Answer:
a. 2.7%
b. From 6 to 9 years
Explanation:
a. The country’s trend rate of growth over this period is computed below:
= Total of growth rate ÷ time period
where,
Total of growth rate is
= 5% + 3% + 4% -1% -2% +2% + 3% + 4% + 6% + 3%
= 27%
And, the time period is 10 years
So, the trend growth rate is
= 27% ÷ 10 years
= 2.7%
b. The expansionary phase of the business cycle is from 6 years to 9 years as the growth rate is increased over this time period plus the growth rate is positive
The country's trend rate of growth over the 10-year period is 2.7%.
Explanation:To calculate the country's trend rate of growth over the 10-year period, we need to find the average growth rate. We can do this by summing up all the growth rates and dividing by the number of years.
Sum of growth rates = 5 + 3 + 4 - 1 - 2 + 2 + 3 + 4 + 6 + 3 = 27
Average growth rate = Sum of growth rates / Number of years = 27 / 10 = 2.7%
Therefore, the country's trend rate of growth over this period is 2.7%.
All of the following statements pertaining to investment advisers (IAs) possessing the funds of clients are TRUE EXCEPT:[A] Possession of funds by a custodian that meets certain qualifications is acceptable.[B] At least annually, clients must receive a statement which includes details related to the funds possessed by the firm.[C] Accounts that contain the funds of clients must be specific to that purpose.[D] Immediate notification must be given to the client as to where the firm will maintain the client funds.
Answer:
The correct option is B
Explanation:
Options A, C and D are true except for option B which talks about annual statements. As long as the customer continues to carry out certain activities on his or her account, it is mandatory for statements to be sent on a monthly basis. However, in a case where there is no activity for a long period, then statement are sent to the customer once in three months.
Finesse, a wall paint manufacturing company, produces around 15,000 cans of paint a day. The production system used by the company is very efficient, and it seals close to 2000 cans per hour. Once the production system is turned on, it functions round the clock to seal and dispatch cans until the machine is turned off. The manufacturing operation of Finesse is an example of _____.A) continuous-flow production
B) prototype production
C) batch production
D) job shop production
In Finesse, once the production system is turned on, it functions round the clock to seal and dispatch cans until the machine is turned off. The manufacturing operation of this firm is an example of a continuous-flow production. The Option A is correct.
What is a continuous-flow production?In manufacturing, a continuous-flow of production refers to a flow production method used to manufacture, produce, or process materials without interruption. Also called a continuous production, means a continuous process or a continuous flow process because the materials, either dry bulk or fluids that are being processed are continuously in motion, are undergoing chemical reactions or subject to mechanical or heat treatment.
In conclusion, the continuous processing is always contrasted with batch production.
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Continuous-flow production is exemplified by Finesse's manufacturing operation, showcasing uninterrupted production of sealed paint cans.
Continuous-flow production is illustrated by Finesse's manufacturing operation, where cans are sealed and dispatched round the clock without stopping once the production system is turned on. This method is efficient, timely, and does not involve stopping the production line.
The term _____________ describes circumstances where a country's exports exceed its imports.
A. trade imbalance
B. trade balance
C. trade surplus
D. trade deficit
Answer:
C. trade surplus
Explanation:
A trade surplus is a positive balance of tradewhere a country's exports exceed its imports. Trade Balance = Total Value of Exports - Total Value of Imports if Total Value of Exports is bigger than the Total Value of Imports the trade balance will be positive.
I hope you find this information useful and interesting! Good luck!
A situation in which a country's exports exceed its imports is described as a Trade Surplus. In contrast, a Trade Deficit is when imports exceed exports, while Trade Balance and Trade Imbalance refer to the proportion of exports to imports.
Explanation:The term that describes circumstances where a country's exports exceed its imports is C. Trade Surplus. When a country exports more goods and services than it imports, it is considered to have a trade surplus. This condition allows it to be a net lender to the rest of the world. For example, if Country A exports $200 million worth of goods and imports $150 million, it has a trade surplus of $50 million. Conversely, a Trade Deficit happens when a country imports more than it exports, while Trade Balance and Trade Imbalance refer to the comparison between the monetary value of exports and imports.
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Robert sold his Lebec Corporation stock to his sister Karen for $8,000. Robert's cost basis in the stock was $15,000. Karen later sold this stock to Dana, an unrelated party, for $15,500. What is Karen's realized gain?
Answer:
$7,500
Explanation:
A few points must be considered in order to calculate ther realized gain.
1. Although Robert's stock in Lebec Corporation was $15,000 at cost, it was sold to Karen (his sister and related party) for $8000. Since it is related party transaction, the loss of $7000 ($15,000-$8,000) cannot be reported as a loss.
2. Karen's basis for the stock is $8000 (the amount she bought it from her brother).
3. Karen sold the stock to Dana for $15,500. The realized gain since Dana is not related is $15,500-$8,000= $7,500. This becomes the realized gain since it is an unrelated party transaction.
Retail member firms that route orders to market makers in return for compensation:
a. are engaging in a prohibited practice under SEC rules
b. is permitted to do so, subject to best execution requirements and disclosure requirements
c. must get the customer's oral consent prior to each trade
d. must get the customer's written consent prior to each trade
Answer:
Retail member firms that route orders to market makers in return for compensation is permitted to do so, subject to best execution requirements and disclosure requirements, Option B.
Explanation:
If a market maker is chosen by the retail market maker to "execute" its orders in return for "compensation", then this is the earning of that retail firm. It is called "payment for order flow". This practice is permitted by SEC with a condition that the retail member firm always executes its trades at the best available price. Also, the payments which are made for order flow must be revealed on customer confirmations. It is not engaging in any prohibited rules given by SEC , as per Option A and also there is no oral or written consent required before each trade as per option C and D. So, Option B is correct.
Business cycles consists of four phases: expansion, recession, contraction, and recovery. True or false?
Answer: false
Explanation: The four phases of business cycle are as follows :-
1. Expansion
It's the initial step. There's an increase in jobs, profits, output, and revenues whenever the expansion happens. Usually individuals pay on time for their loans.
2. Peak
The second phase is a peak once, having exceeded the maximum rate of growth, the economic situation hits a nab. Prices have reached their maximum level, and leading indicators have stopped growing.
3. Recession
These would be stagnation phases. Throughout a recession, joblessness is rising, the output is slowing down, revenues are beginning to fall due to a fall in demand, and earnings are stagnating or declining.
4. Depression
Although unemployment is rising and productivity is plummeting, economic development keeps falling.
5. Trough
This period marks the end of the depression, leading an economy into the next step.
6. Recovery
The economy is beginning to turn still at this point. Cheap prices are contributing to such an increase in demand, jobs and development, and borrowers are beginning to expand their lending coffers. This phase signals the end of a period of the business cycle.
Samantha has a loan with an interest rate of 6.67 percent now, but the rate could increase 2 percent next year. What lending term best describes this loan?
Answer:
The variable rate loan term best describes this loan.
Explanation:
In these type of loans variable interest rate is charged. A variable interest rate is a floating interest rate on a loan or security (bonds,debentures) that changes over time because it is based on an underlying benchmark interest rate or index that changes periodically. So the interest payment fluctuates with change in benchmark.
The advantage of a variable interest rate is that if the underlying interest rate or index falls down, the borrower’s interest payments also decrease. Accordingly, if the underlying index rises, interest payments increase.
When considering the circular flow of economic activity, households supply resources (inputs) such that the resources supplied by the households may be thought of as being provided in individual markets. Which of the following accurately describes this statement?A. In the capital market, households loan accumulated savings to firms in exchange for labor income.B. In the capital market, households loan inherited savings to firms in exchange for claims on past profits.C. In the labor market, households earn wages by supplying labor to firms that demand it.D. In the land market, households supply land or raw materials in exchange for claims on future profits.
Answer:
C. LABOUR MARKET - HOUSEHOLDS EARN WAGES BY SUPPLYING LABOUR DEMANDED BY FIRMS
Explanation:
Circular flow of income (2 sector) involves REAL Flow and MONEY Flow exchange between households and Firms
* Households provide firms with Factors of Production (FOP) - Land , LABOUR , Capital , Entrepreneur [REAL FLOW]
for Returns to FOP - Rent , WAGES , Interest , Profit [MONEY FLOW]
* Firms provide goods and services to households [REAL FLOW]
for Prices from households to firms [MONEY FLOW]
A non-governmental, not-for-profit organization borrowed $5,000, which it used to purchase a truck.
In which section of the organization's statement of cash flows should the transaction be reported?
A. In cash inflow and cash outflow from investing activities
B. In cash inflow and cash outflow from financing activities
C. In cash inflow from financing activities and cash outflow from investing activities
D. In cash inflow from operating activities and cash outflow from investing activities
Answer:
C. In cash inflow from financing activities and cash outflow from investing activities
Explanation:
Investing activities: it records activities that include buying and selling long-term assets. Purchasing is a cash outflow, whereas selling is an inflow of cash.
Financing activities: It tracks transactions that have an effect on long-term debt and total stockholder equity balance. Issuance of equity is cash inflow, while redemption and dividend is a cash outflow.
In the given case, the amount is borrowed which reflect the debt and the debt comes under the financing activities
And, the amount is borrowed to purchase a truck which shown in the investing activity as it deals with the purchase and sale of long term assets
The three types of data that are typically available for purchase by companies are: broadsides, brochures, and catalogs. inquiries, sales, and returns. primary, secondary, and tertiary. demographics, lifestyle, and behavioristics. direct, indirect, and systematic.
Answer:
demographics, lifestyle, and behavioristic
Explanation:
Demographic data refers to information collected about the characteristics of a population, e.g. age, gender, race, income, etc.
Lifestyle data refers to the information about how people live and how that influences their purchase decisions.
Behavioral data refers to the information about people's activities.
The ______________ is too powerful to be changed very often because a small change is magnified throughout the banking system..
Answer:
The reserve ratio is too powerful to be changed very often because a small change is magnified throughout the banking system.
Explanation:
The reserve ratio by definition "is the amount of reservable liabilities that banks must hold instead than lend out or invest to any person or entity".
That represent an important concept in order to control the monetary policy for the economy any country and is very important when the governments wants to regulate the money supply.
We have a general rule that if the central bank of a country increase money supply in the economy, then we need to be decrease the reserve ratio and vice versa.
The reserve ratio can be uses to control and manipulate the general conditions for all the banks in a country, because any change in the reserve ratio directly affect the banking system in all the conditions.
The Coase theorem states that, in the presence of externalities, a market economy will:
Select one:
a. reach an efficient solution only in the case of government regulation.
b. always reach an efficient solution.
c. never reach an efficient solution.
d. reach an efficient solution if transaction costs are sufficiently low and property rights are well-defined.
Answer:
d) reach an efficient solution if transaction costs are sufficiently low and property rights are well-defined.
Explanation:
Coase theorem states that the elected parties are able to find the efficient solution for externalities if the transaction cost are low.
Main points of Coase theorem
1) Parties able to find efficient solution when affected by externality
2) Transaction cost must be low but practically it rarely low so in that case coase theorem sometimes inapplicable
"according to the ______ method of accounting, revenues are recognized when they are earned"
Answer:
the correct answer is accrual-basis
Explanation:
"according to the accrual-basis method of accounting, revenues are recognized when they are earned"
good luck
Why do you think it is a good idea for workers to have more decision-making duties and provide input to managers?
Answer:
Explanation:
Based on the information provided within the question it can be said that this is a great idea because the workers experience the same experiences that the customers have and are therefore able to provide the managers with extremely valuable input, as well as help keep the employees involved and feel as though their participation makes a difference.
Senior executives at a global manufacturing company are determining the key performance indicators they'll use to judge how effective their online video advertising campaigns will be on Google Ads. What guidelines are they creating? A. Marketing objectives B. Campaign metricsC. Media objectives D. Business objectives
Answer:
Campaign metrics
Explanation:
A Campaign Metric refers to a metric that can be quantified to monitor and evaluate the condition of a particular business operation. It is worth noting that corporate indicators can be used to target core business clients, like investors, consumers, and various types of workers, such as administrators as well as middle managers.
Campaign metrics should be linked to set targets or research goals in order to be successful. It creates a meaningful background for the principles used throughout the metric and encourages enterprise users to operate more efficiently on the knowledge they see.
Which of the following is the correct mathematical representation of direct labor rate variance (LRV)?
A.Direct labor rate variance = (Actual hourly wage rate − Standard hourly wage rate) × Actual direct labor hours used
B.Direct labor rate variance = (Standard direct labor hours allowed − Actual direct labor hours used) × Standard hourly wage rate
C.Direct labor rate variance = Actual hourly wage rate − Standard hourly wage rate
D.Direct labor rate variance = Standard direct labor hours allowed − Actual direct labor hours used
Answer: not in any option
Explanation: Labour rate variance = (standard Labour hour - actual Labour hour) × actual Labour hour.
Small Treasure Gifts is deciding whether to sell its products in kiosks outside subway stations or in stores at popular malls. What element of the marketing mix does this decision most closely relate?
Small Treasure Gifts' decision about where to sell their products relates to the 'place' element of the marketing mix, which is part of the strategic decisions a company makes concerning the distribution of their products to consumers.
The decision made by Small Treasure Gifts to sell its products either in kiosks outside subway stations or in stores at popular malls is related to one of the four elements of the marketing mix. Specifically, it pertains to place or distribution, which involves decisions about how and where a company's products will be available to consumers. In marketing strategy, as stated by Kotler and Armstrong (2010), an effective marketing mix requires consistency among its elements, which include product, price, promotion, and place.
This decision also reflects the company's strategy to manage point-of-sale customer experiences and could impact impulse buying behavior similar to the strategies used by convenience stores to sell local products.
As seen in the research on the profitability of convenience stores and their strategic placement of local favorites, understanding the importance of location in the consumer's purchasing decision is crucial for the success of a product in the market. In this case, Small Treasure Gifts must consider which location will best reach their target audience and enhance their product's visibility and accessibility.
Business law professor Debby needed some yard work done. She told her class that she would give $50 to the first person who mowed her yard. She also entered into an agreement with Brenda to trim some shrubbery for $40. Max went to mow Debby's yard. Unfortunately, just as he finished mowing, a neighborhood dog bit him and he had to go to the emergency room for a couple of stitches. Debby refused to pay Max on the basis that the agreement was not in writing and that Max ended up being more trouble than he was worth. Max refused to pay the emergency room because he said that they did not have a binding, bilateral contract. Brenda refused to trim the shrubbery because she got a better offer and claimed that she was not bound by the contract until she started to perform.
Which of the following is an appropriate characterization of the agreement between Debby and Max?
A. They had a bilateral, express agreement.
B. They had a bilateral, implied agreement.
C. They had a bilateral and unilateral agreement.
D. They had a unilateral, express agreement.
E. They had a unilateral, implied agreement.
Answer:
D) They had a unilateral, express agreement.
Explanation:
In a unilateral contract, the offeror makes an express promise without a reciprocal agreement from another party. The offeror's express promise of payment requires that the other party performs.
In this case, professor Debby made an express promise to pay $50 to anyone that mowed her yard, and Max performed the yard mowing, therefore he is entitled to payment.
Debby and Max had a unilateral, express agreement, as Debby made a public offer that Max accepted by performing the requested service—mowing her yard. Unilateral contracts are bound by the completion of the task, unlike bilateral contracts, which are based on reciprocal promises.
Explanation:The appropriate characterization of the agreement between Debby and Max is D. They had a unilateral, express agreement. In the scenario described, Professor Debby made a public offer to her class stating that she would pay $50 to the first person who mowed her yard. This offer creates a unilateral contract, where performance is the only method required to accept the offer and form the agreement. Max accepted this offer through performance by mowing Debby's yard. Unlike bilateral contracts where a reciprocal promise is made, unilateral contracts involve an act in response to an offer. Despite Debby's refusal to pay, she is legally obligated to fulfill the contractual rights she created with the offer since Max completed the task. Brenda's situation is distinct and involves an express bilateral contract where she and Debby reciprocally agreed upon the services and payment before any performance.
Katie is looking for a part-time job at a coffee shop. She looks in the classified section of a local newspaper and finds a part-time barista position that is responsible for brewing coffee and preparing specialty coffee drinks.
This classified ad in the newspaper provides Katie with the:
a) job description
b) labor contract
c) job application
d) job specification
e) job analysis
Answer: (A) Job description
Explanation:
According to the question, Katie is looking for the part time job position at the coffee shop and in the local newspaper she finds the barista position and the main responsibility of this job is that brewing coffee and also preparing various types of special coffee based drinks.
In the newspaper, this advertisement provide about the detail job description to the Katie.
The job description basically provide the complete description about the vacancy in an organization and it also brief about the position or profile in the company.
Therefore, Option (A) is correct.
The classified ad provides Katie with a job description for a part-time barista position, which outlines the tasks of the job and potentially the job specification, advising her on what the employer is seeking in a candidate.
The classified ad that Katie found in the newspaper is an example of a job description. A job description is an important tool for both job seekers and employers as it outlines the duties and responsibilities associated with the position, which, in Katie's case, includes brewing coffee and preparing specialty coffee drinks. This document aids Katie in understanding what the employer is seeking and allows her to assess her own skills in relation to the job requirements.Task-oriented aspects of the job, such as the specifics of the coffee preparation, might be detailed, providing a clear picture of the day-to-day activities of the position. Meanwhile, a job specification, which might also be included, would detail the knowledge, skills, and abilities necessary for the job, guiding Katie in customizing her application to match these requirements.Having a clear understanding of the job description can also be strategically used during the interview process and further negotiations if Katie decides to pursue this opportunity.
When it comes to Discounted Cash Flow (DCF) methodologies and bonds, which of the following is TRUE?
[A] Using compounding, we can figure out the Net Present Value (NPV) of a bond.
[B] Using discounting, we can figure out the NPV of a bond.
[C] The price of a bond is entirely dependent upon the bond's NPV.
[D] The price of a bond is entirely unrelated to the bond's NPV.
Answer:
[B] Using discounting, we can figure out the NPV of a bond
Explanation:
First, a similarity between Discounted Cash Flow (DCF) and Net Present Value (NPV) that is crucial to answering this question is their reliance on discounted future cash flows in determining the present value of a project.
Although, the NPC and the DCF are crucial in decision making about a future project or investment, the difference is that DCF is useful in analyzing the present value of projects future cash flow while, NPV is interested in calculating the expected net returns in the future on an investment minus the startup costs.
Since a bond is an investment, Discounting and NPV can be used to determine the present/today's value of the future returns of the bond.
Therefore, it stands to reason that the price of a bond is not entirely dependent upon the bond's NPV and at the same time the price of a bond is not entirely unrelated to the bond's NPV. NPV uses the price of the bond among other inputs such as interest and years involved to determine the present value of the future returns on the bond.
A(n) ________ is a description of how the researchers will measure the variables of interest. theory hypothesis experimental plan operational definition.
Answer:
OPERATIONAL DEFINITION
Explanation:
OPERATIONAL DEFINITION
It is referred to as part of any analysis. At the time of data collection, it provides a very crystal clear definition of the process of collecting data. It strengthened decision making process on validation of any data whether the data is correct or not. This is important because data that is not suited to the analysis can lead to error in result.
Stephen must be disabled 60 days before he will receive any benefits from his disability policy. This 60-day period is the:
A Waiting PeriodB Probationary PeriodC Elimination PeriodD Policy Period
Answer:
correct option is C Elimination Period
Explanation:
given data
time period = 60 days
solution
As here time = 60 day period
it is the Elimination Period because the Elimination Period is time period that is in between the onset of disability and time at which it insured eligible for the benefit .
and it can also be called as the deductible time period for the policy
so here correct option is C Elimination Period
You work at a call center of a large bank where you answer credit card services related questions from customers. Lately, you have noticed an increased number of customers enquiring if you had initiated a call. There can be a scam in progress.
a. True
b. False
Answer: True
Explanation: If customers repeatedly call complaining about frequent calls from false individuals claiming to be from the bank, it's most likely a scam maybe going on, where false individuals may want to gain access to sensitive customers account details to defraud them.
What are some of the options the U.S. government has when it needs to raise funds?
Correct Answer(s) selling U.S.
Treasury securities to domestic firms, households and governments selling stock in the U.S. government selling U.S.
Treasury securities to foreign firms, households and governments buying foreign securities from foreign firms, households, and governments
Answer:
Treasury securities to domestic firms, household, and government selling stock.
Explanation:
With the U.S. government selling stock to the public, it receives money in return, thus raising revenue or funds.
Final answer:
The U.S. government raises funds primarily by selling Treasury securities to investors, both domestic and foreign, as a form of borrowing to cover budget deficits and finance operations and projects.
Explanation:
When the U.S. government needs to raise funds, it has several options. One of the primary methods is by selling U.S. Treasury securities, such as Treasury bonds, notes, and bills, to domestic and foreign investors. These securities are essentially loans made by investors to the government, which promises to repay the principal with interest in the future. By purchasing these securities, investors are lending money to the government to fund various needs, including covering budget deficits. In some years, such as from 1998 to 2001, the government experienced budget surpluses and did not need to borrow as much. However, outside these exceptional periods, borrowing through the sale of securities has been a consistent practice to finance government operations and projects.
Which of the following events would be likely to increaseincrease the supply of money?
A. Banks perceive loans to be more risky and wish to hold more excess reserves.Banks perceive loans to be more risky and wish to hold more excess reserves.
B. The Fed increases reserve requirements for banks.The Fed increases reserve requirements for banks.
C. The Fed conducts an open market sale of bonds.The Fed conducts an open market sale of bonds.
D. The Fed decreases the discount rate relative to the federal funds rate.
Answer:
D. The Fed decreases the discount rate relative to the federal funds rate.
Explanation:
The discount rate is the interest rate charged by the Central bank when commercial banks borrows funds from it.
When the discount rate is lowered, excess reserves increase and money supply increases.
The reserve requirement is the amount of deposits of commercial banks that should be kept as reserves. The higher the reserve requirement, the lower the money supply.
If banks hold more excess reserves, money supply falls.
An open market sale decreases money supply while an open market purchase increase money supply.
I hope my answer helps you.
Architects must consider the availability and cost of ________ when they plan their projects.
Answer:
the correct answer is Building materials
Explanation:
Architects must consider the availability and cost of Building materials when they plan their projects.
good luck
Every month you need to generate and print a group of reports. You decide to display these reports in a batch. What should you do first?
Answer:
a. Select Process Multiple Reports from the Reports menu.
Explanation:
Quickbooks enables you to print a batch of reports.
One might want to print a series of monthly reports for your files using this function (e.g. monthly Profit and Loss and Balance Sheet reports).
Because Quickbooks is unable to handle several Report Center files, one must start with the Report menu.
To start - Select Multiple Reports from the Reports menu to show a report group.
Which of the following items should be included in a company's inventory at the balance sheet date? A) Goods sold to a customer that are being held for the customer to call for at his or her convenience. B) Goods sold to a customer, that were shipped f.o.b. shipping point. C) Goods in transit, which were purchased f.o.b. shipping point. D) Goods received from another company for sale on consignment.
Answer:
The correct answer is C.
Explanation:
In the inventory of a company, when it is on the balance sheet date, goods in transit purchased at an f.o.b. shipping point must be included.
Goods in transit are goods that are not physically in the warehouse but have already been paid for by the company. This already acquired merchandise is property of the company, only that its arrival is only waited for to the deposit.
Have a nice day!
Answer:
C) Goods in transit, which were purchased f.o.b. shipping point
Explanation:
Inventory is indicated as current asset in balance sheet. Goods in transit means goods are on the way for delivery which means customers can place order while waiting for delivery. F.O.B (free on board) shipping point means the receiver will bear any loss or damage incurred during shipping. The goods in transit belongs to the receiver which makes it an asset.
While developing an appraisal, an appraiser assumes that an underground storage tank on the subject property is not leaking. This is an example of:_______A) Unethical contingencyB) Ordinary assumptionC) Hypothetical conditionD) Extraordinary assumption
Answer:
Extraordinary Assumption
Explanation:
Extraordinary Assumptionn
An assumption, that has a specific assignment, which, if found to be false, could alter the appraiser's opinions or conclusions. Extraordinary assumptions makes a presumption as fact otherwise concluding about physical, legal or economic characterisitcs of the subject property; or about conditions external to the property such as market conditions or trends; or about the integrity of data used in analysis, when the information is uncertain
The correct answer is C) Hypothetical condition.
In the context of real estate appraisal, an appraiser makes certain assumptions when estimating the value of a property. These assumptions are based on the current state of the property and its surroundings, as well as any information that is readily available. Here's why the assumption about the underground storage tank not leaking falls under the category of a hypothetical condition:
A) Unethical contingency: This would imply that the appraiser is acting unethically by basing their appraisal on a condition that is not true or by not disclosing a known issue. This is not the case here, as the appraiser is transparently stating the assumption.
B) Ordinary assumption: An ordinary assumption is one that is commonly made in appraisals and is based on typical property conditions. For example, an appraiser might assume that a property has access to public utilities without verifying this for every appraisal. The condition of an underground storage tank is not typically assumed to be non-leaking without verification, so this does not fit the definition of an ordinary assumption.
C) Hypothetical condition: A hypothetical condition is an assumption that is contrary to known facts but is necessary for the analysis. In this case, the appraiser is assuming that the tank is not leaking, even though there may be no evidence to support this. This is done to provide an estimate of value under a specific scenario, which is a common practice in appraisals when certain conditions cannot be readily verified.
D) Extraordinary assumption: An extraordinary assumption is one that is not typical and may significantly affect the value conclusion. This type of assumption is used when there is a lack of specific data and the assumption is necessary for the appraisal. While the condition of the underground storage tank could potentially have a significant impact on the property value, the assumption itself is not extraordinary because it is a common issue that appraisers might encounter with properties that have underground storage tanks.
Therefore, the assumption that the underground storage tank is not leaking, made without verification, is considered a hypothetical condition in the appraisal process.
Which of the following statements is FALSE?
A. We can use Modigliani and Miller's first proposition to derive an explicit relationship between leverage and the equity cost of capital.
B. The total market value of the firm's securities is equal to the market value of its assets, whether the firm is unlevered or levered.
C. Although debt does not have a lower cost of capital than equity, we can consider this cost in isolation.
D. While debt itself may be cheap, it increases the risk and therefore the cost of capital of the firm's equity.
Answer:
A. We can use Modigliani and Miller's first proposition to derive an explicit relationship between leverage and the equity cost of capital.
Explanation:
Their main conclusions can be summarized as: In the absence of taxes, firm capital structure is irrelevant. With taxes, a firm's cost of capital can be lowered through issuing debt. This highlights the importance of debt as a tax shield.
Modigliani and Miller's conclusion went against the common view that even with perfect capital markets, leverage would affect a firm's value.