Bank Reconciliation Statement.

The cash account for Corey’s Construction Company at August 31, 2020, indicated a book balance of $19,885. The bank statement received by the company indicated a balance of $39,473.63 as at August 31, 2020. A comparison of the bank statement and the accompanying cancelled cheques and memos with the records revealed the following:

1. A deposit of $6,794.62 was received by the bank on August 31 after the bank statement was prepared.

2. Cheques #251 for $1,200 and #260 for $1,333.25 were not presented to the bank for encashment as at August 31, 2020.
3. The bank erroneously debited a cheque drawn Corey’s Construction as $16,000 instead of $1,600.

4. The company’s accountant recorded a $3,500.00 cheque for payment of accounts payables as $35,000

5. The bank credited a deposit of $200 as $2,000 to Corey’s Construction account.
6. A cheque for $13,500 from a customer Ali Woods was returned for insufficient funds. The bank charged $50 for Wood’s NSF cheque. The company’s policy states that the bank charges associated with NSF cheques are to be recovered from the customer.
7. A note was collected by the bank of $21,000 on August 31 which included interest of $1,500
8. A debit memo from the bank showed service charge amounting to $2,500 as at August 31, 2020.

1. Prepare Corey’s Construction Company adjusted cash book for August 31^st. 2020.

1. Your US Company has just purchased a large quantity of parts from a German company for 2.0 million Euros. Your company will make the payment of 2.0 million Euros in 90 days. The current Spot rate on the EUR is $1.14 ($1.14/1 EUR)  

Your company has assumed that the expected spot rate on the EUR in 90 days will be the    same as the spot price today (The expected change in the spot rate over the next 90 days is 0.0%). However, the standard deviation of the expected change in the spot rate is 8% per year (4.0% per 90 days). Remember that a 5% one-sided tail is approximately 1.65 standard deviations away from the mean. Assume this transaction is the only international transaction your company is engaged in.

1. What is the expected US dollar cost of the 2.0 million EUR paid in 90 days?

Expected US Dollar = $_______ _____________

2. Are you worried that the Euro will strengthen or weaken over the next 90 days if you leave the position “unhedged”

Worried that Euro will = (strengthen / weaken )

3. What is the 95% Value-at-Risk measured in US dollars for this transaction?

                        95% Value at Risk = $ ____________

Ace, Inc., a US company, has been approached by Lakson Group, a company from Pakistan, to explore the possibility of a joint venture in Pakistan to produce widgets. Ace is currently exporting 100,000 widgets a year to Pakistan? importer SS Import-Export Co. at 5,000 Pakistan rupees (PKR) each. The spot exchange rate is 100 PKR per $1. Currently, each widget costs Ace $30 to produce and ship to Pakistan. However, the current import agreement Ace has obtained from the Pakistani government is scheduled to expire. Ace estimates that joint venture sales in Pakistan will be 105,000 widgets the first year of operations, increasing 5% annually thereafter. Production of widgets in Pakistan requires the construction of a plant which, at the prevailing spot exchange rate, has an immediate cost of $6,000,000 to be equally shared by the two firms. The plant could be depreciated on a straight-line basis over 8 years. In addition, it is estimated that at the prevailing spot exchange rate each partner must contribute $500,000 of net working capital right away to launch the joint venture. The total cost of production in Pakistan is currently estimated to be 2300 PKR per widget and is expected to remain unchanged over the following five years. Part of this cost is for components produced by Ace in the US, at a cost of $5, and then supplied to the joint venture plant in Pakistan at $7 per widget. SS Import-Export has agreed to buy the widgets produced in Pakistan over the next five years at the same price it currently pays to import them from the US. The applicable tax rate in Pakistan, and in the US, is 35%. After five years of operations, Ace will pull out of the joint venture and in return it will recover in full its investment in net working capital and it will also sell its share of the plant to Lakson for an amount equal to 110% of its share of the plant’s book value at that time. To promote investment by US firms in Pakistan, the US government has agreed that the sale of Ace’s share of the plant to Lakson five years from now has no tax implications. In addition, the Pakistani government has agreed that at the end of each of the five years of operations, Ace may remit its share of the joint venture’s net cash flows to the US at the prevailing exchange rate. You are in charge of evaluating the joint venture for Ace. You believe that projects similar to that in the joint venture would require a 12% rate of return if undertaken in the US. Further, your assistant has provided the following input about the projected inflation rates over the next five years:

Year 1 2 3 4 5

US 1% 1% 2% 2% 2%

Pakistan 3% 4% 6% 6% 6%

1. What would be your recommendation to Ace? Make sure you provide calculations using the “foreign country approach” and the “home country approach” and explain to the management of the two partner firms what the dollar denominated NPV of the joint venture to Ace is under each of these two approaches. (Note: To enable comparisons across students, please explain in detail your calculations for t = 2, as well as for any special, one time, items you encounter at t = 0 and t = 5 in your analysis.)

2. Assume that Ace decides to enter in the joint venture. However, Ace has only $1,500,000 in cash available for investment in the project. Hence, Ace wants to get a two year dollardenominated loan now from its US bank at 10% annual interest rate against its share of the joint venture’s first and second year net cash flows. How much would Ace be able to borrow if it enters in to a forward contract at 102.5 PKR per $1? Would the total of the loan and the cash currently available enable Ace to proceed with the project?

3. Assume Ace enters in the joint venture and Bank of Khyber, a Pakistani bank, offers to remit all future net cash flows to Ace at the fixed exchange rate of 110 PKR per $1 for a $20,000 fee payable immediately. Would you recommend that Ace accepts this offer or not?

4. What are the additional risks Ace faces by stepping into an international joint venture with Lakson Group as opposed to having a similar domestic joint venture with a US firm? Have you accounted for any of these risks in your evaluation of the joint venture of Ace with Lakson Group? If yes, how?

As of December 31, 2020 Big USA Company owns a foreign subsidiary (Taco) based in Mexico. Big is in the process of preparing consolidated financial statements and must translate the trial balance of Taco to U.S. Dollars. Selected financial information of Taco in pesos is presented below.

                                                                                       Pesos

Inventory 12/31/20                                                       300,000

Purchases in 2020                                                         2,600,000

Inventory 12/31/19                                                       420,000

Equipment purchased as follows

            1/1/18                                                             250,000                        

            Purchases during 2018                                      150,000

            Purchases during 2019                                     350,000

            Purchases during 2020                                     620,000

All equipment is depreciated over 8 years on a straight-line basis with a full year taken in year of acquisition.

The inventory turnover rate is 90 days.

Relevant Exchange Rates                                Pesos per dollar

1/1/18                                                                          8.0

Average Rates 2018                                                       8.5

Average Rate   2019                                                      9.3

Average Rate 2020                                                        9.8

Rate 4^th quarter 2019                                                     8.9

Rate 4^th quarter 2020                                                     9.6

Current rate 12/31/18                                                   8.9

Current Rate 12/31/19                                                  9.2

Current Rate 12/31/20                                                 9.9

REQUIRED (In US Dollars)

1. Assuming the U.S. Dollar is functional currency determine following

            Cost Goods Sold for 2020

            Balance in Equipment 12/31/20

            Balance in Accumulated Depreciation 12/31/20

            Depreciation Expense – 2020

2. Assuming the Peso is functional currency determine following

            Cost Goods Sold for 2020

            Balance in Equipment 12/31/20

            Balance in Accumulated Depreciation 12/31/20

            Depreciation Expense – 2020

Problem 4

As of December 31, 2020 Big USA Company owns a foreign subsidiary (Taco) based in Mexico. Big is in the process of preparing consolidated financial statements and must translate the trial balance of Taco to U.S. Dollars. Selected financial information of Taco in pesos is presented below.

                                                                                       Pesos

Inventory 12/31/20                                                  300,000

Purchases in 2020                                                    2,600,000

Inventory 12/31/19                                                    420,000

Equipment purchased as follows

            1/1/18                                                                        250,000                                   

            Purchases during 2018                                            150,000

            Purchases during 2019                                            350,000

            Purchases during 2020                                           620,000

All equipment is depreciated over 8 years on a straight-line basis with a full year taken in year of acquisition.

The inventory turnover rate is 90 days.

Relevant Exchange Rates                           Pesos per dollar

1/1/18                                                                                    8.0

Average Rates 2018                                                  8.5

Average Rate            2019                                                    9.3

Average Rate 2020                                                   9.8

Rate 4^thquarter 2019                                                            8.9

Rate 4^thquarter 2020                                                           9.6

Current rate 12/31/18                                                         8.9

Current Rate 12/31/19                                                        9.2

Current Rate 12/31/20                                                        9.9

REQUIRED (In US Dollars)

1. Assuming the U.S. Dollar is functional currency determine following

            Cost Goods Sold for 2020

            Balance in Equipment 12/31/20

            Balance in Accumulated Depreciation 12/31/20

            Depreciation Expense – 2020

2. Assuming the Peso is functional currency determine following

            Cost Goods Sold for 2020

            Balance in Equipment 12/31/20

            Balance in Accumulated Depreciation 12/31/20

            Depreciation Expense – 2020

Instructions You are the CFO of an up-and-coming athletic company, which desires to someday become the #1 athletic company in the world. Strategically, the company uses Nike and Under Armour as their key competitor benchmarks. Your CEO is a big believer in learning from the competition and is requesting two things from you regarding Nike and Under Armour’s most recent annual reports: An Executive Summary and a brief Video Presentation of your findings.

NOTE: In order to complete this assignment, you will need to obtain each company’s MOST RECENT(2017) annual report (Nike and Under Armour). Create an executive summary you would feel comfortable turning in to your CEO or to Jack that is no more than 2 pages, single-spaced using 12-point Times New Roman font. You may also include an appendix with additional references, graphs, charts, and tables for additional support if needed.

1. Competitor Strategies • Identify and explain one key strategy from each company that the company explicitly discussed in the annual report.

2. Net Income Margins • What are the after-tax net income margins (aka, net profit margin) for both companies? • How do they compare? • Who achieves the higher net income margin? Why?

You (US company) imported Earth Moving Equipment (EME) from Australia. You imported EME at US$ 300 (with Cash) on Dec 1, 2018. On Dec 15, 2018, you sold EME to Australia at A$400 (Australian $) in AR. The exchange rate on Dec 15, 2018 was 2 A$/US$. The exchange rate on Dec 31, 2018 was 4 A$/US$. On Feb 1, 2019, your customer paid you in full. The exchange rate on Feb 1 was 1 A$/US$. What were NI in 2018 and 2019, respectively? 100, 200 -100, 300 -200, 200 100, 100

Question #5.

After studying Chapter 26, we understand that futures and forwards can be used to reduce risk. What are the differences between futures and forwards?

A Canadian firm will have to pay US $1 million six months from now for the goods purchased from a US company. In light of the COVID-19 pandemic, the company is concerned about potential increases in the value of the US dollar in the future. How could this firm hedge against this risk with forwards?

Forward contract quotations (CAD/USD)

Organizational form: List some common forms of business organization, and discuss how access to capital differs across these forms of organization. If you had your own company, what form of business would you have and how would you access capital? Starting a business: What are some of the things that the founder of a company must do to launch a new business? Provide examples on what you would do and what type of business you would have.

On December 15, 2018, a US company imported 400,000 barrels of oil from a country in the Europe. The US company agreed to pay 40,000,000 euros on February 15, 2019. To reduce the risk of loss due to exchange rates, the company entered into a forward contract to buy 40,000,000 euros on February 15 at the forward rate of $.0269. Direct exchange rates on various dates were:

                                         Spot Rate          Forward Rate 2/15 Delivery

December 15, 2018        $.0239 $.0269

December 31, 2018 .0224             .0254

February 15, 2019                                   .0291

The US company is a calendar-year company.
(show calculations)
Compute the following:

1. The dollars to be paid on February 15, 2019, to acquire the 40,000,000 euros from the exchange dealer.

2. The dollars that would have been paid to settle the account payable had the US company not hedged the purchased contract with the forward contract.

3. The discount or premium on the forward contract.

4. The transaction gain or loss on the exposed liability related to the oil purchase in 2018 and 2019. 5. The transaction gain or loss on the forward contract in 2018 and 2019.