1) Suppose a single-price monopolist is selling more than one unit of a good for a price of $19.95. Of the following choices, which is true?

1. The marginal revenue of that unit must be less than $19.95
2. The marginal revenue of that unit must be $19.95
3. The marginal cost of that unit must be $19.95
4. The average cost of that unit must be $19.95.

2) BenFrank LLC is a monopolist that can sell 8,000 units of SKU972 at a price of $47 each. Raising the price to $50 reduces the quantity demanded by 3,000 units. What is the decrease in total revenue that results from this price change? (state your answer as a positive number) ________

3) Tango Company is a price-discriminating monopoly. Its customers in Houston are charged $30/unit, yet it charges customers in New Orleans $25 per unit. Tango Comapny

1. believes that the demand of individuals in New Orleans is relatively inelastic.
2. believes that the demand of individuals in New Orleans is relatively elastic.
3. wants to shift the demand of individuals in New Orleans.
4. cares about the well-being of the individuals in New Orleans.

4) For a monopolist who practices perfect price discrimination

1. there is no way to define marginal revenue.
2. the demand curve is less than the marginal revenue curve.
3. the demand curve is the marginal revenue curve.
4. the demand curve is greater than the marginal revenue curve.
5. none of the above

A bakery runs a Groupon campaign. $3 cost for $8 value 50/50 split with Groupon 70% of coupons redeemed 1,200 coupons sold Average ticket value: $11 Bakery’s gross margin: 45%

A. Calculate the revenue from the campaign

B. Calculate the restaurant expenses associated with the Groupon customers.

C. Assume that the campaign generated 75 new customers. Calculate the breakeven sales revenue for a new customer.

Overall Materiality Calculation- Example 1

Use the guidelines for Willis and Adams for the materiality bases and their respective ranges.  You have been tasked with determining the overall materiality assessment for your audit client, TechToys for the year-ended 2018.  You have begun your planning procedures in July of 2018. The client has provided you with the actual pretax income for the first quarter 2018 ($4 million) and the second quarter 2018 ($10 million).  TechToys expects pretax income to remain stable for the third quarter.  It also expects an increase of 30% from the third to fourth quarter for the holiday season.  This growth is consistent with the prior year pretax income, which has been steadily increase 2-3% each year.   Assets at June 30, 2018 are $10 billion and revenues are forecasted to be $200 million for the year.  Assets and revenues also remain stable year over year.

In addition, the below lists provides some information regarding you client, ABC Company:

The entity is publicly traded and is regulated entity.

A material audit differences was identified in the prior year.

The technology space for tech gadgets, such as the fitness watch, has begun to decline in the past year.

A company like Golf USA that sells golf-related merchandise typically will have inventory items such as golf clothing and golf equipment. As technology advances the design and performance of the next generation of drivers, the older models become less marketable and therefore decline in value. Suppose that in 2018, Ping (a manufacturer of golf clubs) introduces the MegaDriver II, the new and improved version or the MegaDriver. Below are amounts related to Golf USA's inventory at the end of 2018.

Do not copy from chegg.

Record any necessary adjustment to inventory.

During this accounting period, a company has variable costs of €27410, total fixed costs per period of €20820, contribution margin ratio of 67 percent and an income tax rate of 27 percent.

If the desired after tax net income is €9320; then the sales revenue (in Euros) for this period is ________.

CASE:

Pandora is the Internet’s most successful subscription radio service. In May 2014, Pandora had 77 million registered users. Pandora accounts for over 9 percent of total U.S. radio listening hours. The music is delivered to users from a cloud server, and is not stored on user devices.

It’s easy to see why Pandora is so popular. Users are able to hear only the music they like. Each user selects a genre of music based on a favorite musician or vocalist, and a computer algorithm puts together a “personal radio station” that plays the music of the selected artist plus closely related music by different artists. The algorithm uses more than 450 factors to classify songs, such as the tempo and number of vocalists. These classifications, in conjunction with other signals from users, help Pandora’s algorithms select the next song to play.

People love Pandora, but the question is whether this popularity can be translated into profits. How can Pandora compete with other online music subscription services and online stations that have been making music available for free, sometimes without advertising? “Free” illegally downloaded music has also been a significant factor, as has been iTunes, charging 99 cents per song with no ad support. At the time of Pandora’s founding (2005), iTunes was already a roaring success.

Pandora’s first model was to give away 10 hours of free music and then ask subscribers to pay $36 per month for a year once they used up their 10 free hours. Result: 100,000 people listened to their 10 hours for free and then refused to pay for the annual service. Facing financial collapse, in November 2005 Pandora introduced an ad-supported option. In 2006, Pandora added a “Buy” button to each song being played and struck deals with Amazon, iTunes, and other online retail sites. Pandora now gets an affiliate fee for directing listeners to sites where users can buy the music. In 2008, Pandora added an iPhone app to allow users to sign up from their smartphones and listen all day if they wanted. Today, 70 percent of Pandora’s advertising revenue comes from mobile.

In late 2009 the company launched Pandora One, a premium service that offered no advertising, higher quality streaming music, a desktop app, and fewer usage limits. The service costs $4.99 per month. A very small percentage of Pandora listeners have opted to pay for music subscriptions, with the vast majority opting for the free service with ads. In fiscal 2013 Pandora’s total revenue was $427.1 million, of which $375.2 million (88 percent) came from advertising.

Pandora has been touted as a leading example of the “freemium” revenue model, in which a business gives away some services for free and relies on a small percentage of customers to pay for premium versions of the same service. If a market is very large, getting just 1 percent of that market to pay could be very lucrative— under certain circumstances. Although freemium is an efficient way of amassing a large group of potential customers, companies, including Pandora, have found that it is challenging to convert people enjoying the free service into customers willing to pay. A freemium model works best when a business incurs very low marginal cost, approaching zero, for each free user of its services, when a business can be supported by the percentage of customers willing to pay, and when there are other revenues like advertising fees that can make up for shortfalls in subscriber revenues.

In Pandora’s case, it appears that revenues will continue to come overwhelmingly from advertising, and management is not worried. For the past few years, management has considered ads as having much more revenue-generating potential than paid subscriptions and is not pushing the ad-free service. By continually refining its algorithms, Pandora is able to increase user listening hours substantially. The more time people spend with Pandora, the more opportunities there are for Pandora to deliver ads and generate ad revenue. The average Pandora user listens to 19 hours of music per month.

Pandora is now intensively mining the data collected about its users for clues about the kinds of ads most likely to engage them. Pandora collects data about listener preferences from direct feedback such as likes and dislikes (indicated by thumbs up or down on the Pandora site) and “skip this song” requests, as well as data about which device people are using to listen to Pandora music, such as mobile phones or desktop computers. Pandora uses these inputs to select songs people will want to stick around for, and listen to. Pandora has honed its algorithms so they can analyze billions more signals from users generated over billions of listening minutes per month.

As impressive as these numbers are, Pandora (along with other streaming subscription services) is still struggling to show a profit. There are infrastructure costs and royalties to pay for content from the music labels. Pandora’s royalty rates are less flexible than those of its competitor Spotify, which signed individual song royalty agreements with each record label. Pandora could be paying even higher rates when its current royalty contracts expire in 2015. About 61 percent of Pandora’s revenue is currently allocated to paying royalties. Advertising can only be leveraged so far, because users who opt for free ad-supported services generally do not tolerate heavy ad loads.

QUESTION:

For Pandora, what business strategies are being supported by the use of data mining? Explain your answer.

Case

Pandora is the Internet’s most successful subscription radio service. In May 2014, Pandora had 77 million registered users. Pandora accounts for over 9 percent of total U.S. radio listening hours. The music is delivered to users from a cloud server, and is not stored on user devices.

It’s easy to see why Pandora is so popular. Users are able to hear only the music they like. Each user selects a genre of music based on a favorite musician or vocalist, and a computer algorithm puts together a “personal radio station” that plays the music of the selected artist plus closely related music by different artists. The algorithm uses more than 450 factors to classify songs, such as the tempo and number of vocalists. These classifications, in conjunction with other signals from users, help Pandora’s algorithms select the next song to play.

People love Pandora, but the question is whether this popularity can be translated into profits. How can Pandora compete with other online music subscription services and online stations that have been making music available for free, sometimes without advertising? “Free” illegally downloaded music has also been a significant factor, as has been iTunes, charging 99 cents per song with no ad support. At the time of Pandora’s founding (2005), iTunes was already a roaring success.

Pandora’s first model was to give away 10 hours of free music and then ask subscribers to pay $36 per month for a year once they used up their 10 free hours. Result: 100,000 people listened to their 10 hours for free and then refused to pay for the annual service. Facing financial collapse, in November 2005 Pandora introduced an ad-supported option. In 2006, Pandora added a “Buy” button to each song being played and struck deals with Amazon, iTunes, and other online retail sites. Pandora now gets an affiliate fee for directing listeners to sites where users can buy the music. In 2008, Pandora added an iPhone app to allow users to sign up from their smartphones and listen all day if they wanted. Today, 70 percent of Pandora’s advertising revenue comes from mobile.

In late 2009 the company launched Pandora One, a premium service that offered no advertising, higher quality streaming music, a desktop app, and fewer usage limits. The service costs $4.99 per month. A very small percentage of Pandora listeners have opted to pay for music subscriptions, with the vast majority opting for the free service with ads. In fiscal 2013 Pandora’s total revenue was $427.1 million, of which $375.2 million (88 percent) came from advertising.

Pandora has been touted as a leading example of the “freemium” revenue model, in which a business gives away some services for free and relies on a small percentage of customers to pay for premium versions of the same service. If a market is very large, getting just 1 percent of that market to pay could be very lucrative— under certain circumstances. Although freemium is an efficient way of amassing a large group of potential customers, companies, including Pandora, have found that it is challenging to convert people enjoying the free service into customers willing to pay. A freemium model works best when a business incurs very low marginal cost, approaching zero, for each free user of its services, when a business can be supported by the percentage of customers willing to pay, and when there are other revenues like advertising fees that can make up for shortfalls in subscriber revenues.

In Pandora’s case, it appears that revenues will continue to come overwhelmingly from advertising, and management is not worried. For the past few years, management has considered ads as having much more revenue-generating potential than paid subscriptions and is not pushing the ad-free service. By continually refining its algorithms, Pandora is able to increase user listening hours substantially. The more time people spend with Pandora, the more opportunities there are for Pandora to deliver ads and generate ad revenue. The average Pandora user listens to 19 hours of music per month.

Pandora is now intensively mining the data collected about its users for clues about the kinds of ads most likely to engage them. Pandora collects data about listener preferences from direct feedback such as likes and dislikes (indicated by thumbs up or down on the Pandora site) and “skip this song” requests, as well as data about which device people are using to listen to Pandora music, such as mobile phones or desktop computers. Pandora uses these inputs to select songs people will want to stick around for, and listen to. Pandora has honed its algorithms so they can analyze billions more signals from users generated over billions of listening minutes per month.

As impressive as these numbers are, Pandora (along with other streaming subscription services) is still struggling to show a profit. There are infrastructure costs and royalties to pay for content from the music labels. Pandora’s royalty rates are less flexible than those of its competitor Spotify, which signed individual song royalty agreements with each record label. Pandora could be paying even higher rates when its current royalty contracts expire in 2015. About 61 percent of Pandora’s revenue is currently allocated to paying royalties. Advertising can only be leveraged so far, because users who opt for free ad-supported services generally do not tolerate heavy ad loads.

CASE QUESTION:

What type of e-commerce is Pandora? What is Pandora’s ecommerce business model? Explain your answer?

Tag, Inc is considering a project in the paper business. It has 8m bond and 2m common shares, a marginal tax rate of 37.5%, and its debt currently has a rate of return of 14%.

R, a publicly traded firm that operates only in the paper business. its market value of equity is 3,800m and market value of debt is 0. It has an equity beta of 1.053 and a marginal tax rate of 37.5%.The risk-free rate is 4.25%, and the market risk premium is 6.7%.

Calculate R’s asset beta, the project’s equity beta, project cost of capital, and the appropriate WACC to use in evaluating the project.  

Please show the Excel formulas to solve.

AnimalChin! is a well-established company. Because of its market share and a fairly stable revenue stream, 5 years ago they successfully issued 20-year maturity 5% bonds, paying semiannually. Today, these bonds are selling for 93% of their face value. The total face value of these bonds is $5 billion. The company also issued 6% convertible bonds, paying semiannually, trading at 107% of their face value, maturing in 5 years. The total face value of these bonds is $3.5 billion. Finally, they just received a $3 billion term loan from a bank, the bank is currently charging a 4% interest on the loan. AnimalChin is publicly-traded. Today, its common stock trades for $40 per share. There are .2 billion shares outstanding. Its preferred stock is trading at $20 and just paid a dividend of $2. There are .1 billion preferred shares outstanding. The five financial analysts currently covering the company expect AnimalChin to grow at a similar pace as the whole skateboarding sector: about 2%. The last dividend paid on common stock was $3 per share. The company’s most recent estimated beta is 0.76. The risk-free rate is 3% and the expected market risk premium 6%. For the Veloce project the company’s CFO has decided to apply an adjustment factor of 1.8% to the compa-ny’s WACC to account for additional risk.

1. Calculate Animal Chin’s cost of all debt and the after-tax cost of debt.

2. Calculate Animal Chin’s average cost of equity.

3.Calculate Animal Chin’s cost of preferred.

4. Calculate the market value of debt, equity, preferred, and the company’s total market value.

5.Calculate the WACC.

6. Use the appropriate discount rate (subjective approach) and calculate the project NPV, IRR, and payback period (this is based on your CFFAs from Part 1

**These are CFFA's from part 1 of project

7. Elephant Skateboards just approached your company and is willing to pay $250,000,000.00 today to have the right to produce and sell The Veloce as its own. Should Animal Chin! accept the offer? Explain why in light of your capital budgeting findings.

In this quiz, use the following touchdown data for Tom Brady:

2 (a) Find the correlation coefficient, accurate to four significant figures, between the number of touchdowns, t, and the number of passing yards, y.

(b) Find the equation of the regression line, y = n*t + k, giving the line of best fit for the number of passing yards, y, as a function of the number of touchdowns, t. What is the slope, n, of this line, accurate to two decimal places?

(c) Find the equation of the regression line, y = n*t + k, giving the line of best fit for the number of passing yards, y, as a function of the number of touchdowns, t. What is the value of k for this line, accurate to two decimal places?

(d)  Use the regression line you found in 2 (b) and 2 (c) to find the number of touchdowns expected if Brady passes for 4000 yards.Use the values stored in your calculator or spreadsheet, without rounding them, and give an answer with four significant figures.

(e) Use the regression line you found in 2 (b) and 2 (c) to find the number of passing yards expected if Brady throws 45 touchdowns.Use the values stored in your calculator or spreadsheet, without rounding them, and give an answer with two decimal places.