Assume today is March 16, 2016. Natasha Kingery is 30 years old and has a Bachelor of Science degree in computer science. She is currently employed as a Tier 2 field service representative for a telephony corporation located in Seattle, Washington, and earns $38,000 a year that she anticipates will grow at 3% per year. Natasha hopes to retire at age 65 and has just begun to think about the future.

Natasha has $75,000 that she recently inherited from her aunt. She invested this money in 30-year Treasury Bonds. She is considering whether she should further her education and would use her inheritance to pay for it.9

She has investigated a couple of options and is asking for your help as a financial planning intern to determine the financial consequences associated with each option. Natasha has already been accepted to both of these programs, and could start either one soon.

One alternative that Natasha is considering is attaining a certification in network design. This certification would automatically promote her to a Tier 3 field service representative in her company. The base salary for a Tier 3 representative is $10,000 more than what she currently earns and she anticipates that this salary differential will grow at a rate of 3% a year as long as she keeps working. The certification program requires the completion of 20 Web-based courses and a score of 80% or better at the end of the course work. She has learned that the average amount of time necessary to finish the program is one year. The total cost of the program is $5000, due when she enrolls in the program. Because she will do all the work for the certification on her own time, Natasha does not expect to lose any income during the certification.

Another option is going back to school for an MBA degree. With an MBA degree, Natasha expects to be promoted to a managerial position in her current firm. The managerial position pays $20,000 a year more than her current position. She expects that this salary differential will also grow at a rate of 3% per year for as long as she keeps working. The evening program, which will take three years to complete, costs $25,000 per year, due at the beginning of each of her three years in school. Because she will attend classes in the evening, Natasha doesn’t expect to lose any income while she is earning her MBA if she chooses to undertake the MBA.

1. Determine the interest rate she is currently earning on her inheritance by going to the U.S. Treasury Department Web site (treasury.gov) and selecting “Data” on the main menu. Then select “Daily Treasury Yiled Curve Rates” under the Interest Rate heading and enter the appropriate year, 2016, and then search down the list for March 16 to obtain the closing yield or interest rate that she is earning. Use this interest rate as the discount rate for the remainder of this problem.

2. Create a timeline in Excel for her current situation, as well as the certification program and MBA degree options, using the following assumptions:

   • Salaries for the year are paid only once, at the end of the year.

   • The salary increase becomes effective immediately upon graduating from the MBA program or being certified. That is, because the increases become effective immediately but salaries are paid at the end of the year, the first salary increase will be paid exactly one year after graduation or certification.

3. Calculate the present value of the salary differential for completing the certification program. Subtract the cost of the program to get the NPV of undertaking the certification program.

4. Calculate the present value of the salary differential for completing the MBA degree. Calculate the present value of the cost of the MBA program. Based on your calculations, determine the NPV of undertaking the MBA.

5. Based on your answers to Questions 3 and 4, what advice would you give to Natasha? What if the two programs are mutually exclusive? That is, if Natasha undertakes one of the programs there is no further benefit to undertaking the other program. Would your advice be different?

2. a. The founder &samhoud has practiced entrepreneurial leadership, do you agree or not? Please provide the answer in detail

b. What do you think that make Samhoud so successful in leading his company?

a. XYZ Inc. is accused of being a monopoly. The CEO claims that it’s not a monopoly, arguing that if XYZ were to raise its price it would lose sales. This is because consumers always have the option to spend their money on other goods. Is the CEO’s argument persuasive? Explain (6 pts.)

b. (Unrelated to the above) A monopoly firm is currently maximizing profit, earning economic profit of $10 million per year. It is now successfully sued by a former employee who is awarded $1 million. A manager of the firm argues that to recoup the lost $1 million, the firm needs to raise its price. Do you agree? Explain. (6 pts).

Consider the following information:

1. On December 1, 2019, a U.S. firm plans to purchase a piece of equipment (with an asking price of 100,000 francs) in Switzerland during January of 2020. The transaction is probable, and the transaction is to be denominated in euros.
2. On December 1, 2019, the company enters into a forward contract to buy 100,000 Swiss francs for $1.01 on January 31, 2020.
3. Spot rates and the forward rates for January 31, 2020, settlement were as follows (dollars per Swiss franc):

   	Spot Rate	Forward Rate for 1/31/20
   December 1, 2019	$0.99	$1.01
   Balance sheet date (12/31/19)	$1.01	$1.02
   January 31 and February 1, 2020	$1.04

4. On February 1, the equipment was purchased for 100,000 Swiss francs.

Required:

1. Prepare all journal entries needed on December 1, December 31, January 31, and February 1 to account for the forecasted transaction, the forward contract, and the transaction to buy the equipment.
2. When should the company reclassify any amounts reported in other accumulated comprehensive income as a result of the cash flow hedge?

In a large accounting firm, the proportion of accountants with MBA degrees and at least five years of professional experience is 70% as large as the proportion of accountants with no MBA degree and less than five years of professional experience. Furthermore, 20% of the accountants in this firm have MBA degrees, and 26% have fewer than five years of professional experience. If one of the firm’s accountants is selected at random, what is the probability that this accountant has no MBA degree AND less than five years of professional experience?

AMP Corporation (calendar-year-end) has 2020 taxable income of $1,900,000 for purposes of computing the §179 expense. During 2020, AMP acquired the following assets:

1.What is the maximum amount of §179 expense AMP may deduct for 2020?

2.What is the maximum total depreciation, including §179 expense, that AMP may deduct in 2020 on the assets it placed in service in 2020, assuming no bonus depreciation?

Problem #2

A machine, which cost $400,000, is acquired on October 1, 2020. Its estimated salvage value is $30,000 and its expected life is 8 years.

Instructions

Calculate depreciation expense for 2020 and 2021 by each of the following methods, showing the figures used. SHOW ALL WORK!

(a) Double-declining balance

(b) Straight-Line

A1 Systems Inc. is a U.S.-based company that prepares its consolidated financial statements in accordance with U.S. GAAP. The company reported income of $8,000,000 in 2014 and stockholders’ equity of $30,000,000 as of December 31, 2014.

The CFO of A1 Systems has learned that the U.S. Securities and Exchange Commission (SEC) is considering requiring U.S. public firms to use IFRS in preparing consolidated financial statements. The company wishes to determine the impact that a switch to IFRS would have on its financial statements and has engaged your team to prepare a reconciliation of income and stockholders’ equity from U.S. GAAP to IFRS. Your team has identified the following five major areas in which accounting principles based on U.S. GAAP differ from those of IFRS.

Inventory

At year-end 2014, inventory had a historical cost of $5,000,000, a replacement cost of 4,750,000, a net realizable value of $4,800,000, and a normal profit margin of $900,000.

Property, plant, and equipment

The company acquired a building on 1/1/2012 at a cost of $10,000,000. The building has an estimated useful life of 30 years, an estimated residual value of $1,000,000, and is being depreciated on a straight-line basis. On 1/1/2013, the building was appraised and determined to have a fair value of $11,150,000. There is no change in estimated useful life or residual value. In a switch to IFRS, the company would use the revaluation model to determine the carrying value of PP&E subsequent to acquisition.

Impairment of Assets

The company purchased a piece of equipment on 1/1/2014 at a cost of $1,000,000. The equipment is expected to have a useful life of 10 years and no residual value. The straight-line method of depreciation is used. Technological innovations took place in the industry during 2014. At year-end 2014, the equipment is determined to have a selling price of $800,000 with zero-cost to sell. Expected future cash flows from continued use of the equipment are $950,000, and the present value of the expected future cash flows is $825,000.

On March 1, 1974, a grand jury indicted seven former aides to U.S. President Richard Nixon for attempting to cover up White House involvement in a burglary of the Democratic National Committee at the Watergate complex in Washington. On April 18, the judge in the case, John Sirica, issued a subpoena for tapes of President Nixon’s conversations with the defendants. The President’s attorney, James St. Clair, attempted to delay responding to the subpoena. The prosecutor, Leon Jaworski, then used an unusual procedure to appeal directly to the Supreme Court and request that the Court order the President to supply the tapes. The Court heard oral arguments on July 8, and the justices met on July 9 to decide the case. One justice, William Rehnquist, withdrew from the case, probably because he had worked in President Nixon’s Justice Department. Of the remaining eight justices, six quickly agreed to uphold the prosecutor’s request. Two justices, Warren Burger and Harry Blackmun, were reluctant to uphold the prosecutor’s request, because they thought his direct appeal to the Supreme Court was improper. Also on July 9, President Nixon’s attorney said that the President had “not yet decided” whether he would supply the tapes if the Supreme Court ordered him to. This statement was probably intended to pressure the Court into backing down from the confrontation. At minimum, it was probably intended to encourage some justices to vote against upholding the prosecutor’s request. If the vote was split, the President could argue that it was not sufficiently definitive for a matter of this magnitude. Jaworski believed that in the event of a split vote, the President would “go on television and tell the people that the presidency should not be impaired by a divided Court.” We will regard this as a two-player game. Player 1 is Justices Burger and Blackmun, whom we assume will vote together; we therefore treat them as one player. Player 2 is President Nixon. First, Justices Burger and Blackmun decide how to vote. If they vote to uphold the prosecutor’s request, the result is an 8-0 Supreme Court decision in favor of the prosecutor. If they vote to reject the prosecutor’s request, the result is a 6-2 Supreme Court decision in favor of the prosecutor. After the Supreme Court has rendered its decision, President Nixon decides whether to comply by supplying the tapes, or to defy the decision.

President Nixon’s preferences are as follows: • Best outcome (payoff 4): 6-2 decision, President defies the decision. • Second-best outcome (payoff 3): 6-2 decision, President supplies the tapes. • Third-best outcome (payoff 2): 8-0 decision, President supplies the tapes. • Worst outcome (payoff 1): 8-0 decision, President defies the decision. Explanation: The President’s best outcome is a divided decision that he can defy while claiming the decision is not really definitive. His worst outcome is an 8-0 decision that he then defies; this would probably result in immediate impeachment. As for the two intermediate outcomes, the President is better off with the weaker vote, which should give him some wiggle room. Justices Burger and Blackmun’s preferences are as follows: • Best outcome (payoff 4): 6-2 decision, President supplies the tapes. • Second-best outcome (payoff 3): 8-0 decision, President supplies the tapes. • Third-best outcome (payoff 2): 8-0 decision, President defies the decision. • Worst outcome (payoff 1): 6-2 decision, President defies the decision. Explanation: In their best outcome, Burger and Blackmun get to vote their honest legal opinion that the prosecutor’s direct appeal to the Court was wrong, but a Constitutional crisis is averted because the President complies anyway. In their second-best outcome, they vote dishonestly, but they succeed in averting a major Constitutional crisis. In their third-best outcome, the crisis occurs, but because of the strong 8-0 vote, it will probably quickly end. In the worst outcome, the crisis occurs, and because of the weak vote, it may drag out. In addition, in the last outcome, the President may succeed in establishing the principle that a 6-2 Court decision need not be followed, which no member of the Court wants. 1. Draw an extensive form game tree for the situation described, providing clear labels and payoffs for each player. 2. Use backward induction to make a prediction about the outcome. 3. Find out what actually happened and write a brief summary.