Question 3 You are the accountant for FreeWheels Ltd, a tandem bicycle manufacturer that is located in Coffs Harbour and has customers in Australia and the USA. Their estimated current sales volume is 6,000 units per month and based on this level of production, the company has budgeted the following costs and prices per unit: Manufacturing Costs per unit (Based on production of 6,000 units per month) Direct Material Cost $75.00 Direct Labour Cost 35.00 Variable Factory Overhead 10.00 Fixed Factory Overhead 20.00 Total Manufacturing Cost 140.00 Selling & Administrative Costs Variable Selling and Administrative Cost 25.00 Fixed Selling and Administrative Cost 20.00 45.00 Total Cost Per Unit 185.00 Selling Price Per Unit $370.00 Cycle World Ltd is an overseas company that sells bicycles all over the world, with the majority of their market in China and India. They have approached FreeWheels about obtaining a quote for a special one-off order as they would like to purchase 25,000 bikes. As this will be a special order sale, there will be no costs incurred for variable selling and administrative costs and no additional fixed costs will be incurred. This order is because their existing supplier has suffered substantial earthquake damage to their premises, but the CEO of Cycle World Ltd also hinted to your CEO that if they are satisfied with the product, this might not be the last deal between the two businesses. Required: 1. Given this knowledge, what amount should FreeWheels Ltd. bid for this contract in each of the following circumstances: a) The FreeWheels’s annual factory capacity is 100,000 units. b) The FreeWheels’s annual factory capacity is 90,000 units. (To fulfil the order, you may have to pull the product from your regular production). 2. Assuming that the annual factory capacity is 100,000 units, prepare a report for your CEO explaining your justification for the bid price that you came up with in 1 a). Discuss the possible opportunities and potential disadvantages with accepting this contract with Cycle World. Give both quantitative and qualitative support to your discussion.

Do the roles of the CEO and CFO overlap? If so, how?

What are the issues with CEO compensation? Do you agree?

Strategic Acquisitions and Accelerated Integration of Those Acquisitions are a Vital Capability of Cisco Systems Cisco Systems is in the business of building the infrastructure that allows the Internet to work. As the Internet evolved, however, Cisco’s business was required to change with this evolution. As part of its advancement, Cisco Systems has used an acquisition strategy to build network products and extend its reach into new areas, both related and unrelated. In the beginning, digital connectivity was important through e-mail and Web browsing and searches. This evolved into a network economy facilitating e-commerce, digital supply chains, and digital collaboration. Subsequently, the digital interaction phase moved Cisco into developing infrastructure for social media, mobile and cloud computing, and digital video. The next stage seems to be “the Internet of everything” connecting people, processes, and data (those of you who attended AT&T’s CEO talk on campus would remember his mentioning of this!) This will require the basic core in routing, switching, and services, as well as large data centers to facilitate visualization through cloud computing. Video and collaboration as well as basic architecture of the business will be transforming to become the base strategic business blocks. Furthermore, the need to have strong digital security will be paramount. Cisco has entered many aspects of the business in which it competes through acquisitions. For instance, in 2012, Cisco acquired TV software developer NDS for $5 billion. NDS Group develops software for television networks. In particular, its solutions allow pay-TV providers to deliver digital content to TVs, DVRs, PCs, and other multimedia devices. It provides solutions that protect digital content so only paid subscribers can access it. Because of Cisco’s customer-driven focus, it has sought to help its customers capture these market transitions and meet their particular needs. Of course, Cisco also builds the routers that allow video data and e-mail communications to come together through their blade servers (individual and modular servers that cut down on cabling). These routers and servers support cloud computing for the mobile devices that deliver the video that NDS software enables on desktop and mobile devices. Also in 2012, Cisco purchased Meraki for $1.2 billion. Meraki provides solutions that optimize services in the cloud. For instance, it offers mid-sized customers Wi-Fi, switching, security, and mobile device management centrally from a set of cloud servers. For instance, if you are a server at a university or other company campus it supports, you can bring your own personal device into the network, which allows guest networking and facilitates application controls. It manages the firewall and other advanced networking services to protect security as well. John Chambers, Cisco CEO, has helped the firm move through the many transitions noted earlier. In the IT sector, 90 percent of acquisitions fail. However, as Chambers notes. “although Cisco does better than anyone else, we know that a third of our acquisitions won’t work.” Chambers worked for companies that did not successfully make transitions. Wang Laboratories missed a transition, and after experiencing this as an executive, Chambers learned to have a “healthy paranoia.” He adds, “more than anything, I’ve tried to make Cisco a company that can see big transitions and move.” One way they do this is to “listen to the customers very closely” to understand the necessary changes. As Cisco makes the transition into the all-everything network, not only must it manage the cloud, but it also must provide service to the mobile devices that work in cellular networks. Accordingly, Cisco also acquired Intucell, a self-optimizing network software developer, for $475 million. It likewise acquired Truviso, Inc., a provider of network data analysis and reporting software, for an undisclosed price (Truviso was partly owned by venture capital firms and was headquartered in Israel). Most recently, Cisco acquired Ubiquisys, which cuts cellular carriers’ costs “by shifting traffic from towers to more targeted locations inside an office, home or public space, which also boosts the service’s reliability.” This shifting-traffic approach is especially efficient when seeking to improve “coverage in crowded areas such as stadiums, convention centers and subway stations.” These acquisitions help cellular network customers manage their products in the network more efficiently in the delivery of data, e-mail and video services. As you can see, for this series of acquisitions, Cisco has used acquisitions strategically to move into new areas of its environment changes, to learn about new technologies, and to gain knowledge on new technologies as it experiences these transitions. In the process of this rapid change, Cisco has developed a distinct ability to integrate acquisitions. When Cisco contemplates an acquisition, along with financial due diligence to make sure that it is paying the right price, it develops a detailed plan for possible post-merger integration. It begins communicating early with stakeholders about integration plans and conducts rigorous post-mortems to identify ways to “make subsequent integrations more efficient and effective.” Once a deal is completed, this allows the company to hit the ground running when the deal becomes public. Cisco is ready “from Day 1 to explain how the two companies are going to come together and provide unique value and how the integration effort itself will be structured to realize value.” The firm does not “want the [acquired] organization to go in limbo,” which can happen if the integration process is not well thought out. Also, during the integration process, it is important to know how far the integration should go. Sometimes integration is too deep, and value that was being sought in the acquisition is destroyed. Sometimes it may even pay to keep the business separate from Cisco’s other operations to allow the business to function without integration until the necessary learning is complete. “Cisco learned the hard way that complex deals require you to know at a high level of detail how you’re going to drive value.”

Questions:

1. Of the “Reasons for Acquisitions” section in the chapter, which reasons are the primary drivers of Cisco’s ’ acquisition strategy?

2. Of the acquisitions Cisco has completed, which ones are hor- izontal acquisitions and which ones are vertical acquisitions? Which of these acquisitions do you believe have the strongest likelihood of being successful and why?

3. Explain John Chambers’ ’ views about acquisitions. How have his views affected the nature of Cisco’s ’ acquisition strategy?

4. Describe the core plan Cisco has in place to guide the inte- gration of an acquired firm into its operations. What are the strengths of this plan, and what are its potential weaknesses?

0n 4/21/2020, Netflix reported 16 million new subscribers during the first quarter of 2020. Streaming services are a bright spot during this economic shutdown due to the Coronavirus outbreak, but the company faces negative factors as well. Increased operating costs may explain the results, discussed late in the article, that profit of $709.1, or $1.57 a share, was achieved while “the company was expected to earn $1.64 a share.” Nonetheless, shares rose in after-hours following Netflix’s release of its video to discuss financial results in the first quarter of 2020.

So, how does the breakdown of Netflix's new subscribers by geographic area help to assess the company’s operating results? Do you think that assessing financial information in addition to subscriber numbers by geographic area would help to further understand Netflix's performance during this period? Explain your reasoning. Is there a specific requirement to provide information about the geographic areas discussed by Netflix and reported in this article? Explain your answer and provide supporting citations to professional literature.

Answer the following questions.

(a) On May 1, 2020, Goldberg Company sold some machinery to Newlin Company on an installment contract basis. The contract required fi ve equal annual payments, with the first payment due on May 1, 2020. What present value concept is appropriate for this situation?

(b) On June 1, 2020, Seymour Inc. purchased a new machine that it does not have to pay for until June 1, 2022. The total payment on June 1, 2022, will include both principal and interest. Assuming interest at a 12% rate, the cost of the machine would be the total payment multiplied by what time value of money concept?

(c) Costner Inc. wishes to know how much money it will have available in 5 years if five equal amounts of $35,000 are invested, with the first amount invested immediately. What interest table is appropriate for this situation?

(d) Megan Hoff man invests in a “jumbo” $200,000, 3-year certificate of deposit at First Wisconsin Bank. What table would be used to determine the amount accumulated at the end of 3 years?

Recording Entries for Long-Term Note Receivable; Effective-Interest Method

On January 1, 2020, Jacobs Company sells land financed through a $64,000 note, issued by Andress Company. The note is a $64,000, 8%, annual interest-bearing note. Andress agrees to repay the $64,000 proceeds on December 31, 2021. The prevailing interest rate on similar notes is 9%. Assume that the cost of the land is equal to the fair value of the note.

Required

Prepare all entries for Jacobs over the note term, including any year-end adjustments. Use the effective interest method to amortize the discount.

Margo’s Memories, a company that specializes in photography and creating family and group photo portfolios, has 50 stores in major malls around the U.S. The company is considering an online business, which will require a substantial investment in web design, security, payment processing, and technology in order to launch successfully. What potential advantages or disadvantages will be difficult to quantify from a capital investment standpoint?

In December 1997, stress-testing by a U.S. investment bank showed that the firm could face severe losses should Russia default on its debt. The company reduced its exposure to Russia and purchased credit derivatives. Explain the concept of stress-testing. Do you think this strategy helped the company be unaffected by the Russian default which indeed happened in August 1998?

What is NVIDIA's business structure and what are the THREE currencies that the company is exposed against. Show analysis of exchange rate forecast of NVIDIA and show how sensitive the company's value if against the change in the value of the three foreign currencies against the U.S. dollar?