Grant Company acquired 40% of the voting stock of Jake
Corporation on January 1, 2016, for $50,000,000. Basis differences
were attributed entirely to goodwill. During the 5-year period from
January 1, 2016 through December 31, 2020, Jake reported total net
income of $23,000,000 and paid $8,000,000 in dividends. During
2021, Jake reported net income of $3,000,000 and paid $800,000 in
dividends.
Required:
a. Calculate the balance in Investment in Jake, reported on Grant’s
December 31, 2020 balance sheet.
b. Calculate the balance in Investment in Jake, reported on Grant’s December 31, 2021 balance sheet.
In: Accounting
You are 30 years old and are considering full-time study for an MBA degree. Tuition and
other direct costs will be $20,000 per year for two years. In
addition, you will have to give
up a job with a salary of $40,000 per year. However, if you go on
for two more years of
graduate study, you can increase your earnings to $45,000 per
year. Assume a real
interest rate of 4% per year and ignore taxes. Also assume that the
salary increase is
constant real amount that starts after you complete your degree at
the end of the year
question
following graduation and lasts until retirement at age 70. Assume
tuition is paid and
salary received at the end of the year. Is this a worthwhile
investment?
Select one:
0 a. NPV of MBA is $96,839.32. Hence, MBA is a worthwhile
investment
0 b. NPV of MBA is -$96,839.32. Hence, MBA is NOT a worthwhile
investment
0 C. NPV of MBA is $23,632.29. Hence, MBA is a worthwhile
investment
0 d. NPV of MBA is -$23,632.29. Hence, MBA is NOT a worthwhile
investment
In: Finance
Lancaster is evaluating a plan to purchase a huge tract of land in the southeastern United States for $85 million. The land will subsequently be leased to tenant farmers. This purchase is expected to increase Lancaster’s annual pretax earnings by $14.125 million in perpetuity. Jennifer Weyand, the company’s new CFO, has been put in charge of the project. Jennifer has determined that the company’s current cost of capital is 10.2 percent. She feels that the company would be more valuable if it included debt in its capital structure, so she is evaluating whether the company should issue debt to entirely finance the project. Based on some conversations with investment banks, she thinks that the company can issue bonds at par value with a 6 percent coupon rate. From her analysis, she also believes that a capital structure in the range of 70 percent equity/30 percent debt would be optimal. If the company goes beyond 30 percent debt, its bonds would carry a lower rating and a much higher coupon because the possibility of financial distress and the associated costs would rise sharply. Lancaster has a 23 percent corporate tax rate (state and federal).
If Lancaster wishes to maximize its total market value, would you recommend that it issue debt or equity to finance the land purchase? Explain.
In: Finance
Johnson Real Estate Company was founded 25 years ago by the current CEO, David Johnson. The company purchases real estate, including land and buildings, and rents the property to tenants. The company has shown a profit every year for the past 18 years, and the shareholders are satisfied with the company’s management. Prior to founding Johnson Real Estate, David was the founder and CEO of a failed camel farming operation. The resulting bankruptcy made him extremely averse to debt financing. As a result, the company is entirely equity financed, with 8 million shares of common stock outstanding. The stock currently trades at $37.80 per share. Johnson is evaluating a plan to purchase a huge tract of land in the southeastern United States for $85 million. The land will subsequently be leased to tenant farmers. This purchase is expected to increase Johnson's annual pretax earnings by $14.125 million in perpetuity. Abigail Burton, the company’s new CFO, has been put in charge of the project. Abigail has determined that the company’s current cost of capital is 10.2 percent. She feels that the company would be more valuable if it included debt in its capital structure, so she is evaluating whether the company should issue debt to entirely finance the project. Based on some conversations with investment banks, she thinks that the company can issue bonds at par value with a 6 percent coupon rate. From her analysis, she also believes that a capital structure in the range of 70 percent equity/30 percent debt would be optimal. If the company goes beyond 30 percent debt, its bonds would carry a lower rating and a much higher coupon because the possibility of financial distress and the associated costs would rise sharply. Johnson has a 23 percent corporate tax rate (state and federal). If Johnson wishes to maximize its total market value, would you recommend that it issue debt or equity to finance the land purchase? Explain.
In: Finance
D’Jais Corporation, a U.S. company, owns 100% of Bar A Corporation, a New Zealand company. Bar A's equipment was acquired on the following dates (amounts are stated in New Zealand dollars):
Jan. 1, 2017 purchased equipment for 40,000 NZ dollars
Jul. 1, 2017 purchased equipment for 80,000 NZ dollars
Jan. 1, 2018 purchased equipment for 50,000 NZ dollars
Jul. 1, 2018 sold equipment purchased on Jan. 1, 2017 for 35,000 NZ dollars
Exchange rates for the NZ dollar on various dates are:
Jan. 1, 2017 $.500 Jan. 1, 2018 $.530
Jul. 1, 2017 $.520 Jul. 1, 2018 $.505
Dec. 31, 2017 $.530 Dec. 31, 2018 $.490
2017 avg. rate $.515 2018 avg. rate $.510
Bar A's equipment has an estimated 5-year life with no salvage value and is depreciated using the straight-line method, calculating depreciation expense on a monthly basis. Bar A's functional currency is the U.S. dollar, but the company uses the NZ dollar for recordkeeping.
Required:
1. Determine the value of Bar A's equipment account on December 31, 2018 in U.S. dollars.
2. Determine Bar A's depreciation expense for 2018 in U.S. dollars.
3. Determine the gain or loss from the sale of equipment on July 1, 2018 in U.S. dollars.
In: Finance
Mr Dumas is a famous French chef who moved from Paris to Sydney on 1 November 2018 to work for an Australian fine dining restaurant. His remuneration includes a salary of $350,000 plus $50,000 bonus per year and a contractual term of two years. Mr Dumas would be paid a lump sum of $500,000 in return for his promise that, if he resigns, he would not set up in a business in Sydney in competition with an Australian fine dining restaurant for 3 years. Mrs Dumas moved to Sydney with her husband and three children. Mr Dumas obtained permanent residence since 1 November 2018 and bought the following assets in Sydney: A vintage motor vehicle built in 1961: acquired on 15 November 2018 at a cost of $150,000. Mr Dumas intended it to be kept as a long-term investment. A family house in Chatswood: acquired on 1 December 2018 at a cost of $1,200,000 10,000 Shares in BHP: acquired on 1 January 2019 at a cost of $300,000 were sold for $320,000 on 15 May 2020. During the financial year 2020, Mr Dumas signed the contract with SBS TV channel around November 2019 and agreed to travel to New Zealand in December 2019 for filming The Food Show. The fee of $100,000 will be paid out to him once the show is released on TV in August 2020. On 1 May 2020, Mr Dumas sold the following overseas assets which he bought before he came to Australia: 30,000 shares in a USA company: acquired on 1 July 1982 at a cost of $15,000 and was sold for $35,000 on 1 May 2020. The market value was $6,000 as at 1 November 2018. An investment flat in Paris: acquired on 15 July 2018 at a cost of $230,000 and was sold for $200,000 on 1 May 2020. Mr Dumas still maintains a bank account at the Bank of Paris in France which earned a total of $8,500(2018/2019) and $10,000(2019/2020) in interest income. He neither repatriated nor declared any part of the interest derived in France because he has paid 15% withholding tax. Hence, at the time of lodging his Australian tax return, Mr Dumas declared his Australian sourced income only. Mr Dumas lodged his 2018/19 tax return on 15 August 2019 and received a notice of assessment on 25 October 2019. On 15 February 2020, he received a notice of amended assessment which included his Australian taxable income the amounts derived in French. The amended assessment required Mr Dumas to pay $4,250 additional tax to the ATO. Mr Dumas and his family decided to relocate to New Zealand indefinitely and left Australia on 30 June 2020 to set up a high-end restaurant. On 10 July 2020, he also received a lump sum payment of $500,000 under the terms of his remuneration package with his Australian employer.
Required: Under what circumstances and on what grounds could the ATO issue the amended assessment for the year 2018/2019?
What should Mr Dumas do if he decides to dispute this amended assessment, and what time limits would apply for the dispute to be commenced?
Advise Mr Dumas on what amounts may be included in his Australian taxable income for the 2019/20 tax year.
Calculate his taxable income for the year ending 30 June 2020.
In: Accounting
Case Study
Read the case then answer the three questions below:
Frank became chief financial officer and a member of the Executive Committee of a medium-sized and moderately successful family-owned contracting business six months ago. The first nonfamily member to hold such a position and to be included in the Executive Committee, he took the job despite a lunch-time remark by the company's CEO that some members of the family were concerned about Frank's "fit with the company culture." But the CEO (who is married to the daughter of the founder of the company) said he was willing to "take a chance" on Frank.
Soon after Frank started, the company decided for the first time to "right-size" (a euphemism for downsize) to respond to rapid changes in its business. Frank, who had been through this before when he was a senior manager in his previous company, agreed this was good for the long-term health of the 20-year-old company. He decided not to worry that family members seemed more concerned about their own short-term financial interests.
Besides, the CEO was relying on Frank to help him determine how to downsize in an ethical manner; the CEO said he trusted Frank more on this than he did the head of his personnel department, who had "been around a little too long."
On Frank's recommendation, the company decided to make its lay-off decisions based on the annual performance appraisal scores of the employees. Each department manager would submit a list of employees ranked by the average score of their last three appraisals.
If the employee had been with the company less than three years, if the score for two employees was identical, or if there was some extraordinary circumstance, the manager would note it and make a decision about where to rank the person. At some point, Frank and the Executive Committee would draw a line, and those below the line would be laid off.
As Frank was reviewing the evaluations, he was puzzled to find three departments in which the employee at the bottom of the list had "N/A" where the evaluation score should have been written. When he asked the managers to explain, they told him these employees had been with the company almost since the beginning. When performance appraisals had been instituted six years earlier, the CEO agreed to the longtime employees' request that they keep receiving informal evaluations "as they always had."
The managers told Frank they'd questioned this decision, and the CEO had told them it wasn't their problem.
When Frank raised this issue with the CEO, he responded, "Oh, I know. I haven't really evaluated them in a long time, but it's time for them to retire anyway. They just aren't performing the way they used to. The company's been very good to them. They've got plenty of retirement stored away, not to mention the severance you've convinced me to offer. They're making pretty good money, so cutting them should let us lower the line a little and save jobs for some of the younger people – you know, young kids with families just starting out. And don't worry about a lawsuit. No way they'd do that."
"Do they know they're not performing well?" Frank asked.
"I don't know," the CEO responded. "They should. Everybody else in the company does."
As they walked to the door, the CEO put his arm around Frank's shoulder. "By the way," he said, "you should know that you've won over the Executive Committee. They think you are a terrific fit with this company. I'm glad you talked with me today about these three employees. You got it right: This is a company that cares for its employees – as long as it can and as long as they're producing. Always has, always will."
Frank left the CEO's office with the vague feeling that he had some moral choices to make.
Answer the questions below:
1. Does he have an ethical dilemma? If yes, what is it?
2. What options are open to him? How would you assess these options using utilitarian and Kantian perspectives?
3. How should Frank proceed (what should he do)? Justify your answer.
In: Operations Management
Leadership & Managing People Case
Starbucks announcement that it will close few stores in Saudi
Arabia admission of limits to growth.
The founder Howard Schultz recognized the problem that his own
growth strategy had created: “Stores no longer have the soul of the
past and reflect a chain of stores vs. the warm feeling of a
neighborhood store.” Starbucks tried to add value through
innovation, offering wi-fi service, creating and selling its own
music. More recently, Starbucks attempted to put the focus back on
coffee, revitalizing the quality of its standard beverages. But
none of these moves addressed the fundamental problem: Starbucks is
a mass brand attempting to command a premium price for an
experience that is no longer special.
How will you help company to recover and expand its operation in
Saudi Arabia. The Company hired you as CEO of Starbucks coffee in
Saudi Arabia
1. Identify and describe the four managerial functions that can be applied in Starbucks business in Saudi Arabia. (200 – 300 words)
2. Explain the different types of planning for the different levels of management in Starbucks in KSA. Include the typical time frame for which each plan is created. (200 – 300 words)
In: Economics
Leadership & Managing People Case
Starbucks announcement that it will close few stores in Saudi Arabia admission of limits to growth.
The founder Howard Schultz recognized the problem that his own growth strategy had created: “Stores no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store.” Starbucks tried to add value through innovation, offering wi-fi service, creating and selling its own music. More recently, Starbucks attempted to put the focus back on coffee, revitalizing the quality of its standard beverages. But none of these moves addressed the fundamental problem: Starbucks is a mass brand attempting to command a premium price for an experience that is no longer special.
How will you help company to recover and expand its operation in Saudi Arabia. The Company hired you as CEO of Starbucks coffee in Saudi Arabia
Assignment Objectives & Requirements:
1. To sustain and expand the Starbucks Stores in Kingdom of Saudi Arabia, you have to write the: (400 – 500 words)
a. Identify the competitive advantage (s) in business for growth
b. What are the different Products and type of services that can be offered.
c. Business objective/goals/vision
In: Economics
Problem 2:
The following events apply to Sam’s Seafood Restaurant for the year ended December 31, 2020, its first year of operations:
The company acquired $50,000 cash by issuing common stock.
Purchased a new cook top that cost $35,000 cash.
Earned $36,000 in cash revenue.
Paid $12,000 cash for salaries expense.
Recorded depreciation expense on the cook top for 2020 using straight-line depreciation. The cooktop was purchased on January 1, 2020, the expected useful life of the cook top is four years, and the estimated salvage value is $3,000.
Required: Answer the following questions.
What is the net income for 2020?
What amount of depreciation expense would Sam’s report on the 2021 income statement?
What amount of accumulated depreciation would Sam’s report on the December 31, 2021, balance sheet?
Would the cash flow from operating activites be affected by depreciation in 2021?
If Sam’s Seafood Restaurant decided to sell the new cooktop in 2022 for $10,000, would the company realize a gain or loss? How much?
In: Accounting