"Managing Corporate Earnings" Please respond to the following:

• Evaluate the environmental factors that contribute to corporate management’s need to manage corporate earnings to align with market expectations, indicating the potential long- term risks to financial performance and sustainability.
• Assess the ethical complexities related to managing corporate earnings, determining whether or not investors and stakeholders are accepting of this behavior. Assuming that you are in a position to make corporate financial decisions, how likely are you to engage in earnings management and why?
• Please provide one citation/reference for your initial posting that is not your textbook. Please do not use Investopedia or Wikipedia.

Shambolic Ltd is a listed company, that specialises in property investment. It was founded by two sisters, Venus and Serena. At different times Venus and Serena have issued shares to bring funds into the company, and together they now own 35 per cent of the issued shares. The other major shareholder is Olympia, who owns 40 per cent, and who is also a director. The rest of the shareholding is held by a range of other shareholders.

There has been a lot of disagreement between Olympia and Venus concerning the direction of the company. Serena always supports her sister. At a board meeting, a decision is made to allot a substantial number of shares to another property investment company, Tutu Pty Ltd. The reason given at the meeting is that Tutu will be able to bring in more funding for Shambolic's investment deals. As a result, Olympia's voting power is reduced to 10 per cent.

Olympia overhears a conversation between Venus and Serena. She finds out that Tutu Pty Ltd is controlled by Venus and Serena's mother, and the real reason the shares were issued was to dilute Olympia's shareholding and voting power, as the sisters were concerned about a takeover attempt.

Advise the directors about the possibility of a legal challenge to their actions.

I am working on these study questions and am having trouble understanding how it all works together. Any help would be greatly appreciated!!

An all equity firm is expected to generate perpetual EBIT of $50 million per year forever. The corporate tax rate is 0% in a fantasy no tax world. The firm has an unlevered (asset or EV) Beta of 1.0. The risk-free rate is 5% and the market risk premium is 6%. The number of outstanding shares is 10 million.

1. Calculate the existing WACC of this all equity or unlevered firm. Calculate the total value of

this all equity firm and the existing share price.

2. The firm decides to replace part of the equity financing with perpetual debt. The firm issues

$100 million of permanent debt at the riskless interest rate of 5%, and repurchases $100 million of equity.

A. Find the new value of the levered firm.
B. Find the new number of shares outstanding, and the new share price.

3. Calculate the new equity Beta, new cost of equity, and new WACC following this capital

structure change. Assume a debt beta of zero.

The Darlington Equipment Company purchased a machine 5 years ago at a cost of $80,000. The machine had an expected life of 10 years at the time of purchase, and it is being depreciated by the straight-line method by $8,000 per year. If the machine is not replaced, it can be sold for $5,000 at the end of its useful life.

A new machine can be purchased for $150,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $50,000 per year. Sales are not expected to change. At the end of its useful life, the machine is estimated to be worthless. MACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life; so the applicable depreciation rates are 33%, 45%, 15%, and 7%.

The old machine can be sold today for $55,000. The firm's tax rate is 40%. The appropriate WACC is 9%.

1. If the new machine is purchased, what is the amount of the initial cash flow at Year 0? Round your answer to the nearest dollar. Negative amount should be indicated by a minus sign.
   $
2. What are the incremental net cash flows that will occur at the end of Years 1 through 5? Round your answers to the nearest dollar.

   Year 1	Year 2	Year 3	Year 4	Year 5
   $	$	$	$	$

3. What is the NPV of this project? Round your answer to the nearest cent. Negative amount should be indicated by a minus sign.
   $
   
   Should Darlington replace the old machine?

The following equation summarizes the trend portion of quarterly sales of condominiums over a long cycle. Sales also exhibit seasonal variations.

F_t = 53 − 4.3t + 3.3t ²
  
where
F_t = Unit sales
t = 0 at the first quarter of last year

Using the information given, prepare a forecast of sales for each quarter of next year (not this year), and the first quarter of the year following that. (Round intermediate calculations and final answers to 2 decimal places.)

You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $170,000, and it would cost another $42,500 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $42,500. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require a $9,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $23,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 40%.

1. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Round your answer to the nearest cent. Negative amount should be indicated by a minus sign.
   $

2. What are the project's annual cash flows in Years 1, 2, and 3? Round your answers to the nearest cent.

   In Year 1 $

   In Year 2 $

   In Year 3 $

3. If the WACC is 14%, should the spectrometer be purchased?

Garden Tools Inc. has bonds, preferred stock, and common stocks outstanding. The number of securities outstanding, the current market price, and the required rate of return for these securities are stated in the table below. The firm’s tax rate is 35%.

Calculate the firm's WACC adjusted for taxes using the market information in the table.

Round the answers to two decimal places in percentage form.  (Write the percentage sign in the "units" box)

Junior just received his annual bonus and is looking to invest it in one of two potential investments. Junior is considering a 10-year 9% coupon bond issued by HomeCo that is currently selling for $1,024.51. His other option is to buy stock in Residential Inc. Residential just issued a $1.2 dividend and expects to grow at 4%. Residential’s current stock price is $42.30. If both investments are fairly priced and Junior intends to hold the investment indefinitely, which offers a higher return?

The stock, 6.84% > 4.31%

The bond, 9.00% > 2.95%

The bond, 8.63% > 6.95%

The stock, 4.31% > 4.00%

Both Bond Sam and Bond Dave have 7 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 2 years to maturity, whereas Bond Dave has 12 years to maturity. (Do not round your intermediate calculations.)

Requirement 1:

(a) If interest rates suddenly rise by 4 percent, what is the percentage change in the price of Bond Sam?

(Click to select)

(b) If interest rates suddenly rise by 4 percent, what is the percentage change in the price of Bond Dave?

(Click to select)

Requirement 2:

(a) If rates were to suddenly fall by 4 percent instead, what would be the percentage change in the price of Bond Sam be then?

(Click to select)

(b) If rates were to suddenly fall by 4 percent instead, what would be the percentage change in the price of Bond Dave be then?

(Click to select)

he following financial statements and additional information are reported. IKIBAN INC. Comparative Balance Sheets June 30, 2017 and 2016 2017 2016 Assets Cash $ 99,100 $ 58,000 Accounts receivable, net 86,000 65,000 Inventory 77,800 107,500 Prepaid expenses 5,800 8,200 Total current assets 268,700 238,700 Equipment 138,000 129,000 Accum. depreciation—Equipment (34,000 ) (16,000 ) Total assets $ 372,700 $ 351,700 Liabilities and Equity Accounts payable $ 39,000 $ 51,000 Wages payable 7,400 17,800 Income taxes payable 4,800 6,600 Total current liabilities 51,200 75,400 Notes payable (long term) 44,000 74,000 Total liabilities 95,200 149,400 Equity Common stock, $5 par value 248,000 174,000 Retained earnings 29,500 28,300 Total liabilities and equity $ 372,700 $ 351,700 IKIBAN INC. Income Statement For Year Ended June 30, 2017 Sales $ 748,000 Cost of goods sold 425,000 Gross profit 323,000 Operating expenses Depreciation expense $ 72,600 Other expenses 81,000 Total operating expenses 153,600 169,400 Other gains (losses) Gain on sale of equipment 3,400 Income before taxes 172,800 Income taxes expense 45,290 Net income $ 127,510 Additional Information A $30,000 note payable is retired at its $30,000 carrying (book) value in exchange for cash. The only changes affecting retained earnings are net income and cash dividends paid. New equipment is acquired for $71,600 cash. Received cash for the sale of equipment that had cost $62,600, yielding a $3,400 gain. Prepaid Expenses and Wages Payable relate to Other Expenses on the income statement. All purchases and sales of inventory are on credit. rev: 06_20_2017_QC_CS-91585, 12_05_2017_QC_CS-111198 Required: (1) Prepare a statement of cash flows for the year ended June 30, 2017, using the indirect method.

1-The FOMC has instructed the FRBNY Trading Desk to purchase $430 million in U.S. Treasury securities. The Federal Reserve has currently set the reserve requirement at 10 percent of transaction deposits. Assume U.S. banks withdraw all excess reserves and give out loans.

a. Assume also that borrowers eventually return all of these funds to their banks in the form of transaction deposits. What is the full effect of this purchase on bank deposits and the money supply?
b. What is the full effect of this purchase on bank deposits and the money supply if borrowers return only 90 percent of these funds to their banks in the form of transaction deposits?

2- The FOMC has instructed the FRBNY Trading Desk to purchase $660 million in U.S. Treasury securities. The Federal Reserve has currently set the reserve requirement at 6 percent of transaction deposits. Assume U.S. banks withdraw all excess reserves and give out loans.

a. Assume also that borrowers eventually return all of these funds to their banks in the form of transaction deposits. What is the full effect of this purchase on bank deposits and the money supply?
b. What is the full effect of this purchase on bank deposits and the money supply if borrowers return only 94 percent of these funds to their banks in the form of transaction deposits?

I. VDSL Company has two mutually exclusive projects. Below is a table representing the initial investment and cash flows for these projects over four (4) years.

Project A Project B Year Cash Flow Cash Flow $ $ 0 -750,000 -750,000 1 250,000 200,000 2 350,000 400,000 3 250,000 100,000 4 200,000 175,000 If the company wishes to recover the investment in 2.5 years, calculate the payback period of each project and determine which project is the best investment.

Find the discounted payback period for the following project. The discount rate is 10%

Round the answer to two decimal places.