease in both the quantity and price of sport utility vehicles. Steel is an input in the production of sport utility vehicles. An increase in input costs would cause the supply curve for sport utility vehicles to shift left, leading to a decrease in quantity and an increase in price. Thus, combined, the two events have an unambiguous effect on the equilibrium quantity of sport utility vehicles. Both events cause equilibrium quantity to fall. However, the two events have an ambiguous effect on price. The first causes price to fall, and the second causes price to rise.

under sox Internbal control must be evaluted...?

within 90 days prio rto the report