Suppose that you are part of the Management team at Porsche. Suppose that it is the end of December

2019 and a novel coronavirus that causes a respiratory illness was identified in Wuhan City, Hubei

Province, China. The illness was reported to the World Health Organization and there is heightened

uncertainty around the Globe.

You (as part of the management team) are reviewing Porsche’s hedging strategy for the cash flows it

expects to obtain from vehicle sales in North America during the calendar year 2020. Assume that

Porsche’s management entertains three scenarios:

Scenario 1 (Expected): The expected volume of North American sales in 2020 is 35,000 vehicles.

Scenario 2 (Pandemic): The low-sales scenario is 50% lower than the expected sales volume.

Scenario 3 (High Growth): The high-sales scenario is 20% higher than the expected sales volume.

Assume, in each scenario, that the average sales price per vehicle is $85,000 and that all sales are

realised at the end of December 2020. All variable costs incurred by producing an additional vehicle to

be sold in North America in 2020 are billed in euros (€) and amount to €55,000 per vehicle. Shipping

an additional vehicle to be sold in North America in 2020 are billed in € and amount to €3,000 per

vehicle.

The current spot exchange rate is (bid-ask) $1.11/€ - $1.12/€ and forward bid-ask is $1.18/€ - $1.185/€.

The option premium is 2.5% of US$ strike price, and option strike price is $1.085/€. Your finance team

made the following forecasts about the exchange rates at the end of December 2020:

• bid-ask will be $1.45/€ - $1.465/€ if the investors (and speculators) consider the euro (€) a safe

haven currency during the pandemic.

• bid-ask will be $0.88/€-$0.90/€ if the investors (and speculators) consider the U.S. dollar ($) a

safe haven currency during the pandemic

1. As the CFO, you decided to hedge using option contracts. Assuming expected final sales

volume is 35,000, what are your total revenue and the percentage revenue from hedging

(compared to no hedging) (do not use any variable costs to calculate in this question)

a) if the exchange rate (bid-ask) remains at $1.11/€ - $1.12/€?

b) if the investors consider the U.S. dollar a safe haven currency during the pandemic?

2. Assume that the Scenario 2 (Pandemic) took place in 2020 and the euro became a safe haven

currency during the pandemic. What are your euro cash flows if you did not hedge, hedged

using forward contracts, and hedged using option contracts?

Case Study – THE CROWN PRINCESS

Given Facts:  Company: Matrix Systems, Inc., large conglomerate with over 35,000 employees  Competitor Company: Trilinear Systems Inc., small and quite aggressive company outfit  Alice Miller, MBA graduate from Stanford, graduating in the top one percent of her class, capable and hardnosed, ambitious and quite good in her interpersonal relations.  She showed that she was a very high potential employees resulting from putting her to a fast track promotions.  In her third year at Matrix, she was put in charge of a top secret, highly technical government contract  After 3 months, Alice was put in charge of this project and her Boss started to receive 7 resignations from key technical people working on the contract.  If they left, there was no way that matrix could fulfill and worst, all these 7 employees applied for the competitor company Trilinear and the company was seriously thinking of hiring them  Mr. Baker figured out that they were mad not to Alice but to the crown princess problem Questions:

1. What should Mr. Baker do as HR Manager?

2. What should Alice do? Remember, it's hard to stay on the fast track when you are a loser, and she will end up a big loser in this situation.

3. Is it a good idea to have crown princess and fast tracks for minorities and females? Why or why not?

4. Matrix has 10 levels of management in its organization. If it hired talented people at the lowest level and they spent 5 years in that level learning the job, it would take 50 years to get on the top. What besides the track /crown princess option does Matrix have?

Assuming you are CEO of an international trading company, which mainly engaged in trade activities between China, the United States and European countries. Please analyze and discuss in depth the impacts of the Coronavirus Disease 2019 (COVID-19) on both the international trade system and your company according to theories of international trade and relevant news during the global epidemic. Tips: the trading product or service of your company can be subjectively assumed.

The sports saga with MRSA continues. A recent article in the NY Times about college sports described “To prevent teammates from sharing towels to wipe their faces or arms on the sideline, trainers have sometimes employed a small army of interns who scoop up any used towel so it can quickly be placed in the laundry. Jim Thornton, the athletic trainer at Clarion University in Pennsylvania, said his teams had begun using chemically treated towelettes that are about half the size of a standard towel and are discarded after each use. The expense may be worthwhile. One study of high school football players concluded that sharing a towel makes the chance of a MRSA infection eight times more likely.” https://www.nytimes.com/2017/10/06/sports/the-never-ending-battle-against-sports-hidden-foe.html

They are talking about community acquired MRSA, which is the same as subtype USA300. What genes made this MRSA able to be transmitted via towels and why? Would you expect nonMRSA S. aureus to be equally transmitted? Why or why not?

The director of publications for a university is in charge of deciding how many programs to print for football games. Based on the data, the director has estimated the following probability distribution for the random variable X= number of programs sold at the university football game:

X 25,000 40,000 55,000 70,000

P(X) 0.1 0.3 0.45 0.15

a)Compute the expected number of program sold at the university football game.

b)Compute the variance of program sold at the university football game.

c) Each program cost $1.25 to print and sells for $3.25. Any programs left unsold at the end of the game are discarded. The director has decided to print ether 55,000 or 70,000. Which of these two options maximizes the expected profit from program?

The director of publications for a university is in charge of deciding how many programs to print for football games. Based on the data, the director has estimated the following probability distribution for the random variable X= number of programs sold at the university football game:

X 25,000 40,000 55,000 70,000

P(X) 0.1 0.3 0.45 0.15

a)Compute the expected number of program sold at the university football game.

b)Compute the variance of program sold at the university football game.

c) Each program cost $1.25 to print and sells for $3.25. Any programs left unsold at the end of the game are discarded. The director has decided to print ether 55,000 or 70,000. Which of these two options maximizes the expected profit from program?

In 2010, the Top-slice Golf Company decided to augment their very successful line of golf clubs with a new line of professional caliber golf balls. The executives at Top-Slice were aware of the difficulty of penetrating the golf ball market but feel, with their name recognition and the possibility of receiving endorsements from tour professionals that were playing Top-Slice clubs, chances for success were substantial. The company purchased $175 million of equipment and buildings in 2011 to begin production. The Top-Slice golf ball has not performed up to expectations. The tour professionals did not care for the ball and did not endorse it. Significant improvements in golf balls by Callaway and Nike and the continued dominance of the Titleist ProV1 series made entering the market very difficult.

On July 1, 2017, the Board of Directors voted to sell off the golf ball manufacturing division. The company continued to operate the facility at current levels of production until the sale of the division was completed on June 1, 2018. Top-Slice has a April 30 year end and the controller and CEO are concerned about the proper reporting for the disposal of the golf ball manufacturing division in the year-end April 30, 2018 financials. The company wants to issue the financial statements to the public by the end of June 2018.   You are to draft a report to the controller and CEO identifying the issues and accounting choices associated with reporting the disposal and the authoritative guidance that exists to determine the proper manner of reporting the assets, liabilities, and results of operation for the division.

In 2010, the Top-slice Golf Company decided to augment their very successful line of golf clubs with a new line of professional caliber golf balls. The executives at Top-Slice were aware of the difficulty of penetrating the golf ball market but feel, with their name recognition and the possibility of receiving endorsements from tour professionals that were playing Top-Slice clubs, chances for success were substantial. The company purchased $175 million of equipment and buildings in 2011 to begin production. The Top-Slice golf ball has not performed up to expectations. The tour professionals did not care for the ball and did not endorse it. Significant improvements in golf balls by Callaway and Nike and the continued dominance of the Titleist ProV1 series made entering the market very difficult.

On July 1, 2017, the Board of Directors voted to sell off the golf ball manufacturing division. The company continued to operate the facility at current levels of production until the sale of the division was completed on June 1, 2018. Top-Slice has a April 30 year end and the controller and CEO are concerned about the proper reporting for the disposal of the golf ball manufacturing division in the year-end April 30, 2018 financials. The company wants to issue the financial statements to the public by the end of June 2018.   You are to draft a report to the controller and CEO identifying the issues and accounting choices associated with reporting the disposal and the authoritative guidance that exists to determine the proper manner of reporting the assets, liabilities, and results of operation for the division.

Arrowhead is a manufacturing company that produces only one product, an electronic chip, and has provided the following data concerning its operations in January and February 2020:

January 2020 was the company’s first month of operations. The company has theoretical capacity to produce 1,200 chips a month without impacting any fixed costs. Since maintenance of the machines needs to be performed weekly, the company has practical capacity to produce 1000 chips a month. The company uses practical capacity as its denominator capacity level when determining a rate for its FMOH. The company uses FIFO inventory method for reporting purposes. All relevant costs are presented in the chart below and all estimated costs are equal to the actual costs incurred:

January 2020 February 2020

Selling price $400 $400

Chips in beginning FG inventory 0 200

Chips produced 800 800

Chips sold 600 600

Chips in ending FG inventory 200 400

Variable costs per unit:

    Direct materials $25 $25

    Direct labor $40 $40

    Variable manufacturing overhead $15 $15

    Variable selling and administrative $ 10 $ 10

Fixed costs:

    Fixed manufacturing overhead $120,000 $120,000

    Fixed selling and administrative $30,000 $30,000

A. What is the unit product cost for February 2020 under variable costing?

B. What is the unit product cost for February 2020 under absorption costing?

C. Create a contribution format income statement for February 2020. SHOW YOUR WORK. CLEARLY LABEL ALL STEPS.

D. What is the dollar value of the adjustment for product-volume variance to cost of goods sold (CGS) under absorption costing (if any) for February 2020? Don’t forget to indicate if this adjustment increases or decreases CGS.