7. [Calculating firm value with options] SUNNY Inc. has a bond issue with a face value of $1,000 that is coming due in one year. The value of the company’s assets is currently $1,040. Dr. Min, the CEO, believes that the assets in the company will be worth either $940 or $1,270 in a year. The going rate on one-year T-bills is 4.8% i. What is the value of the company’s equity? ii. What is the value of the debt? iii. What is the interest on debt? iv. Suppose the company can reconfigure its existing assets in such a way that the value in a year will be $850 or $1,750. If the current value of the assets is unchanged, will the stockholders favor such a more?

Mark Hurd resigned as CEO of Hewlett Packard amid accusations of sexual harassment and faked expense reports, thereby violating Hewlett Packard's ethical standards. Before he did so, however, he attempted to negotiate to retain his position and compensate the company for costs related to legal disputes resulting from his actions. Nevertheless, his compensation package, including stock options, was over $40 million, due to the success the company saw under his leadership.

In what ways did Hurd's resignation hurt Hewlett Packard?

In what ways did Hurd's resignation improve the company's situation?

As companies grow in size, it is inevitable for the shareholders to hire management to run the operations of the business. The entire team of management, starting from the CEO and other top-level management, all the way to the middle and bottom level management are expected to perform towards the growth of the business. Since the shareholders of large companies are scattered across geographies, they appoint certain members as representatives who are elected to represent them on the company board. The board of directors of a company, along with the Chairman, are expected to keep the actions of the management in check. Explain the above in context of agency theory and corporate governance. What can companies do to ensure adequate corporate governance?

Select an organization of your choice. The organization can refer to a current or past workplace; it could be anonymous (Company X) or you may mention the name. You can also pick an organization you participate in as a customer/client, trustee, stockholder, stakeholder, or interested party.

Identify your role in relation to the company that you pick. The major requirement is that you have access to enough information about the organization to address the question in some detail.

• What are some of the business research activities of your organization? Why were the undertaken? What was the result?
• What business research activities would you suggest for them if you were the CEO?

Your boss has just provided you with the following forecast:  

We need to position our portfolio for the remainder of 2020. I believe the economic fallout from Covid-19 will be much worse than expected in the markets right now. Many are assuming there will be a rapid recovery in late summer or early fall, but I believe the economic downturn will be much deeper and last much longer. Corporate earnings will fall and stay down for 4 or more quarters as the so-called pent up demand from consumers never materializes. Consumers will be wary of spending even if Covid-19 cases drop off given fears about a second wave in the fall.

Europe and Japan will probably do better than the U.S. as they are much further along in handling Covid-19 and their economies should come out stronger and earlier than the U.S. The U.S. Dollar will weaken in this environment as interest rates in the U.S. continue to fall to historically lows levels. Rates will then stay very low and show little volatility as the Federal Reserve signals that they will keep rates low for an extended period of time. Developing/emerging market countries will fare the worst of all as their healthcare systems will be inadequate to address Covid-19 and as their trade with the U.S. will be weak for some time.

Spreads on corporate and municipal bonds should widen dramatically, especially for the lowest quality bonds. Corporate balances sheets are highly leveraged after years of firms buying back stock and issuing debt, and municipals are facing huge budget crisis in trying to respond to Covid-19.

Assume our marginal tax rate is 25%, and our effective tax rate is 30%.  

Here are asset classes she needs for you provide recommendations on for overweighting or underweighting, along with your rationale for those recommendations (25 minutes):

• Long-term Treasury Bonds (current yield 1.25%)
• Intermediate-term Inflation-indexed Treasuries (TIPS) (current yield 0.02%)
• Mortgage-backed Securities (Current Yield 2.90%)
• Medium Quality Intermediate-Term Municipal Bonds (current yield 2.75%)
• Medium Quality Intermediate-Term Corporate Bonds (current yield 3.35%)
• High Yield (“Junk”) Bonds (Current Yield 6.00%)
• U.S. Large Cap Low Beta Stocks
• U.S. Small Cap Value Stocks
• Developed Market Stocks
• Emerging Market Stocks
• Alternative Assets

He's wanting me to determine which group needs to be overweighted or underweighted & why.

During the year ended December 31, 2019, Parent Company (the parent) sold merchandise to Subsidiary Corporation (a 90%-owned subsidiary) for a price of $32,340, at a markup of 32% of cost. Subsidiary sold merchandise acquired from Parent to outsider customers for $38,500 during 2019. Included in Subsidiary’s January 1, 2019, inventories were goods acquired from Parent at a billed price of $3,036 and included in Subsidiary’s December 31, 2019, inventories were goods acquired from Parent at a billed price of $2,310.

(i)         Prepare the working paper eliminating entries (in journal entry format) related to the intercompany sale of merchandise for the year ended December 31, 2019.

(ii)        Show how the working paper eliminating entry in part (i) adjusts cost of goods sold and ending inventory to the correct consolidated balances.

(iii)       How (increase or decrease and the amount) is Parent’s 2019 equity in income of Subsidiary affected by the intercompany sale of merchandise?

Benjamin, Inc., operates an export/import business. The company has considerable dealings with companies in the country of Camerrand. The denomination of all transactions with these companies is alaries (AL), the Camerrand currency. During 2017, Benjamin acquires 39,000 widgets at a price of 8 alaries per widget. It will pay for them when it sells them. Currency exchange rates for 1 AL are as follows:

1. Assume that Benjamin acquired the widgets on December 1, 2017, and made payment on March 1, 2018. What is the effect of the exchange rate fluctuations on reported income in 2017 and in 2018?
2. Assume that Benjamin acquired the widgets on September 1, 2017, and made payment on December 1, 2017. What is the effect of the exchange rate fluctuations on reported income in 2017?
3. Assume that Benjamin acquired the widgets on September 1, 2017, and made payment on March 1, 2018. What is the effect of the exchange rate fluctuations on reported income in 2017 and in 2018?

Bossier Ltd has just acquired all the issued shares of Millus Ltd. The accounting staff at Bossier Ltd has been analyzing the assets and liabilities acquired in Millus Ltd. As a result of this analysis, it was found that Millus Ltd had been expensing its research outlays. Over the past 3 years, the company has expensed a total of $60,000, including $20,000 immediately before the acquisition date. One of the reasons that Bossier Ltd acquired control of Millus Ltd was its promising research findings in an area that could benefit the products being produced by Bossier Ltd. There is disagreement among the accounting staff as to how to account for the research abilities of Millus Ltd. Some of the staff argue that, since it is research, the correct accounting is to expense it, and so it has no effect on accounting for the group. Other members of the accounting staff believe that it should be recognized on consolidation, but are unsure of the accounting entries to use, and are concerned about the future effects of recognition of an asset, particularly as no tax advantage remains in relation to the asset.

Question 1: What accounting is most appropriate for these circumstances? Please advise.

Benjamin, Inc., operates an export/import business. The company has considerable dealings with companies in the country of Camerrand. The denomination of all transactions with these companies is alaries (AL), the Camerrand currency. During 2017, Benjamin acquires 20,000 widgets at a price of 8 alaries per widget. It will pay for them when it sells them. Currency exchange rates for 1 AL are as follows: September 1, 2017 $0.46 December 1, 2017 0.44 December 31, 2017 0.48 March 1, 2018 0.45 Assume that Benjamin acquired the widgets on December 1, 2017, and made payment on March 1, 2018. What is the effect of the exchange rate fluctuations on reported income in 2017 and in 2018? Assume that Benjamin acquired the widgets on September 1, 2017, and made payment on December 1, 2017. What is the effect of the exchange rate fluctuations on reported income in 2017? Assume that Benjamin acquired the widgets on September 1, 2017, and made payment on March 1, 2018. What is the effect of the exchange rate fluctuations on reported income in 2017 and in 2018?