Scenario: Kim Weathers, CEO of Southwest Idaho Bank and Trust, has decided to retain the bank’s corporate jet at a time most of the bank’s competitors have sold theirs. The bank has built a reputation for being an expert in taking care of the needs of a diverse, specialized segment of customers such as cattle ranchers in Montana and western Texas as well as almond growers in California. Ms. Weathers has determined that the bank’s executives, including her, need to be able to travel to meet with her clients on short notice, and the only way to be able to do this is to retain the corporate jet.

Stock analysts, wary of the bank’s decision to retain the jet, estimated that the bank generated an additional $26,000,000 in revenue in 2019 that the bank otherwise would not have made if it hadn’t kept the jet. External accountants were able to compute the all-in cost of the jet to the company in 2019 as being $20,000,000. There is no evidence the jet was used on non-official bank business.

Is this an Agency problem? (yes or no)

Why is this or is this not an agency problem? (1-2 sentences)

Is there an agency cost involved? (yes or no)

If there is an agency cost involved, describe it, and indicate whether it is a direct or indirect cost. (1-2 sentences)

If it is an agency problem, what could be done to alleviate or prevent it? (1-2 sentences)

Tiger Towers, Inc. is considering an expansion of their existing business, student apartments. The new project will be built on some vacant land that the firm has just contracted to buy. The land cost $1,000,000 and the payment is due today. Construction of a 20-unit office building will cost $3 million; this expense will be depreciated straight-line over 30 years to zero salvage value; the pretax value of the land and building in year 30 will be $18,000,000. The $3,000,000 construction cost is to be paid today. The project will not change the risk level of the firm. The firm will lease 20 office suites at $20,000 per suite per year; payment is due at the start of the year; occupancy will begin in one year. Variable cost is $3,500 per suite. Fixed costs, excluding depreciation, are $75,000 per year. The project will require a $10,000 investment in net working capital. = 10.0% = 11.20% = 15.0% tax rate = 34% = 3 = 24.9% = 2% Assume that the firm will partially finance the project with a $3,000,000 interest-only 30-year loan at 10.0 percent APR with annual payments. What is the levered after-tax incremental cash flow for year 1? What is the levered after-tax incremental cash flow for year 30?

The owner of Brooklyn Restaurant is disappointed because the restaurant has been averaging 7,500 pizza sales per​ month, but the restaurant and wait staff can make and serve 10,000 pizzas per month. The variable cost​ (for example,​ ingredients) of each pizza is$1.55.Monthly fixed costs​ (for example,​ depreciation, property​ taxes, business​ license, and​ manager's salary) are $12,000 per month. The owner wants cost information about different volumes so that some operating decisions can be made.

Read the requirements

Requirement 1. Use the chart below to provide the owner with the cost information. Then use the completed chart to help you answer the remaining questions. ​(Enter total variable costs to the nearest dollar. Enter costs per​ pizza, price per​ pizza, and profit per pizza to the nearest​ cent.)

2.

Requirement 2. From a cost​ standpoint, why do companies such as

Brooklyn

Restaurant want to operate near or at full​ capacity?

Companies want to run at full capacity to better utilize the resources they spend on ▼(average, fixed ,variable costs.) The more units they​ produce, the▼( higher, lower )the▼( average fixed ,average variable, fixed, variable) cost per unit.

Requirement 3. The owner has been considering ways to increase the sales volume. The owner thinks that 10,000 pizzas could be sold per month by cutting the selling price per pizza from $6.25 a pizza to $5.75.

How much extra profit​ (above the current​ level) would be generated if the selling price were to be​ decreased? (Hint: Find the​ restaurant's current monthly profit and compare it to the​ restaurant's projected monthly profit at the new sales price and​ volume.)

Identify the profit formula and compute the monthly profit at the current and the new volume.

*** PLEASE ANSWER ALL QUESTIONS IN PARAGRAPH FORMAT.

The following case study provides information for a hotel chain. They have recently conducted a customer satisfaction survey. Given these research results and the other information in the case, what advice would you give them? This is a good exercise in utilizing the results of market research.

ACTIVITY/TASK

The Quick-Stop Hotel Chain

Quick-Stop Hotels is a small hotel chain located along on the north coast of New South Wales. This chain consists of five different hotel complexes located several hours drive apart along the main coastal highway between Sydney and Brisbane.

Their prime target market is the family segment. This is because families often choose to drive from Sydney to Brisbane (or Brisbane to Sydney) and back again for their holidays. As this trip is around a 12-hour drive, many travelers choose to stop overnight in order break up their journey. Therefore, Quick-Stop has deliberately chosen popular stopover towns for their hotels.

In line with this location strategy, they promote themselves with the slogan, “the “perfect place for a break”.

Their individual hotels vary a little in quality, but all have either a 3 or a 4 star rating. This means that they are either medium (3 star) or good (4 star) quality in terms of facilities and general standard of accommodation. On average, they each have around 80 rooms and a fairly broad range of facilities (that is, a heated swimming pool, room service, restaurant and bar, a kid’s club during school holidays, a small gym, and some have tennis courts and a couple of stores).

In terms of promotion, they are heavy outdoor (billboard) advertisers on the coastal highway. They also advertise in various holiday and travel directories, and on the government tourism website.

As you can see from the table below, they vary pricing throughout the year. Pricing is generally used as a tool to increase demand in the low season and to increase revenue in the high season. This is necessary as they have highly seasonal demand, being frequently being booked out over the Christmas holiday period, and with very high demand in other school holiday periods.

The table also shows the results of a customer satisfaction survey for Quick-Stop Hotels. On average, 80% of customers indicated that they were satisfied with their stay and 10% were delighted with their stay. However, 10% indicated they were dissatisfied. These figures vary by season, whether the customer was a first-time customer, and by the quality of the individual hotel. Additionally, the table includes information on average room rates (per night) and occupancy levels. (Note: The occupancy level is the percentage of rooms occupied per night.)

QUESTIONS

1. Review the customer satisfaction information. Does it make sense? Why/why not?
2. Given these research results and the other information in the case, what advice would you give this firm.
3. Which of the above metrics did you find helpful? Which did you ignore?
4. What other information would have been helpful?

Adhesion Inc. is currently evaluating an expansion plan for its operations using an eight-year planning horizon. If the plan is accepted, then a new plant will be built at a cost of $2,500,000 on a vacant lot owned by Adhesion. The land originally cost Adhesion $400,000, although its current market value is $750,000. The expansion plan also requires the purchase of a new machine at a cost of $800,000. This new machine has an annual production capacity of 160,000 units. Installation of the machine will cost an additional $50,000. Finally, an investment of $100,000 in working capital will be required for the operation of the new plant.

Based on its current business, management believes that there is market demand for an additional 200,000 units of its product annually at the current price of $15 per unit. Direct costs of production are estimated to be $8 per unit. Management also intends to allocate $250,000 of corporate (head office) overhead to the new plant.
At the end of the eight-year planning horizon, salvage on the building is estimated to be 25% of its original cost, the salvage value of the machine is estimated at $85,000 and the anticipated market value for the land is $900,000. If Adhesion’s marginal tax rate is 32%, its cost of capital is 14% and the CCA rates on the building and the machine are 7.5% and 15%, respectively, then should Adhesion implement the expansion plan? How many minimum units must Adhesion produce and sell in order for the plan to be worthwhile?

Answer in Excel would be prefered with calculations please.

Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost.

Last year, the company sold 62,000 of these balls, with the following results:

Required:

1. Compute (a) last year's CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last year’s sales level.

2. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $3.00 per ball. If this change takes place and the selling price per ball remains constant at $25.00, what will be next year's CM ratio and the break-even point in balls?

3. Refer to the data in (2) above. If the expected change in variable expenses takes place, how many balls will have to be sold next year to earn the same net operating income, $194,000, as last year?

4. Refer again to the data in (2) above. The president feels that the company must raise the selling price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year (as computed in requirement 1a), what selling price per ball must it charge next year to cover the increased labor costs?

5. Refer to the original data. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per ball by 40.00%, but it would cause fixed expenses per year to double. If the new plant is built, what would be the company’s new CM ratio and new break-even point in balls?

6. Refer to the data in (5) above.

a. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $194,000, as last year?

b. Assume the new plant is built and that next year the company manufactures and sells 62,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage.\

Refer to the original data. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per ball by 40.00%, but it would cause fixed expenses per year to double. If the new plant is built, what would be the company’s new CM ratio and new break-even point in balls? (Round "CM Ratio" to 2 decimal places and "Unit sales to break even" to the nearest whole unit.)

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Assume the new plant is built and that next year the company manufactures and sells 62,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage. (Round "Degree of operating leverage" to 2 decimal places.)

• R

The Great Depression was ended in the United States by:

1)the government running budget surpluses throughout the 1930s.
2)the government increasing the money supply throughout the 1930s.
3)central planning of the economy by the government.
4)the huge amounts of government spending required to fight WWII during the early 1940s.

The main difference between the classical model of the price level and the modern understanding of the relationship between the money supply, the price level, and real GDP is that according to classical economists, _____, while today's economists _____.

1)money is neutral in the long run; do not consider money to be neutral in the long run.
2)the adjustment of prices takes some time; expect changes in the money supply to be instantaneous.
3)did not consider money to be neutral in the long run; consider money neutral in the long run.
4)the adjustment of prices to changes in the money supply is instantaneous; argue that this adjustment process takes some time.

The main idea behind monetarism is that:

1)the aggregate output will be even greater than potential output if the money supply grows at a constant rate.
2)the aggregate price level will increase proportionally if the money supply grows at a constant rate.
3)the government budget will have a deficit if the government spending grows at a constant rate.
4)the aggregate output will grow steadily at a constant rate if the money supply also grows at a constant rate.

Explain how the hypothesis below came up/was developed based on the initial observations (see below).

Hypothesis: The recombinant-based assay for HCV will detect HCV antibodies in blood samples of people with hepatitis C or who are carriers of HCV, but not in non-HCV individuals.

Initial Observations:

I. Hepatitis is a general category of liver diseases. Several different viral agents have been found to infect the liver and cause inflammation and damage.

II. In the 1940s, researchers identified two forms of viral hepatitis. Infectious hepatitis, or hepatitis A, is transmitted by contact with feces from infected individuals. Serum hepatitis, or hepatitis B, is transmitted through the blood and other body fluids. The hepatitis B virus was isolated in the 1960s and the hepatitis A virus was isolated in the 1970s.

III. Following the isolation of these two viruses, assays were developed in order to identify individuals infected with hepatitis A or hepatitis B viruses.

IV. A form of hepatitis occurs in patients that test negative for hepatitis A or B. This form of hepatitis, initially called non-A, non-B hepatitis (NANBH) but now referred to as hepatitis C, represented greater than 90% of transfusion-associated hepatitis.

V. Hepatitis C causes chronic disease which can lead to cirrhosis of the liver and liver cancer.

VI. A recombinant-based assay for the hepatitis C virus (HCV) has been developed, using RNA isolated from the hepatitis C virus.