Monthly Archives: October 2015

Janes, Inc., is considering the purchase of a machine that would cost $430,000 and would last for 6 years, at the end of which, the machine would have a salvage value of $47,000

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(Ignore income taxes in this problem.) Janes, Inc., is considering the purchase of a machine that would cost $430,000 and would last for 6 years, at the end of which, the machine would have a salvage value of $47,000. The machine would reduce labor and other costs by $109,000 per year. Additional working capital of $4,000 would be needed immediately, all of which would be recovered at the end of 6 years. The company requires a minimum pretax return of 17% on all investment projects.

Required: Determine the net present value of the project. Show your work!



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20 Questions: A simple structure is characterized by

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1. A simple structure is characterized by (Points : 5)

2. Complete the following sentence: “Virtual organizations __________ whereas modular organizations __________.” (Points : 5)

3. The phrase that best defines a virtual organization is (Points : 5)

4. Effective ambidextrous organizations have alignment, which means that (Points : 5)

5. Important advantages of a holding company structure include (Points : 5)

6. An organization such as ConAgra that has dozens of different divisions with similar products will probably have the greatest success with which form of organization structure? (Points : 5)

7. What is the name of the practice that many modular organizations use to grow? (Points : 5)

8. Which of the following statements would least likely be found in a corporate credo? (Points : 5)

9. Leaders play a key role in developing and sustaining an organization’s (Points : 5)

10. The “bottom-up” perspective of empowerment (Points : 5)

11. Which of the following is not a characteristic of a successful learning organization? (Points : 5)

12. Coercive power is (Points : 5)

13. Refusal to share information, conflicts over resources, conflicts between departments and divisions, and petty interpersonal differences are symptoms of which type of barrier to change? (Points : 5)

14. Expert power (Points : 5)

15. Strategic reasons for undertaking a corporate venture include which of the following? (Points : 5)

16. Product champions (Points : 5)

17. The innovation dilemma known as seeds versus weeds refers to (Points : 5)

18. __________ produce fundamental changes that can transform a company or even revolutionize an industry, while __________ enhance existing practices and often represent evolutionary applications of fundamental breakthroughs. (Points : 5)

19. Which kind of risk taking requires that a company borrow heavily or commit a large portion of its resources in order to grow? (Points : 5)

20. Real options analysis is most appropriate when (Points : 5)



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Spencer Electronics has just developed a low-end electronic calendar that it plans to sell via a cable channel marketing program

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PROBLEM 8-1. Determining the Profit-Maximizing Price [LO 1] Spencer Electronics has just developed a low-end electronic calendar that it plans to sell via a cable channel marketing program. The cable program’s fee for selling the item is 20% of revenue. For this fee, the program will sell the calendar over six 10-minute segments in September.

Spencer’s fixed costs of producing the calendar are $150,000 per production run. The company plans to wait for all orders to come in, then it will produce exactly the number of units ordered. Production time will be less than three weeks. Variable production costs are $25.00 per unit. In addition, it will cost approximately $5.00 per unit to ship the calendars to customers.

Marsha Andersen, a product manager at Spencer, is charged with recommending a price for the item. Based on her experience with similar items, focus group responses, and survey information, she has estimated the number of units that can be sold at various prices:

Price: Quantity:
$79.99 15,000
$69.99 20,000
$59.99 30,000
$49.99 45,000
$39.99 65,000

Required:
a) Calculate expected profit for each price.
b) Which price maximizes company profit.



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(Present Value Analysis) James Hardy recently rejected a $20,000,000, five-year contract with the Vancouver Seals

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PROBLEM 9-1. Present Value Analysis [LO 1, 5] James Hardy recently rejected a $20,000,000, five-year contract with the Vancouver Seals. The contract offer called for an immediate signing bonus of $5,000,000 and annual payments of $3,000,000. To sweeten the deal, the president of player personnel for the Seals has now offered a $22,000,000, five-year contract. This contract calls for annual increases and a balloon payment at the end of five years.

Year 1 $ 3,000,000
Year 2 3,100,000
Year 3 3,200,000
Year 4 3,300,000
Year 5 3,400,000
Year 5 balloon payment 6,000,000
Total $22,000,000

Required
Suppose you are Hardy’s agent and you wish to evaluate the two contracts using a required rate of return of 12 percent. In present value terms, how much better is the second contract?



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On July 1, 20×1, Littleton Inc. loaned a key supplier of raw material $2,000,000 to construct a new processing facility

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On July 1, 20×1, Littleton Inc. loaned a key supplier of raw material $2,000,000 to construct a new processing facility. The loan is due on July 1, 20×3 and pays interest each December 31 and June 30. The supplier insisted on a variable rate loan. The controller of Littleton wants to avoid the risk of variable rate fluctuation and entered into an interest rate swap in which it will pay the variable rate on $2,000,000 in exchange for a fixed rate of 8.3%. The swap is settled on the interest payment dates. Variable interest rates and the value of the swap on selected dates are as follow:

Variable rate Value of the swap
July1, 20×1 7.9%
December 31, 20×1 7.75% 10,400

Prepare all journal entries to record this hedge through December 20×1.



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Blythe Industries Inc. expects to maintain the same inventories at the end of 2012 as at the beginning of the year

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Blythe Industries Inc. expects to maintain the same inventories at the end of 2012 as at the beginning of the year. The total of all production costs for the year is therefore as, summed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates is as follows:

Estimated Estimated Variable Cost
Fixed Cost (per unit sold)
Production costs
Direct materials…………………………………… − $30
Direct Labor………………………………………. − 20
Factory overhead…………………………………. $340,000 11
Selling expenses:
Sales salaries and commissions ………………… 80,000 5
Advertising …………………………………….. 32,000 −
Travel …………………………………………… 8,000 −
Miscellaneous selling expense …………………. 7,000 5
Administrative expenses:
Office and officers’ salaries……………………… 120,000 −
Supplies ………………………………………… 8,000 2
Miscellaneous administrative expense ………… 4,400 2
Total ……………………………………………. $600,000 $75

It is expected that 8,000 units will be sold at a price of $200 a unit. Maximum sales within the relevant range are 9,000 units.

Instructions
1. Prepare an estimated income statement for 2012.
2. What is the expected contribution margin ratio?
3. Determine the break-even sales in units and dollars.
4. Construct a cost-volume-profit chart indicating the break-even Sales.
5. What is the expected margin of safety in dollars and as a percentage of sales?
6. Determine the operating leverage.



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(Assessing Roche Publishing Company’s Cash Management Efficiency) Lisa Pinto, vice president of finance at

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Assessing Roche Publishing Company’s Cash Management Efficiency

Lisa Pinto, vice president of finance at Roche Publishing Company, a rapidly growing publisher of college texts, is concerned about the firm’s high level of short-term resource investment. She believes that the firm can improve the management of its cash and, as a result, reduce this investment. In this regard, she charged Arlene Bessenoff, the treasurer, with assessing the firm’s cash management efficiency. Arlene decided to begin her investigation by studying the firm’s operating and cash conversion cycles.

AND SO ON

Roche Publishing Company is currently spending $12,000,000 per year on its operating-cycle investment, but it expects that initiating a cash discount will increase its operating-cycle investment to $13,100,000 per year. (Note: The operating-cycle investment per dollar of inventory, receivables, and payables is assumed to be the same.) Arlene’s concern was whether the firm’s cash management was as efficient as it could be. Arlene knew that the company paid 12% annual interest for its resource investment and therefore viewed this value as the firm’s required return. For this reason, she was concerned about the resource investment cost resulting from any inefficiencies in the management of Roche’s cash conversion cycle. (Note: Assume a 365- day year.)

To Do

  1. Assuming a constant rate for purchases, production, and sales throughout the year, what are Roche’s existing operating cycle (OC), cash conversion cycle (CCC), and resource investment need?
  2. If Roche can optimize operations according to industry standards, what would its operating cycle (OC), cash conversion cycle (CCC), and resource investment

need be under these more efficient conditions?

  1. In terms of resource investment requirements, what is the annual cost of Roche’s operational inefficiency?
  2. Evaluate whether Roche’s strategy for speeding its collection of accounts receivable would be acceptable. What annual net profit or loss would result from implementation of the cash discount?
  3. Use your finding in part d, along with the payables and inventory costs given, to determine the total annual cost the firm would incur to achieve the industry level of operational efficiency.
  4. Judging on the basis of your findings in parts c and e, should the firm incur the annual cost to achieve the industry level of operational efficiency? Explain why or why not.


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Coley Co. issued $30 million face amount of 9%, 10-year bonds on June 1, 2009

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Coley Co. issued $30 million face amount of 9%, 10-year bonds on June 1, 2009. The bonds pay interest on an annual basis on May 31, each year.
a.) Assume that the market interest rates were slightly higher than 9% when the bonds were sold. Would the proceeds from the bond issue have been more than, less than, or equal to the face amount? Explain.
b.) Independent of your answer to part A, assume that the proceeds were $26,640,000. Use the horizontal model to show the effect of issuing the bonds.
c.) Calculate the interest expense that Coley Co. will show with the respect to these bonds in its income statement for the fiscal year ended September 30, 2009, assuming that the discount rate of $360,000 is amortized on a straight-line basis.



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On October 1, Keisha King organized Real Answers, a new consulting firm

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On October 1, Keisha King organized Real Answers, a new consulting firm. On October 31, the company’s records show the following items and amounts. Use this information to prepare an October income statement for the business.

Cash . . . . . . . . . . . . . . . . . . $11,500    Cash dividends . . . . . . . . . . . . . . $ 2,000

Accounts receivable . . . . . . . 12,000     Consulting fees earned . . . . . . . . 14,000

Office supplies . . . . . . . . . . . 24,437     Rent expense . . . . . . . . . . . . . . . 2,520

Land . . . . . . . . . . . . . . . . . . . 46,000   Salaries expense . . . . . . . . . . . . . 5,600

Office equipment . . . . . . . . . 18,000     Telephone expense . . . . . . . . . . . 760

Accounts payable . . . . . . . . . 25,037    Miscellaneous expenses . . . . . . . 580

Common stock . . . . . . . . . . . 84,360



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(Interest Rate Sensitivity) An investor purchased the following 5 bonds

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(Interest Rate Sensitivity) An investor purchased the following 5 bonds. Each bond had a par value of $1,000 and 8 % yield to maturity on the purchase day. Immediately after the investor purchased them, interest rates fell and each then had a new YTM of 7% . What is the percentage change in price for each bond after the decline in interest rates? Fill in the following table:

Price @ 8% Price 7% Percentage change
10-yr,10% annual coupon
10-year zero
5-year zero
30-year zero
$100 perpetuity



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