Sanders Co. includes one coupon in each bag of cat food it sells. In return for 4 coupons, customers receive a teddy bear that the company purchases for $1.20 each. Sanders's experience indicates that 60 percent of the coupons will be redeemed. During 2018, 100,000 bags of cat food were sold, 12,000 teddy bears were purchased, and 50,000 coupons were redeemed. During 2019, 120,000 bags of cat food were sold, 16,000 teddy bears were purchased, and 60,000 coupons were redeemed.

1. Calculate the premium liability at the end of 2018. Show your workings.

2. Calculate the actual number of teddy bears given to customers in 2019. Show your workings.

3. Why do companies want to offer premium to customers? Explain the accounting principle and treatment for consideration payable.

4. A clerical staff has tried to calculate the premium expense to be shown in the income statement for 2018. He said that the figure of actual number of coupons redeemed in year 2018 is required in order to calculate the premium expense for 2018. Do you agree with him? Why? Also, he argued that the figure of sales volume of cat food in 2018 is not required to calculate the premium expense for 2018. Do you agree with him? Why? (No need to show any calculation)

5. The clerical staff also said that the sales volume of cat food in 2018 is not relevant for him to calculate the premium liability at 31 Dec 2018. Do you agree with him? Explain the reasons. (No need to show any calculation)

6. If cash with an amount of less than $1.2 is received from customer for each teddy bear given, explain how this would affect the premium expense in 2018? (No need to show any calculation)

7. If cash with an amount of less than $1.2 is received from customer for each teddy bear given, explain how this would affect the premium liability at the end of 2018? (No need to show any calculation)
8. The clerical staff argued that if the sales volume of cat food in 2018 is recorded wrongly, it would not have any effect on the accurateness of the premium liability at the end of 2019, because premium liability at the end of 2019 is related to sales volume of cat food in 2019, but not related to the sales volume of cat food in 2018. Do you agree with him? Explain the reasons. (No need to show any calculation)

An ounce of gold currently costs 5100 shekels in Tel Aviv and $1,450 in Dollars. The shekel inflation rate is 13%, and the dollar inflation rate is 2.5%. You are considering opening a semiconductor plant in Israel. Setting up manufacturing will cost 25,000,000 shekels today and 25,000,000 shekels 2 years from today. You will receive payments of 40,000,000 shekels one, two and three years from today. Your US dollar cost of equity is 11%. Assume that there is no arbitrage in any markets there are no taxes, and that this project is 100% equity financial.

a. What should the exchange rate between dollars and shekels be today?

b. What should the exchange rate one, two and three year from today? Please us exact formula not the approximate formula.

c. That the NPV of this project to US shareholders who demand payment in US dollar?

Start Me Up Inc. manufactures a caffeinated energy drink that sells for $5.00 each. The results for its first year of operations appear in the table below:

Required:

1. Compute the operating income for the first year under full costing.

2. Compute the operating income for the first year under variable costing.

(For all requirements, do not round intermediate calculations.)

Assume that you are a Financial Manager of Starbucks Coffee, Inc., a multi-national corporation. You are in charge of determining the impact of exchange rate changes on the firm. Changes in currency exchange affect both the balance sheet and the income statement. The balance sheet impact occurs when the value of international assets are translated to U.S. dollars. The values of those assets change as the exchange rate changes. The value of costs, revenue, and profit also are impacted on the income statement because of exchange rate risk. Consider that Starbucks has the following investments in coffee bean production and processing:

Table One:

            The expense of all the labor, production, and beans will require the following foreign currency amounts during the current year:

                        Table Two:

            Starbucks Coffee has also invested in store facilities to sell coffee products. The countries and the value of the investments are as follows:

                        Table Three:

            The “Net Profit” from these countries during the current year is as follows:

                        Table Four:

            The current spot exchange rates per one U.S. dollar are as follows:

                                    Table Five:

            As the Financial Manager for Starbucks, your task is to determine the following:

2) Convert the “Net Profit” generated in Canada, Japan, and the United Kingdom shown

                        in Table Four above to U.S. dollars to calculate the total profits realized by Starbucks,

                        Inc. during the current year in U.S. dollars.

a. Starbuck’s “Return on Investment” (ROI) can be calculated using the following formula

Net Profit in U.S. dollars from Question #2 above/Total Investment for Production and Store Facilities in Tables One and Three above

=      ROI

                                  What is Starbuck’s “Return on Investment” for the current year?

ABC Corp is buying XYZ Corp. A share of XYZ currently costs $19 with 200,000 shares outstanding. ABC has a share price of $25, with 200,000 shares outstanding. After the merger, the new firm with be able to reduce its net working capital by $ 750,000 and increase its EBIT by $300,000 per year for the next 30 years. The cost of capital for new firm is 18%. ABC will be pay $5 per share plus stock for XYZ.

a. What is the NPV of the Synergies of this merger?

b. How many shares of merged firm should ABC offer per share of XYZ if they want to offer XYZ 30% of the synergies?

You are the loan department supervisor for a bank. This installment loan is being paid off early, and it is your task to calculate the rebate fraction, the finance charge rebate (in $), and the payoff for the loan (in $). (Round dollars to the nearest cent.)

You are in charge of deciding whether or not to undertake a new project for your company. The marketing staff believes you can sell 95,000, 145,000, 135,000, 115,000, 98,000, and 75,000 units per year over the next six years, respectively. The variable cost per unit is $21.35. Equipment for production will cost $2.95 million and be depreciated on a five year MACRS schedule over the six-year life of the product. You can sell the equipment for $245,000 at the end of the project. Fixed costs are $1.25 million per year and net working capital equal to 20 percent of next year’s sales is required. The tax rate is 21 percent and the required return is 10 percent. What is the minimum price per unit necessary to accept the project?

*Please show excel formulas with answer*

Problem 5-19 Comparing Investment Criteria

Problem 5-15 Profitability Index versus NPV

Facebook has gone public by issuing equity. As an analyst for a bank, you've estimated that the company will have a Beta of 1.2. You know that Facebook just gave a dividend of $4.00 per share. You anticipate high growth of this dividend for the first few years. You predict that dividend will grow by 20% for three years. After that, you anticipate growth to be a more modest 5% per year. The risk-free rate is 2% and the average return of the market is 13%.

1. What is the expected return of Facebook’s stock?

2. What is the expected price TODAY of Facebook’s stock?

3. What is the dividend yield of the stock this year and next year (from t=0 to t=1 AND from t=1 to t=2)?

4. What is the expected price of the stock next year?

What is next year's dividend or D1 if the dividend growth rate in year 1 is 25%, in year 2 is 15%, and in year 3 is 10%. After year 3 the dividend is expected to grow at a constant rate of 6% indefinitely. The required return is 12% per year, while the current stock price is $27.94

QUESTION 29

1. The direct transfer of funds ______.

   		is very efficient
   		increases the cost of obtaining funds
   		is the best method to enhance economic growth

2 points   

QUESTION 30

1. The price of a bond with a par value of $1,000, 5% coupon, 10 years to maturity and a 3% yield to maturity is about ______.

   		$919.89
   		$1000.00
   		$1085.30
   		$1,170.60

Prepare a report for the management of Tesla Motors which critically examines how the adoption of a Balanced Scorecard approach could be used to measure the performance of the organisation