LN Corporation, a U.S corporation, owns all the stock of Foreign Sub 1, a foreign corporation. Foreign Sub 1 in turn owns 20% of the voting stock of Foreign Sub 2, also a foreign corporation. LN Corporation also owns 10% of the nonvoting common stock of Foreign Sub 2 but owns no voting stock in Foreign Sub 2. During the current year, Foreign Sub 2 pays dividends on its nonvoting common stock, but pays no dividends on its voting stock. Is LN Corporation eligible for an Internal Revenue Code Section 902 indirect foreign tax credit for the current year with respect to the foreign income taxes paid by Foreign Sub 2? See Revenue Ruling 74-549, 1974-2 C.B. 207, 208 (holding that the Section 902 credit is not available to a U.S. parent corporation receiving a dividend owned only nonvoting stock of the second-tier corporation; IRS reasoned that the Section 902 credit is “contingent upon distribution [of a dividend] through the chain of corporations possessing voting stock ownership in the distributing corporation”).

What is the NPV of a publicly listed common stock? Of a bond? Given your answers, would you purchase a common stock and/or a bond?

Case 6-1  Chobani

Chobani LLC, is a producer and marketer of Greek yogurt. The company was founded in 2005 by Hamdi Ulukaya, an immigrant from Turkey, who recognized the lack of options for high-quality yogurt in the United States. The company is headquartered in Norwich, New York, and it employs approximately 2,000 employees. It operates two manufacturing plants—its original facility in central New York and a second new state-of-the-art facility in Twin Falls, Idaho.

The mission of the company is “To provide better food for more people. We believe that access to nutritious, delicious yogurt made with only natural ingredients is a right, not a privilege. We believe every food maker has a responsibility to provide people with better options, which is why we’re so proud of the way our food is made.” Chobani’s core values are integrity, craftsmanship, innovation, leadership, people, and giving back.

The company’s beginning in 2005 occurred when Hamdi Ulukaya discovered a notice about an old Kraft yogurt factory in South Edmeston that was closed. He decided to obtain a business loan in order to purchase it. Between 2005 and 2007, Ulukaya worked with four former Kraft employees and yogurt master Mustafa Dogan to develop the recipe for Chobani Greek Yogurt. Between 2007 and 2009, the company started to sell its yogurt in local grocery stores including Stop and Shop and ShopRite. By 2010, Chobani Greek yogurt became the best selling Greek yogurt in the United States. The company pursued global expansion by entering Australia in 2011 and the United Kingdom in 2012. In 2013, the company opened its international headquarters in Amsterdam, and Hamdi Ulukaya was named the Ernst and Young World Entrepreneur of the Year.

Chobani has achieved its success in large part due to its ability to innovate in its product lineup. For example, in 2016, it launched a new line of yogurt drinks, more flavors of its Flip mix-in product, and even a concept café in Manhattan.

The company also created a food incubator program that is designed to provide resources, expertise (e.g., brand and marketing, packaging and pricing), and funding to small, young companies that have promising ideas for new natural foods that they aspire to develop.

Although Hamdi Ulukaya has been extremely successful in his founding and establishment of Chobani, he has recognized that there are some key lessons learned from his experience as the head of a young but very successful and industry-leading company. These include the importance of hiring people with functional experience such as marketing, supply chain, logistics, operations, and quality control, as they were essential to the smooth operation of the company. In addition, remembering to respect the competition and not to underestimate it is critical, as Chobani’s two main competitors, Dannon and Yoplait, launched their own Greek yogurt lines, and they were able to win back some of Chobani’s market share over time.

Discussion Questions

5.   Think about managing change at a personal level. Why is it so hard for so many people to change their behavior or way of thinking? Are these personal challenges to managing change also relevant to managing change in organizations?

6.   What can you learn from Hamdi Ulukaya about what is needed to become a successful entrepreneur?

On January 1, Year 1, the general ledger of a company includes the following account balances:

The $42,000 beginning balance of inventory consists of 420 units, each costing $100. During January Year 1, the company had the following inventory transactions:

The following information is available on January 31, Year 1.

1. At the end of January, the company estimates that the remaining units of inventory are expected to sell in February for only $100 each.
2. The company estimates future uncollectible accounts. The company determines $5,200 of accounts receivable on January 31 are past due, and 30% of these accounts are estimated to be uncollectible. The remaining accounts receivable on January 31 are not past due, and 5% of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger.)
3. Accrued interest expense on notes payable for January. Interest is expected to be paid each December 31.
4. Accrued income taxes at the end of January are $13,500.

Exercise 6-21B Part 5

5. Prepare a classified balance sheet as of January 31, Year 1. (Amounts to be deducted should be indicated with a minus sign.)
  

At the core of financialization is the idea that organizations should be managed as though maximizing the shareholders’ financial wealth is the only possible or legitimate goal (Cardao-Pito, 2017) At least, that has been the mantra for most businesses for a long time. It is the duty of company management to maximize shareholder wealth. In 1954, Peter Drucker had argued that “There is only one valid purpose of a corporation, to create a customer.” If the customer’s needs are met, then the shareholder’s needs will in due course also be met. When customers are delighted, the firm makes more money and can afford to pay workers more and meet the needs of other stakeholders. Moreover, customer capitalism is intrinsically moral: human beings are creating value for other human beings. (Denning, 2019)

There are advantages of wealth maximization include increased return, a consistent strategic focus, and making decisions that are based on data. Disadvantages can include the potential for unethical business practices, stock price manipulation, and refraining from investing in employees to save in labor costs. “Companies that deliver value to shareholders while destroying value for other stakeholders have a fundamentally flawed business model. Those that create value for stakeholders are cultivating sources of extra value that can fuel competitive advantage for years to come. Sustainable value occurs only when a company creates value that is positive for its shareholders and its stakeholders.” (Laszlo et al, 2005) Companies that have a positive impact on the stakeholders put themselves in position to create future value which in turn helps maximize wealth for shareholders as well as employees in the company.

Required :

compare and contrast the above view on shareholder maximization with your own. Support your position by offering a counterpoint or resources from which your peers can derive additional knowledge.

Answer all questions. Showing your work

Proposal #1 would extend trade credit to some customers that previously have been denied credit because they were considered poor risks. Sales are projected to increase by $200,000 per year if credit is extended to these new customers. Of the new accounts receivable generated, 6% are projected to be uncollectible. Additional collection costs are projected to be 5% of incremental sales, and production and selling costs are projected to be 78% of sales. Your firm expects to pay a total of 30% of its income after expenses in taxes.

1) Compute the incremental income after taxes that would result from these projections:

2) Compute the incremental Return on Sales if these new credit customers are accepted: If the receivable turnover ratio is expected to be 5 to 1 and no other asset buildup is needed to serve the new customers…

3) Compute the additional investment in Accounts Receivable

4) Compute the incremental Return on New Investment

5) If your company requires a 20% Rate of Return on Investment for all proposals, do the numbers suggest that trade credit should be extended to these new customers? Explain.

Proposal #2 would establish local collection centers throughout the region to decrease the time it takes to convert credit payments that are mailed in by check to cash. It is estimated that establishing these collection centers would reduce the average collection time by 2 days (from 5 days to 3 days).

1) If the company currently averages $20,000 in collections per day, how many dollars will this suggested cash management system frees up?

2) If all freed up dollars would be used to pay down debt that has an interest rate of 8%, how much money could be saved each year in interest expense?

3) Do the numbers suggest that this new system should be implemented if its total annual cost is $5200? Explain.

O’Neil Enterprises produces a line of canned soups for sale at supermarkets across the country. Demand has been “soft” recently and the company is operating at 75 percent of capacity. The company is considering dropping one of the soups, beef barley, in hopes of improving profitability. If beef barley is dropped, the revenue associated with it will be lost and the related variable costs saved. The CFO estimates that the fixed costs will also be reduced by 25 percent.

The following product line statements are available.

Required:

a-1. Complete the following differential cost schedule.

b. When the product manager for the minestrone soup hears that managers are considering dropping the beef barley line, she points out that many O’Neil customers buy more than one soup flavor and if beef barley is not available from O’Neil, some of them might stop buying the other soups as well. She estimates that 10 percent of the current sales of both broth and minestrone will be lost if beef barley is dropped.

b-1. Complete the following differential cost schedule.

When the product manager for the minestrone soup hears that managers are considering dropping the beef barley line, she points out that many O’Neil customers buy more than one soup flavor and if beef barley is not available from O’Neil, some of them might stop buying the other soups as well. She estimates that 10 percent of the current sales of both broth and minestrone will be lost if beef barley is dropped.

B1. Complete the following differential cost schedule.

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What are the benefits and challenges for a firm to be listed and traded on ASX?