# solutions During the past year, Captain’s Cook found that whenever… solutionsDuring

solutions During the past year, Captain’s Cook found that whenever… solutionsDuring the past year, Captain’s Cook found that whenever the sales increased by 25 percent, the restaurant could boost its operating cash flow by 15 percent. What is the degree of operating leverage for the restaurant? 1.6 0.40 0.6 1.43 0.65 Declaration date, Ex-dividend date, Date of payment, Date of record. Declaration date, Date of record, Ex-dividend date, Date of payment. 5 The length of time that a company spends on converting its inventory into sales is called the ______.. Accounts receivable period. Accounts payable period. Operating cycle. Cash cycle. Q8) George works as an accountant for a plumbing company which needs a new equipment. The equipment will cost \$50,000, and it must be replaced in six years, after which it is worthless. It falls under Class 8 so the CCA rate is 20%. The firm can issue debt at 5%. If not buying the equipment, the company can also lease the equipment for \$9,000 per year. If the tax rate is 35%, what is the after-tax cost of debt? 8.40% 3.25% 4.00% 1.00% 1.75% Q9)Sam spent \$200,000 on acquiring new equipment, which can be classified as a Class 10 asset for CCA purposes. He finds that the CCA rate is 30%. Calculate CCA for the year 2. (The first-year rule should be applied in this ) 3 options: \$70,000 \$35,700 \$30,000 \$119,000 \$51,000 Q10)Battery Depot Inc. has sales of \$800,000, average accounts receivable of \$35,000, and average accounts payable of \$22,500. The cost of goods sold is equivalent to 50% of sales. How many times does Battery Depot Inc. pay their suppliers in a year? 4 options: 22.86 times 15.97 times 17.78 times 35.56 times 20.53 times Q20)Jim just got a coding job so he will need a new laptop. He finds a good one, which costs \$20,000 and can be used for 6 years. After that, the computer will be useless with zero salvage value due to a massive coding work. Jim has insufficient money to buy it, but he can borrow funds at an annual interest rate of 2.5%. The tax rate is 28%. The store said if Jim chooses to lease the laptop, Jim will pay for \$3,500 per year (pre-tax). What is the amount of the after-tax lease payment? \$2,520 \$87.5 \$14,400 \$980 \$1,067.5 Q22)Firm A has accumulated 2 million shares of firm B, hoping to acquire firm B fully. To discourage such an unfriendly takeover attempt, firm B has agreed with firm A to repurchase back those 2 million shares from firm A. Such a tactic is called (a): Golden parachute. Greenmail. Poison pill. Standstill. White knight. Q24)Your company are about to acquire a new equipment. The equipment will cost \$300,000, and it must be replaced in four years, after which it is worthless. The equipment can be depreciated at a 20% CCA rate. Your company decides to raise funds by issuing debt with an interest rate of 8%. If the tax rate is 34%, what would be the break-even pre-tax lease fee? \$59,673 Cannot be determined. \$85,200 \$90,413 \$95,187 Diamond-Mortensen-Pissarides with on-the-job searchTime: Discrete, innite horizonDemography: A mass of 1 of workers with innite lives. There is a large mass of rmswho create individual and identical vacancies. The number of vacancies, v; is controlled byfree-entry.Preferences: Workers and rms are risk neutral (i.e. u(x) = x). The common discount rateis r: The value of leisure for workers is b. The cost of holding a vacancy for rms is a utilsper period.Productive Technology: A rm matched to a worker produces p units of the consump-tion good per period. With probability each period, jobs (lled or vacant) experience acatastrophic productivity shock and the job is destroyed.Matching Technology: In this arrangement, workers are always in the market. Whetherthey have a job or not does not stop them getting another job. As they can only have onejob at a time if an employed worker meets a rm with a vacancy, the worker quits the currentjob and switches employment to the new rm. Firms cannot commit to paying a higherwage than the current rm. (Wages are determined by Nash bargaining and symmetry willmean they all pay the same wage.) With probability m(v) each period workers encountervacancies where again v is the mass of vacancies. The function m(:) is increasing concave andm(v) < 1 for all v: Also limv!0m0(v) = 1; lim!1m0(v) = 0; and m(v) > vm0(v): it is okay The rateat which vacancies encounter workers is then m(v)=v which is decreasing in v: (Assume thatjob destruction and matching are mutually exclusive so m(v) + < 1:)Institutions: The terms of trade are determined by generalized Nash bargaining where rmshave bargaining power : This will mean that in every match the wage is determined fromVf Vv = [Vf Vv + Ve Vu]where Vf is the value to the rm of having a worker, Vv is the value to holding a vacancy, Veis the worker value of employment, and Vu is the worker value to unemployment.(a) Let w represent the wage and obtain the ow value or Bellman type equations for workersand rms.(b) Dene a free-entry search equilibrium.(c) Solve for an expression that characterizes equilibrium in terms of the mass of vacancies,v:(d) Under what parameter restriction does a unique interior (i.e. v > 0) equilibrium exist?Explain.(e) Obtain an expression for steady-state unemployment.(f) How does unemployment change with the separation rate, ? . Consider a real business cycle model in which the representative agent chooses capital andand labor to maximize the utility of consumption (c) and leisure ((1 `)) ; where the timeendowment is unity and labor is `:u(c; 1 `)subject to stochastic productivity shocks (A). Output (y) is given byy = Ak  (1 `)1  ;where the rm rents capital from the household at rental rate r:(a) Write the rms prot maximization problem and solve for the values of the wage (w)and the rental rate (r) :(b) Write the expression for the agents budget constraint using recursive notation (primesfor one-period-ahead values) Let the rate of depreciation on capital be : Why cant therepresentative agent in a closed economy use bonds to smooth consumption?(c) What are the state variables in the consumers optimization problem? Write the valuefunction for the consumer, using recursive notation and take rst order conditions. Writethe expression for the envelope condition and write an expression for the Euler equationand one for the labor supply decision.(d) Explain the permanent income theory of consumption. Use this theory to compare thee¤ect of a transitory increase in A on consumption with a permanent increase.(e) Now, consider three di¤erent specications of utility, each of which is used in macromodels. (1 `)1  1   > 0;   > 1 (BL)u(c; 1 `) = ln c  ` (IDL)u(c; 1 `) = ln”c +  (1 `)1  1  where (BL) represents the baseline specication, (IDL) is the specication with indi-visible labor, and the (GHH) is due to Greenwood, Hercowitz and Hu¤man. Writethe equations for the equilibrium relationship between consumption and leisure for eachspecication.(f) Dene a balanced growth equilibrium. Which, if any, of the specications have a labor-leisure choice which is consistent with balanced growth? Explain.(g) Compare the response of labor supply to a transitory increase in A which raises the wageusing the baseline model and the GHH model. Monetary policy in the overlapping generations model with ex ante heterogeneityTime: discrete, innite horizon, t = 1; 2; 3:::Demography: A mass 2N of newborns enter in every period. Everyone lives for 2 periodsexcept for the rst generation of old people who live for 1 period. Within the populationthere are two types of household A and B who di¤er according to their endowments (seebelow). The population is split exactly in half between the groups.Preferences: for the generations born in and after period 1;Ut(ci1;t; ci2;t+1) = ln(ci1;t) +   ln(ci2;t+1) i = A;Bwhere cis;t is consumption in period t and stage s of life for type i = A;B individuals.For the initial old generation ~U(ci2;1) = ln(ci2;1) for i = A;BEndowments: Except for the initial old, in the rst period of life type A people receive1 unit of the consumption good and type B people receive 2 units. No one gets anyendowment in their second period of life. In period 1 the rst generation of old areendowed with H0 units of money spread equally among them which can be stored butprovides no utility in consumption. The money supply grows each period so that theaggregate money supply in period t is H0(1 + )t: The new money transfers occur byhelicopter drop (i.e. lump sum) to each old person at the beginning of the period inwhich they are old.Information: There is complete information with perfect foresight.Solution concept: Competitive equilibrium. Each period there are markets for the con-sumption good and money. Let, pt; be the price for goods in terms of money in periodt which is taken as given by every participant.(a) Write out and solve the problem faced by the members of each type in each generationt: Use Md;it to represent the nominal money demand of each type i = A;B individualborn in period t: (Hint: If pt+1 drops out of your rst order condition equation dontworry about it.)(b) Write down the market clearing conditions and dene a competitive equilibrium.(c) We will focus on a steady state monetary equilibrium. Obtain an expression for thetransfers made to each household.(d) Solve for money demand in each period in terms of the current price of goods, pt; andthe transfer amount. You do not have to solve for pt:(e) Solve for the amount of consumption in each period of life for each generation also interms of pt and the transfer amount(f) By comparing consumption of type A individuals with that of type B; comment on theextent to which money growth, > 0 has a redistributive e¤ect. Briey interpret theresult. The three equations below are the fundamental equations from the New Keynesian model.Lt = Et1Xi=012i 2 t+i + x2 t+i(Loss)xt = Etxt+1 1 (^{t Ett+1) + ut (Euler)t =  Ett+1 + xt (pie)^{t = zt + t + xxt (TR)where Et denotes the expectation conditional on information available at time t, t denotesination at time t; dened as Pt Pt 1Pt 1; where Pt is price at time t, x is the output gap, denedas ^yt ^yft ; where y denotes output, the superscript f denotes full-employment output, andhats denote percent deviations from the non-stochastic steady state, ^{t is the nominal interestrate, zt is the interest rate target,   < 1 is the discount factor, 1 is the intertemporalelasticity of substitution, and are parameters which depend on the underlying structuralparameters of the model, and ut = Et^yft+1 ^yft is a stochastic error. All level variables shouldbe understood as proportionate deviations from their exible price equilibrium levels, whileall rate deviations are di¤erences in the rate.(a) Explain the meaning of each equation and how the rst three are derived from a modelof monopolistic competition with optimization.(b) Assume that ^{t is the policy instrument and solve for the optimal value for zt: [Hint:Substitute equation (TR) into equation (Euler).]Is there a trade-o¤ between stabilizingthe output gap and stabilizing ination? Explain intuitively assuming that the monetaryauthority implements the optimal response you derive.(c) In the Taylor Rule, set zt at its optimal value and set = y = 0: Substitute theinterest rate into the demand equation to derive a system in two variables and theirexpectations.(d) What are the requirements on the roots of the dynamic system for there to be a uniqueequilibrium?(e) Explain, without solving, how you would choose parameters in the Taylor Rule, x andy to assure a unique equilibrium. Business Accounting PROG 687 Share (0)

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