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Tutor profile: Sid A.

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Sid A.
[The Tutor Guy] Tutor with 4 years of experience
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Questions

Subject: Economics

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Question:

The demand function for bicycles in Guelph is given by the equation Qd = 10000 – 10 PB + 500 PG – 200 PH where P is the price of a bicycle , PG is the price of gas per litre, and PH is the price of bike helmets. The supply curve is given by Qs = 20 PB - 1000. Let the price of gasoline be $1 per litre and let a bike helmet cost $20. Let the price of a bicycle be $250. At these given prices, what are the eqilibrium price and quantity of bicycles?

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Sid A.
Answer:

At the equilibrium price and quantity, we know that quantity demanded must be equal to quantity supplied. We are given both the demand and the supply functions. The supply function is already in the form we need it in but the demand function needs to be converted to a function of just PB for us to equate it to supply. So the first step will be to plug in the values for PG and PH to transform the demand function into a function of PB. Therefore, Qd = 10000 - 10PB + 500(1) - 200(20) = 6500 - 10PB Now we are able to equate the demand and the supply functions to find the equilibrium PB Qd = Qs => 6500 - 10PB = 20PB - 1000 => 7500 = 30PB => PB = $250 We can plug this value of PB into either the demand or the supply function to find the equilibrium quantity of helmets. Qs = 20PB - 1000 = 20(250) - 1000 = 4000 bicycles

Subject: Finance

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Question:

Non‐Stick Gum Inc. currently pays no dividend, but is expected to pay its first dividend of $3 in 4 years. After that, dividends will grow at 6% per year indefinitely. What price would you pay for a share of Non-Stick Gum if stocks with a similar risk currently earn a return of 12%?

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Sid A.
Answer:

The trick in this question is that the first dividend is expected to be paid 4 years from now and not 1 year from now, which usually is the case. So we'll start by finding the value of this stock 4 years from now. To do that, we'll need to take the growth of the dividend into account as well. This growth is indefinite, making the dividend payments a form of a growing perpetuity. So, we'll apply the growing perpetuity formula to find the value of the stock 4 years from now. The formula is: P4 = D1/(r-g) => 3(1.06)/(.12-.06) = $53 What we're looking for is P0, not P4. To find P0, we simply discount this future value of the stock we just found plus the dividend that's expected to be received 4 years from now. Therefore, P0 = (P4 + D4)/(1+r)^4 = (53 + 3)/(1.12)^4 = $35.59 Hence, you'll pay $35.59 for this stock.

Subject: Accounting

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Question:

On November 23, WELLDONE Corp. received an advance payment of $45,000 for services to be provided to MLS Ltd in the future (on that date Unearned Revenue was credited for the full $45,000). By December 31, $20,000 of services have been provided to MLS Ltd. December 31 is WELLDONE’s fiscal year-end. WELLDONE should make the following adjusting entry on December 31:

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Sid A.
Answer:

debit Unearned Revenue, $20,000; credit Service Revenue, $20,000. Explanation: When the company originally reeived the advance payment, it correctly recorded the entire payment as unearned revenue i.e it debited cash and credited unearned revenue by $45,000. Now by the end of the year, the company has provided $20,000 worth of services. These $20,000 worth of services are therefore, no longer "unearned". They have been earned and hence need to be converted from unearned to earned. The way we do that is we debit unearned revenue (decrease it) and credit service revenue (increase it) to account for the services provided between November 23 and December 31 and reflect accurate figures on our statements.

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