QUESTION 1:

The University of Chicago's General Social Survey (GSS) is the nation’s most important social science sample survey. The GSS asked a random sample of adults their opinion about whether astrology is very scientific, sort of scientific, or not at all scientific. Here is a two-way table of counts for people in the sample who had three levels of higher education degrees:

Give three 95% confidence intervals, for the percents of people with each degree who think that astrology is not at all scientific.

QUESTION 2:

Sample surveys on sensitive issues can give different results depending on how the question is asked. A University of Wisconsin study divided 2400 respondents into 3 groups at random. All were asked if they had ever used cocaine. One group of 800 was interviewed by phone; 167 said they had used cocaine. Another 800 people were asked the question in a one-on-one personal interview; 195 said "Yes." The remaining 800 were allowed to make an anonymous written response; 223 said "Yes."

Are there statistically significant differences among these proportions?

Carry out a chi-square test for association between education level and opinion about astrology. Test H0:H0: the proportion of people who admit cocaine use is the same for all three interview methods versus Ha:Ha: the proportions are not the same (interview type makes a difference). Use α=0.01α=0.01.

χ2(±0.0001)=χ2(±0.0001)=

P(±0.0001)=P(±0.0001)=

Scott Mcnealy and Sun Microsystems

Abstract:

Scott McNealy had been the CEO of Sun Microsystems, a company that he had co-founded in 1984, for 22 years. In April 2006, he announced his decision to step down in favor of Sun's president and COO Jonathan Schwartz.

This case study discusses the various events at Sun under McNealy's leadership. It traces the company's growth from a small startup in the mid 1980s to one of the driving forces behind the internet economy in the 1990s. It also talks about the events that led to Sun's decline in the early 2000s, and McNealy' failure to arrest this decline. The case concludes with a discussion of the leadership change at Sun and whether Schwartz was the right person to give the ailing company a new lease of life.

Questions:

1. Assuming that you were hired as a consultant to the Sun board of directors, describe what should be done with the Sun management team.  Make it clear whether the management team should be changed or whether economic and technological circumstances have caused the problems at Sun, meaning the current management team can still lead Sun to success.

INTRODUCTION

"Scott (McNealy) is kind of like Moses. (He) led the world to the land of milk and honey, but he got left behind."

- Paul Saffo, director, Institute for the Future,1 in 2004.2

"Sun has been a labor of love for me for since 1982 and it has been an honor and privilege to serve as its CEO for the past 22 years. We've helped shape the industry as it is today, and the opportunities before us are immense."2

- Scott McNealy, co-founder, chairman and former CEO of Sun Microsystems, in 2006.3

The End of an ERA

In April 2006, Scott McNealy (McNealy), the co-founder of Sun Microsystems, Inc. (Sun), announced that he would step down as the CEO of Sun in favor of the company's president and Chief Operating Officer (COO) Jonathan Schwartz (Schwartz). This was significant news for the IT industry, as McNealy had been at the helm of Sun for the last 22 years and had steered the company through a series of ups and downs in the industry.

The announcement was made on the same day that Sun announced a loss of $217 million4 for the quarter ended March 31st 2006, (taking the company's cumulative losses since 2002 to a staggering $4.5 billion).

It was not a surprise as Wall Street had been calling for McNealy's resignation since the early 2000s when Sun first went into decline following the bursting of the dotcom and telecom bubbles in 2000 and 2001 respectively. Between fiscal years 2001 and 20055, Sun saw its sales fall 39 percent and its share price plummet from a peak of $64 in mid 2002 to around $4 by 2005. Following the announcement of McNealy's exit, the stock gained 8.6 percent in extended trading and reached its highest level of the year at $5.41 (Refer Exhibit I for Sun's share prices).

McNealy said that the leadership change was a part of the company's succession planning efforts, and that he was looking forward to playing the role of 'chief evangelist' within Sun. However, some analysts felt that that the board had forced McNealy to step down under intense pressure from Wall Street over the company's poor financial performance.

McNealy was to continue as the chairman of Sun's board as well as chairman of the board of Sun Federal, Inc.6 McNealy was as well known in the IT industry for his visionary leadership of Sun in the 1980s and 1990s, as for his witty takes on competitors, especially Microsoft Corp. (Microsoft)...

He was one of the most controversial leaders in the industry, but even his harshest critics could not deny that he played a pivotal role in shaping the future of computing. It was not surprising therefore that when the leadership change at Sun was announced, analysts said it was 'the end of an era'in the history of the IT industry.

Background

McNealy was born on November 13, 1954 in Indiana. His father, William McNealy was vice chairman at American Motors Corp. (AMC).7 As a child, McNealy took an avid interest in the auto industry - an interest encouraged by his father, who often discussed business with the youngster and allowed him to accompany him when he went to play golf with people like Lee A. Iacocca.8

After attending Cranbrook Kingswood School, a preparatory school near Detroit, McNealy was accepted at Harvard University, from where he graduated with a degree in Economics in 1976. He then tried for a place at Stanford Graduate School of Business (Stanford) but was rejected.

While trying for an admission into Stanford, McNealy took up a job as foreman at the Rockwell International Corp. (Ohio), which made body panels for trucks. When he eventually got into Stanford in 1978, he chose to specialize in manufacturing rather than the more popular finance. He was not a dedicated student and later admitted that he spent more time 'goofing off' than in classes.

One of his classmates recalled that McNealy never bothered to attend any class that he did not think would help him get a job. At that point McNealy was not ambitious. Reportedly, his ambition was to start a small machine shop that he could leave to his children, and then, to retire early. After graduating in 1980, he worked in the manufacturing departments of FMC Corp. (which made tanks for the US army) and of minicomputer maker Onyx Systems. In 1982, Vinod Khosla (Khosla), McNealy's classmate at Stanford, asked him to join him, Andy Bechtolsheim (Bechtolsheim) and Bill Joy (Joy) in starting a computer manufacturing unit to make and sell workstations operating on UNIX.

The Golden Years

It was McNealy's dynamism and vision that were largely responsible for Sun's rapid growth in the first two decades of the company's existence. When McNealy first joined Sun, he was in charge of manufacturing, but later became responsible for sales as well. This helped him develop a good understanding of different areas of the business. After McNealy became CEO in 1984, he played an important role in shaping Sun's vision that 'The Network is the Computer'. Sun was committed to developing technologies that would allow computers to connect seamlessly over a network, thus increasing their power tremendously. Networking would allow computing to be provided like a utility, just like electricity and telecommunications..

The Decline

The beginning of the new millennium turned out to be inauspicious for the US economy. The collapse of several dotcom and telecom companies combined with the September 11 terrorist attacks on the US sent the economy into a decline, and one of the worst affected by these adversities was the IT industry...

Conclusion

According to analysts, Sun could have become one of the giants of the IT industry, on par with IBM and Microsoft. Many concepts that had become the standard in the early 2000s, like networking and open source, were first popularized by Sun. But the company took some missteps along the way, which did not allow it to take advantage of its resources. "They've (Sun) always had lots of great things on paper. But when it comes to execution, they're lacking. They always seem to be behind where they need to be" said Gary Feierstein, vice-president for information technology at Premier Inc., a hospital management company.

On January 1, 2020, Sandhill Ltd. had 570,000 common shares outstanding. During 2020, it had the following transactions that affected the common share account:

The company’s year end is December 31.

QUESTIONS:

A) Determine the weighted average number of shares outstanding as at December 31, 2020.

B) Assume that Sandhill earned net income of $3,227,000 during 2020. In addition, it had 100,000 of 8%, $100 par, non-convertible, non–cumulative preferred shares outstanding for the entire year. Because of liquidity limitations, however, the company did not declare and pay a preferred dividend in 2020.

Calculate earnings per share for 2020, using the weighted average number of shares determined above.

C) Assume that Sandhill earned net income of $3,227,000 during 2020. In addition, it had 100,000 of 8%, $100 par, non-convertible, cumulative preferred shares outstanding for the entire year. Because of liquidity limitations, however, the company did not declare and pay a preferred dividend in 2020.

Calculate earnings per share for 2020, using the weighted average number of shares determined above.

D) Assume that Sandhill earned net income of $3,227,000 during 2020. In addition, it had 100,000 of 8%, $100 par, non-convertible, non–cumulative preferred shares outstanding for the entire year. Because of liquidity limitations, however, the company did not declare and pay a preferred dividend in 2020. Assume that net income included a loss from discontinued operations of $405,000, net of applicable income taxes.

Calculate earnings per share for 2020.

B) Ashesi University is Ghana’s number one university in the 2020 Times Higher Education Impact Ranking. The university presently measures its performance by comparing its actual costs against its budgeted costs for the year. Given the university’s international status, it is currently facing stiff competition from both public and privately-owned universities in Ghana. At one of its executive meetings, a member in the finance department has suggested that Ashesi needs to consider additional performance measures such as those indicated by the Balanced Scorecard.

Required:

1. Briefly elaborate on your understanding of the Balanced Scorecard and how the management of Ashesi university can utilize this approach to performance measurement [10 marks]
2. Discuss two (2) non-financial indicators (from different perspectives of the balanced scorecard) that Ashesi University could use for its performance evaluation. [4 marks]

An American company sells merchandise on account to a Swiss company for CHF 50,000 on 1/12/2019 when the rate was 1 CHF = 0.9 USD. On 31/12/2019 the rate was 1 CHF = 0.96 USD. On 25/1/2020 the Swiss company pays its obligation to the US company (the rate was 1 CHF = 1.01 USD), which keeps the foreign cash it and converts the amount to US dollars on 10/2/2020, when the rate was 1 CHF = 0.99 USD. Required: Provide the journal entries on each of the above mentioned dates (Note: CHF means Swiss franc). NOTE: IF YOU CANNOT CLEARLY WRITE THE JOURNAL ENTRIES LIKE YOU WOULD ON A PAPER EXAM, PLEASE MENTION dr OR cr NEAR EACH ACCOUNT IN THE JOURNAL ENTRY AS APPROPRIATE.

An American company sells merchandise on account to a Swiss company for CHF 50,000 on 1/12/2019 when the rate was 1 CHF = 0.9 USD. On 31/12/2019 the rate was 1 CHF = 0.96 USD. On 25/1/2020 the Swiss company pays its obligation to the US company (the rate was 1 CHF = 1.01 USD), which keeps the foreign cash it and converts the amount to US dollars on 10/2/2020, when the rate was 1 CHF = 0.99 USD. Required: Provide the journal entries on each of the above mentioned dates (Note: CHF means Swiss franc). NOTE: IF YOU CANNOT CLEARLY WRITE THE JOURNAL ENTRIES LIKE YOU WOULD ON A PAPER EXAM, PLEASE MENTION dr OR cr NEAR EACH ACCOUNT IN THE JOURNAL ENTRY AS APPROPRIATE.

Panama Company acquired 60 %
of Samoa Corporation on 1/2018. Fair values of Samoa's assets and liabilities
approximated book values on that date. Panama uses the initial value method
to account for its investment in Samoa.
On 1/2019, Panama bought equipment from Samoa for $60,000 that had
originally cost Samoa $120,000 and had $ 90,000
of Accumulated depreciation at the time. The equipment had a five-year
remaining life and was being depreciated using the straight line method.
You are preparing the worksheet for the 2020 fiscal year.
a. Was this equipment sale upstream or downstream?
b. How much unrealized net gain from the equipment transfer remains at the
beginning of 2020? (this is the amount you will need for the *TA entry at 1/2020.)
c. Which company's Retained earnings account will be adjusted in the *TA entry
in part a? (Which company was the “initiator” of the transaction?)
d. How much excess depreciation will there be in each of the first five years
after the transfer?
e. Panama's 2020 net income, without including any investment income, was
$ 360,000 and Samoa reported net income of $ 115,000 in 2020.
What consolidated income will be reported before removing the noncontrolling
interest's share of the subsidiary's net income? (This includes the effect
of the ED entry.)
f. What will the noncontrolling interest's share of the subsidiary's net income be for
2020? (Consider whether the equipment sale had been upstream or downstream.)

Assume it is Sept 1, 2020. Company ABC using AUD as functional currency is concerned about currency risk. The company imports goods from the US and sells them in the Australian market with expected revenues for 2021 of AUD 11.5 million. The contract price for these goods from US suppliers is USD 6.5 million payable in one payment on March 1, 2021. The company has a target profit margin (profit as percentage of revenue) of 20%. The minimum acceptable profit margin below which the company will have difficulties servicing its debt is 15%. The spot AUD/USD rate on Sept 1, 2020 is 0.70. The Australian and US six-month interest rates are 2.5% and 2.0%, respectively. Furthermore, the following option contracts expiring on March 1, 2021 are currently available:

Strike AUD/USD rate           Premium

AUDCall 0.73                        0.015

AUDCall 0.68                        0.021

AUDCall 0.70                        0.017

AUDPut 0.72                       0.0125

AUDPut 0.68                        0.008

AUDPut 0.65                        0.005

Based on this information and the knowledge you gained while studying the FRM unit, respond to the questions below. Give all your answers for profit margins and currency rates with 4 (four) decimal places Problem

1) What would be the profit margin of the company if the current spot rate is used? Problem

2) What is the AUD/USD currency rate at which the company achieves exactly its target rate? Problem

3) What is the critical AUD/USD currency rate for the company? Problem

4) Give two examples of situations in which the company may not need to hedge its currency risks with derivatives.

Exercise 1-21A (Static) Preparing financial statements—retained earnings emphasis LO 1-5, 1-6, 1-7, 1-8

On January 1, Year 3, the following information was drawn from the accounting records of Carter Company: cash of $800; land of $3,500; notes payable of $600; and common stock of $1,000.

Required
a. Determine the amount of retained earnings as of January 1, Year 3.
b. After looking at the amount of retained earnings, the chief executive officer (CEO) wants to pay a $1,000 cash dividend to the stockholders. Can the company pay this dividend?
c. As of January 1, Year 3, what percentage of the assets were acquired from creditors?
d. As of January 1, Year 3, what percentage of the assets were acquired from investors?
e. As of January 1, Year 3, what percentage of the assets were acquired from retained earnings?
f. Create an accounting equation using percentages instead of dollar amounts on the right side of the equation.
g. During Year 3, Carter Company earned cash revenue of $1,800, paid cash expenses of $1,200, and paid a cash dividend of $500. Record these events using the accounting equation.
g-1. Prepare an income statement dated December 31, Year 3.
g-2. Prepare a statement of changes in stockholders’ equity dated December 31, Year 3.
g-3. Prepare a balance sheet dated December 31, Year 3.
g-4. Prepare a statement of cash flows dated December 31, Year 3.
j. What is the balance in the Revenue account on January 1, Year 4?

Sabrina Hoffman is founder and CEO of Golden Care, Inc., which owns and operates several assisted-living facilities. The facilities are apartment-style buildings with 25 to 30 one- or two-bedroom apartments. While each apartment has its own complete kitchen, in every building Golden Care offers communal dining options and an on-site nurse who is available 24 hours a day. Residents can choose monthly meal options that include one or two meals per day in the dining room. Residents who require nursing services (e.g., blood pressure monitoring and injections) can receive those services from the nurse. However, Golden Care facilities are not nursing homes, all residents are ambulatory, and custodial care is not an option. In the five years it has been in operation, the company has expanded from one facility to five, located in southwestern cities. The income statement for last year follows.

Sabrina originally got into the business because she had trouble finding adequate facilities for her mother. The concept worked well, and income over the past five years had grown nicely at 20 percent per year. However, Sabrina sensed clouds on the horizon. She knew that the population was aging and that her current clients would be moving to more traditional forms of nursing care. As a result, Sabrina wanted to consider adding one or more nursing homes to Golden Care. These nursing homes would be staffed around the clock with RNs and LPNs. The residents would likely have more severe medical problems and would be confined to beds or wheelchairs. Sabrina knew that quality care of this type was needed. So, she contacted Peter Verdon, her marketing manager, and Bernadette Masters, her accountant, for a brainstorming session.

Peter: "Sabrina, I really like the concept. As you know, several of our facilities have faced seeing their long-term residents move out to local nursing homes. Not only are these homes of lower quality than what we could provide, but losing a resident is heartrending for the staff, as well as for the remaining residents. I like the idea of providing a transition from less care to more."

Bernadette: "I agree with you, Peter. But let's not forget the differences between assisted-living and full-time, nursing-home-type care. Our expenses will really increase."

Sabrina: "That's why I wanted to talk with both of you. As you know, Golden Care's mission statement emphasizes the need to make a profit. We can't continue to serve our residents and provide high-quality care if we don't make enough money to pay our staff a living wage and earn enough of a profit to smooth over the rough patches and continue to improve our business. Could the two of you look into this idea, and get back to me in a week or so?"

Throughout the following week, the three communicated by e-mail. By the end of the week, a number of possibilities had surfaced, and these were summarized in a message from Bernadette to the others.

TO: [email protected], [email protected]

FROM: [email protected]

MESSAGE:

I've compiled the ideas from all of our e-mails into the following list. This may be a good starting point for our meeting tomorrow.

Buy an existing nursing home in one of Golden Care's current locations.

Buy an existing nursing home in another city.

Build a new nursing home facility in one of Golden Care's current locations.

Build a new nursing home facility in another city.

Build a wing on to an existing Golden Care facility. The Apache Junction facility has sufficient open land for an addition.

The next day, Sabrina, Peter, and Bernadette met again in Sabrina's office.

Sabrina: "I didn't realize there were so many possibilities. Are we going to have to work up numbers on each of them?"

Bernadette: "No, I think we can eliminate a few of them pretty quickly. For example, building a new facility would cost more than the other options, and it would involve the most risk."

Peter: "I agree, and I also think we might eliminate the purchase of an existing nursing home for the same reasons. Also, existing homes would not give us the option of building a facility that is state of the art and meets our needs, and it would lock us into a preexisting patient mix."

Sabrina: "I like that thinking. Let's restrict our attention to Option 5."

Bernadette: "I thought you might like that option, so Peter and I sketched out two alternatives for an extension of the Apache Junction building. We call the alternatives Basic Care and Lifestyle Care."

Peter: "There are different markets for each type of care. If we want to concentrate on Medicare and Medicaid patients, the reimbursement is lower, and we would want to offer the Basic Care option. Private insurance and private-pay patients could afford more services; if we are marketing to these patients, we could offer the Lifestyle Care option. Both alternatives provide high-quality nursing care. Basic Care concentrates on the quality nursing and maintenance activities. For example, the addition would have 25 double rooms, two nursing stations, two recreation rooms, a treatment room, and an office. The Lifestyle Care option adds physical and recreational therapy with a specially equipped gym and pool. That addition would have 30 single rooms, two nursing stations, a recreation room, a swimming pool, a hydrotherapy spa and gym, a treatment room, and an office. In each case, there would be cable TV and telephone hookups in each room and a buffer area between the nursing home and the apartments."

Sabrina: "Why the buffer area? Won't that add unnecessary cost?"

Peter: "It adds cost, but it will be well worth it. Sabrina, you must remember that the nursing home patients are different from the apartment residents. Some of the patients will have advanced dementia. We'll lose apartment residents in a hurry if they have to be reminded every day of what might be in store for them later on."

Sabrina: "I see your point. Bernadette, what will these two plans cost? I'll tell you right now that I like the Lifestyle Care option better. It fits with our history of doing whatever we can to make life better for our residents."

Bernadette: "I've checked into the costs of putting on a new wing and operating both alternatives. Here's a listing."

* Other includes supplies, utilities, food, and so on.

"In both cases, total administrative costs for Golden Care would increase by $30,000 per year. This seems high, but the increased legal and insurance requirements will add significantly more paperwork and accounting."

Sabrina: "All this sounds reasonable, but why is reimbursement such an important factor?"

Peter: "Well, if you admit Medicaid patients, the state will reimburse at most $30,000 per year. Private insurance policies will pay roughly $46,000 per year. We can charge up to about $65,000 for private patients, but this type of care is so expensive that many of these patients exhaust their funds and go on Medicaid. The nice aspect of Medicaid is that we can be virtually assured that we will operate at capacity."

Sabrina: "Can we cross that bridge when we come to it?"

Peter: "No, not really. Once the patient is a resident of our facility, it is hard to evict him or her. Also, while it is legal to force patients out before they go on Medicaid and to refuse to accept Medicaid patients, once we do accept Medicaid patients, we are prevented by law from evicting them—no matter how high our costs go."

Sabrina: "OK, it looks as if we have some hard work ahead of us to decide whether or not to get into this line of business."

Required:

1. Indicate the order in which these steps will be performed in the tactical decision making model.