Assess the current economic situation and create a post that answers these questions:

Is the current administration more concerned with reducing unemployment or inflation?

Does the Fed share the opinion of the administration?

If not, is the current administration publicly criticizing the Fed?

Is the Fed publicly criticizing the administration?

S&S Air Goes Public Mark Sexton and Todd Story have been discussing the future of S&S Air. The company has been experiencing fast growth, and the two see only clear skies in the company’s future. However, the fast growth can no longer be funded by internal sources, so Mark and Todd have decided the time is right to take the company public. To this end, they have entered into discussions with the investment bank of Crowe & Mallard. The company has a working relationship with Renata Harper, the underwriter who assisted with the company’s previous bond offering. Crowe & Mallard have assisted numerous small companies in the IPO process, so Mark and Todd feel confident with this choice. Renata begins by telling Mark and Todd about the process. Although Crowe & Mallard charged an underwriter fee of 4 percent on the bond offering, the underwriter fee is 7 percent on all initial stock offerings of the size of S&S Air’s offering. Renata tells Mark and Todd that the company can expect to pay about $1,800,000 in legal fees and expenses, $12,000 in SEC registration fees, and $15,000 in other filing fees. Additionally, to be listed on the NASDAQ, the company must pay $100,000. There are also transfer agent fees of $6,500 and engraving expenses of $520,000. The company should also expect to pay $110,000 for other expenses associated with the IPO. Finally, Renata tells Mark and Todd that to file with the SEC, the company must provide three years’ audited financial statements. She is unsure about the costs of the audit. Mark tells Renata that the company provides audited financial statements as part of the bond covenant, and the company pays $300,000 per year for the outside auditor.

This is the last question on the case study below!!!

d. 5 years after IPO, S&S Air is planning to raise fresh equity capital by selling a large new issue of common stock. S&S Air is currently a publicly traded corporation, and it is trying to choose between an underwritten cash offer and a rights offering (not underwritten) to current shareholders. S&S Air management is interested in minimizing the selling costs and has asked you for advice on the choice of issue methods. What is your recommendation and why?

1. Use the following information provided and the answers to the questions below to predict what the weighted average cost of capital might be in the future. Then, use the WACC to make an informed decision about whether or not the company should invest in a new project. Publicly traded companies are required to produce annual accounting reports (10-K) for the SEC detailing the financial operations of the past year. Suppose that you look up a company and find that they report $6,427 million worth of long-term debt and $882 million worth of shareholders equity. Then you look at yahoo.finance.com and find that the stock is currently trading for $62.50 per share and that there are 200 million shares outstanding. As the result of the most recent tax plan, the company will pay a fixed 21% in taxes. There is no preferred stock.
a. What is the market value of equity?

62.50 x 200M = 12500

b. Use the market value of equity to find the value of the firm. What is the weight of debt and equity?

V= D+E+P= 18927
W_E= E/V= 12500/18927=.66

WD = 6427/18927= .34

c. If the most recent bond issued is currently trading for $1120, has a 6.625% annual coupon, and has 8 years left until maturity what is the company’s current cost of debt?
d. If the most recent annual dividend was $4 and the dividend is expected to grow at a constant rate of 5.5% going forward, what is the company’s current cost of equity?
e. Assume that past information about the company (cost of debt, cost of equity, etc) is a good indicator of future information. Based on the above information what will to company’s WACC be for future projects?
f. Now consider the following project. At the end of the first year of the project they could earn net operating cash flow of $1 million, $2 million the following year and, $3 million in the last year. If the project requires an initial investment (upfront cost) of $5 million, what is the project’s payback, NPV, and IRR? Based on this information, would you advise them to accept the project? Why?
g. The company is considering a different project that could earn net operating cash flows of $500,000 per year for the next 10 years. The project costs $4 million. What is the project’s payback, NPV, and IRR? Would you advise them to accept the project? Why?

In early 2001, Ride Along Corporation (Ride Along or the “Company”), a domestic company that does not meet the definition of a public business entity, began manufacturing and selling bicycles to retail stores nationally. Ride Along’s fiscal year ends on December 31, and it has been experiencing growth over the past decade. Ride Along is required to prepare and issue annual consolidated financial statements to its shareholders and the local bank. These financial statements are to be prepared in accordance with U.S. GAAP. Ride Along is 75 percent owned by a private equity firm and 25 percent owned by its founder. The founder and private equity firm plan to either take Ride Along public in an initial public offering (IPO) or sell it to an existing public company in five years. Ride Along tests goodwill for impairment annually on November 30 and has determined that each of its goodwill reporting units is a legal entity. On February 1, 2012, Ride Along acquired 100 percent ownership of a bicycle tire manufacturer, Mini Tires Company (Mini). The purposes of the acquisition were to reduce the cost associated with buying bicycle tires from third-party suppliers and for Ride Along to expand its operations by selling tires directly to retail stores. Mini met the definition of a business1 but did not meet the definition of a public business entity (PBE). The founder of Mini will work as an employee of Ride Along and has signed a two-year noncompete agreement. Ride Along paid cash of $20 million (purchase price), which resulted in goodwill of $6 million and an intangible asset (a customer list) of $2 million. During 2013, Ride Along continued to gain market share in the bicycle industry and determined it wanted to own retail stores. On June 1, 2013, Ride Along acquired 100 percent ownership of 10 independently owned retail stores and recorded $10 million of goodwill as part of the acquisitions. In January 2014, the FASB issued ASU 2014-02, Intangibles — Goodwill and Other (Topic 350): Accounting for Goodwill — a consensus of the Private Company Council. During 2014, the founder of Mini resigned from Ride Along and started a new business after his noncompete agreement expired. With his departure, 45 percent of the customers on Mini’s original customer list, which was classified as an intangible asset on Ride Along’s statement of financial condition, provided notice that they would no longer do business with Ride Along. This migration resulted in an impairment of the customer list intangible. These customers represent 35 percent of total future revenue for the Tire reporting unit and the loss of these customers reduced the fair value of Mini by 35 percent. No other management changes are expected. Even with the loss of Mini’s customers, Ride Along performed well because of the strength of the retail stores and strong bicycle sales leading to results that exceeded expectations. Therefore, Ride Along increased its revenue and operating income in its five-year forecast; cash flows continue to be positive.

Furthermore, general economic conditions are stable for all reporting units, including debt and equity markets. Ride Along is a private company that does not actively trade its shares; however, because of stable economic conditions and the Company’s increasing revenue and operating income, had Ride Along traded its shares, the value of these shares would have steadily increased. Labor costs and material for each reporting unit have increased in line with inflation and are expected to do so for the foreseeable future. As of December 31, 2014, before considering the departure of Mini’s founder, the fair value of Ride Along was $210 million (fair value by reporting unit is as follows: Bicycle, Tire, and Retail stores were 55 percent, 10 percent, and 35 percent, respectively) and the carrying value, including goodwill, was $145 million (carrying value by reporting unit is as follows: Bicycle, Tire, and Retail stores were $65 million, $20 million, and $60 million, respectively). Required 1. ASU 2014-02 is effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. What should Ride Along consider before deciding whether to adopt the private-company alternative in ASU 2014-02? 2. Assuming Ride Along adopts the goodwill alternative in ASU 2014-02, may Ride Along subsequently change its accounting for goodwill and revert to PBE GAAP? If so, how would Ride Along account for this change and what disclosures must it include in the consolidated financial statements? For the questions below, assume Ride Along early adopted ASU 2014-02 in 2014. 3. For the year ended December 31, 2014, describe (in detail) the analysis that Ride Along would perform to support whether its goodwill is recoverable or impaired as well as the accounting conclusion reached assuming it elected to test goodwill at the entity level. If the Company concludes that its goodwill is impaired, what would it record as the amount of the goodwill impairment? In addition, provide a separate analysis and related accounting conclusion (including the amount of the goodwill impairment charge if goodwill is impaired) assuming Ride Along elected to test goodwill at the reporting unit level. 4. Assume Ride Along (or one of its reporting units) has zero or negative equity. How would Ride Along perform its goodwill impairment assessment?

Case 18-5 Ride Along

In early 2001, Ride Along Corporation (Ride Along or the “Company”), a domestic company that does not meet the definition of a public business entity, began manufacturing and selling bicycles to retail stores nationally. Ride Along’s fiscal year ends on December 31, and it has been experiencing growth over the past decade. Ride Along is required to prepare and issue annual consolidated financial statements to its shareholders and the local bank. These financial statements are to be prepared in accordance with U.S. GAAP. Ride Along is 75 percent owned by a private equity firm and 25 percent owned by its founder. The founder and private equity firm plan to either take Ride Along public in an initial public offering (IPO) or sell it to an existing public company in five years. Ride Along tests goodwill for impairment annually on November 30 and has determined that each of its goodwill reporting units is a legal entity.

On February 1, 2012, Ride Along acquired 100 percent ownership of a bicycle tire manufacturer, Mini Tires Company (Mini). The purposes of the acquisition were to reduce the cost associated with buying bicycle tires from third-party suppliers and for Ride Along to expand its operations by selling tires directly to retail stores. Mini met the definition of a business1 but did not meet the definition of a public business entity (PBE). The founder of Mini will work as an employee of Ride Along and has signed a two-year noncompete agreement. Ride Along paid cash of $20 million (purchase price), which resulted in goodwill of $6 million and an intangible asset (a customer list) of $2 million.

During 2013, Ride Along continued to gain market share in the bicycle industry and determined it wanted to own retail stores. On June 1, 2013, Ride Along acquired 100 percent ownership of 10 independently owned retail stores and recorded $10 million of goodwill as part of the acquisitions.

In January 2014, the FASB issued ASU 2014-02, Intangibles — Goodwill and Other (Topic 350): Accounting for Goodwill — a consensus of the Private Company Council.

During 2014, the founder of Mini resigned from Ride Along and started a new business after his noncompete agreement expired. With his departure, 45 percent of the customers on Mini’s original customer list, which was classified as an intangible asset on Ride Along’s statement of financial condition, provided notice that they would no longer do business with Ride Along. This migration resulted in an impairment of the customer list intangible. These customers represent 35 percent of total future revenue for the Tire reporting unit and the loss of these customers reduced the fair value of Mini by 35 percent. No other management changes are expected. Even with the loss of Mini’s customers, Ride Along performed well because of the strength of the retail stores and strong bicycle sales leading to results that exceeded expectations. Therefore, Ride Along increased its revenue and operating income in its five-year forecast; cash flows continue to be positive.

Furthermore, general economic conditions are stable for all reporting units, including debt and equity markets. Ride Along is a private company that does not actively trade its shares; however, because of stable economic conditions and the Company’s increasing revenue and operating income, had Ride Along traded its shares, the value of these shares would have steadily increased. Labor costs and material for each reporting unit have increased in line with inflation and are expected to do so for the foreseeable future.

As of December 31, 2014, before considering the departure of Mini’s founder, the fair value of Ride Along was $210 million (fair value by reporting unit is as follows: Bicycle, Tire, and Retail stores were 55 percent, 10 percent, and 35 percent, respectively) and the carrying value, including goodwill, was $145 million (carrying value by reporting unit is as follows: Bicycle, Tire, and Retail stores were $65 million, $20 million, and $60 million, respectively).

Required

1. ASU 2014-02 is effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. What should Ride Along consider before deciding whether to adopt the private-company alternative in ASU 2014-02?

2. Assuming Ride Along adopts the goodwill alternative in ASU 2014-02, may Ride Along subsequently change its accounting for goodwill and revert to PBE GAAP? If so, how would Ride Along account for this change and what disclosures must it include in the consolidated financial statements?

For the questions below, assume Ride Along early adopted ASU 2014-02 in 2014.

3. For the year ended December 31, 2014, describe (in detail) the analysis that Ride Along would perform to support whether its goodwill is recoverable or impaired as well as the accounting conclusion reached assuming it elected to test goodwill at the entity level. If the Company concludes that its goodwill is impaired, what would it record as the amount of the goodwill impairment? In addition, provide a separate analysis and related accounting conclusion (including the amount of the goodwill impairment charge if goodwill is impaired) assuming Ride Along elected to test goodwill at the reporting unit level.

4. Assume Ride Along (or one of its reporting units) has zero or negative equity. How would Ride Along perform its goodwill impairment assessment?

Question 1 :

Recent data from North America’s largest cities provide insight into the amount of time residents spend waiting in traffic during the course of a single year. Following is the number of hours residents in 31 cities waited in traffic per year.

47      54      42      74      38      33      20      45      27      71

30      35      23      43      35      21      20      45      57      49

25      35      27      28      19      44      37      50      37      64      38

Use this data set to compute the following descriptive statistics:

a. Mean   ________       b. Median _________          c. Mode __________     

d. Range ________       e. Variance ________        f. Standard Deviation ________      

g. Which one of these descriptive statistics is not measured in the same units as the data?

___________________________________________

h. Compute the Coefficient of Variation ___________

i. State the first quartile and explain its meaning. _______________________________

j. State the third quartile and explain its meaning. _______________________________

k. List the Five-number summary: ______________________________________________

l. Are the data skewed? If so, how? ____________________________________________

m. Does the data set contain any outliers? Explain. _________________________________

A farmer's marketing cooperative recorded the volume of wheat harvested by its members from 1991-2004. The cooperative is interested in detecting the long-term trend of the amount of wheat harvested. The data collected is shown in the table.

                                     Wheat Harvested by Coop. Member

            Year      Time          (y, in thousands of bushels)    

            1991         1                               75

            1992         2                               78

            1993         3                               82

            1994         4                               82

            1995         5                               84

            1996         6                               85

            1997         7                               87

            1998         8                               91

            1999         9                               92

            2000        10                              92

            2001        11                              93

            2002        12                              96

            2003        13                            101

            2004        14                            102                       

Find the least squares prediction equation for the model. Use excel to conduct data analysis. Provide detailed interpretation of the results.

1. a) What is a best cost provider strategy? Define. Explain how it is different from a cost leadership strategy (2 points).

b) Illustrate both strategies using a publicly-listed company for each strategy (i.e., 1 company for each strategy) within the same industry. Clearly identify the industry and the 2 companies you are discussing and explain how the companies are executing a best cost provider strategy and a cost leadership strategy? (2 points)

Problem 3

Jimmy and Mary Sue, ages 28 and 27, respectively, are married and have a net worth of $100,000. They both work, Jimmy has a 2010 Chevy truck, and Mary Sue has a 2012 Toyota Corolla. They also own a 1966 Indian motorcycle. They rent an apartment and have the following automobile and renter’s insurance policies:

Renters Insurance: • HO-4 renter’s policy without endorsements • Content Coverage: $25,000; Liability: $100,000

Automobile Insurance:

a. What risk exposures are not covered by the HO-4 policy?

b. Comment on the efficiency and effectiveness of the PAP.

c. Is the motorcycle covered under the PAP?

d. Do they have adequate liability coverage? If not, what would you suggest?

3. Carla (200 lbs) is a 27 year old female that decides to start a fitness program. She decides to walk on a treadmill at an average pace of 3.3 mph and an incline of 10%. Use the ACSM metabolic equation for walking.

1. Calculate the GROSS oxygen cost (ml/kg/min) (2 points)

2. How would you classify her CRF at this stage? Is this her VO2max? Why or why not? (2 points)

4. Greg Lemond-a world level professional cyclist- cycles on a Monark ergometer at a pedal cadence of 80 RPM and a resistance setting of 5 kg. He weighs 70 kg.

1. What is his power output/work rate (kpm/min)? (1 point)

2. Using the ACSM metabolic equation, calculate Lemond's predicted GROSS oxygen cost (ml/kg/min) for this work rate (2 points).

3. Convert this oxygen cost to METs (1 point)

5.) What is the predicted relative VO2 for a 225 lbs man cycling at a resistance of 98 watts (2 points