Odin Tools purchased land with commercial buildings suitable for manufacturing its primary product, automotive tools in 2005 for 5.5 million dollars. Subsequently, in 2015 Odin Tools’ shareholders entered into an agreement to exchange all of the outstanding stock to Victory tools in exchange for Victory Tools’ common stock. In financial accounting, this would result in Odin becoming one of Victory Tools’ subsidiaries. Prior to concluding the deal, Victory Tools notified Odin that they had learned through discovery that the title to the Odin Tools’ real property was encumbered by $1,000,0000 in “liens” filed by Ulysses Ray Stuck in the county courthouse. In 2016 and 2017 Odin Tools paid legal expenses of $56,000 and $120,000 respectively to successfully remove those “liens”. The trial court found that the liens filed by U.R. Stuck were fraudulent. Odin Tools deducted these legal costs when filing their tax returns for 2016 and 2017. The Internal Revenue Service denied the deductions, restated Odin’s taxable income, assessed additional income taxes, and included a charge for interest on the disputed tax bill. The stock acquisition of Odin Tools was completed in 2018 by Victory Tools. Odin Tools has paid the additional taxes and interest to “stop the clock” and is seeking your advice on a course of action to recover those disputed taxes and interest from the Internal Revenue Service.

Founded in 1906, Rayovac had become, over the course of the twentieth century, one of the best-known battery producers in the U.S. However in 1996, with its market share steadily eroding due to fierce competition from Duracell, Energizer, and Panasonic, it was purchased by the private equity firm Thomas H. Lee and Partners (THL). Over the next decade the firm embarked upon an ambitious acquisitions program which saw it grow from a $400 million annual revenue business in 1996 to an over $2.8 billion annual revenue business by 2005.

In 2003, the global battery market was worth about $24 billion in sales with the U.S. accounting for about one third of global consumption. About 73% of Rayovac’s revenues came from North America. Though the U.S. market was growing at an annual rate of 7.4%, fierce competition in the U.S. led to considerable price discounting and required significant advertising and promotional expenditures. Rayovac, as the number three player in market share behind Duracell (a division of Gillette) and Energizer, competed as a value brand rather than as a premium brand. It sold a high-quality product but at prices 10-15% below its main competitors. With the proliferation of personal electronic devices, Rayovac expected strong growth to continue, especially in emerging markets around the world as income grew there.

Q1: Do a SWOT analysis for Rayovac.

Strengths:

Weakness:

Opportunities:

Threats:

1. On January 3, 2017, Pecan Company acquires $100,000 of Pie Company's 10-year, 10% bonds at a price of $103,220 to yield 9.5%. Interest is payable each June 30 and December 31. The bonds are classified as held to maturity.

a) Assuming that Pecan Company uses the effective interest method, what is the amount of interest revenue that would be recognized in 2018 related to these bonds?

b) Assuming that Pecan Company uses the straight line method, what is the amount of premium amortization that would be recognized in 2019 related to these bonds?

You have always been told that the cost of capital for Clark Upholstery is 9%, so you started to evaluate the two alternatives (renew or replace) using the 9% cost of capital. However, it occurred to you that you have never calculated the cost of capital and you are not sure the last time some else may have calculated the cost of capital. Therefore, before you go any further in the process of evaluating the two alternatives you decide to calculate the cost of capital using the firm’s current capital structure and current yields on long term debt and equity. To make the calculation you know you need the balance sheet to determine the capital structure. Clark Upholstery’s current balance sheet is as follows:

Current Assets $75,000 Current Liabilities $25,000

Fixed Assets Long Term Debt (12%) $150,000

Land $100,000 Equity

Equipment 150,000 Common Stock $50,000

Total Fixed Assets $250,000 Retained Earnings 100,000

Total Equity $150,000

Total Assets $325,000 Total Liab & Equity $325,000

You will use the balance sheet to determine the relative weight of debt vs equity in your long-term capital structure. You also know that you must determine the current yield/value on your debt and equity in order to determine the after-tax cost of both debt and equity. Having both the relative weights of your capital structure and after-tax rates you can then determine your Weighted Average Cost of Capital (WACC), which you will use to evaluate the two alternatives (renew vs replace).

Your outstanding long-term bonds have a 12% coupon rate, but are selling at a discount on the publicly traded market. The current price is $88, that is $880 for a $1,000 face value bond. You need to determine the current yield/value of the current long-term debt. You are considering selling more bonds in the public market to finance the cost of the renewal or replacement. If you do this your investment banker is telling you that a 20-year bond would need a coupon rate of 13.6%, and to be sold Clark Upholstery would incur a $45 per bond discount and flotation costs of $32 per bond. Using this information, you calculate the cost of your current long-term bonds and also the cost if you sell $100,000 additional long-term bonds to finance the investment.

The other portion of your capital structure is your equity, which is comprised of Common Stock and Retained Earnings. Your stock is not publicly traded, so you decide to use the Capital Asset Pricing Model

(CAPM) to determine the cost of equity. To calculate the CAPM you need risk free rate (which you determine to be 4%) and also the markets expected return for the stock of companies like Clark (15%). Using historical information about Clark and also about the furniture Upholstery industry you determine that the firm’s beta is 0.88. You use this information to determine the equity cost of both Common Stock and Retained earnings.

Finally, you combine the debt and equity cost with the weights of debt and equity to determine Weighted Average Cost of Capital (WACC) assuming that Clark will finance the investment using the current mix of debt and use retained earnings (so no new equity is sold). You will also calculate the WACC assuming that Clark will finance $100,000 of the investment by issuing new bonds. Your Investment Banker advises you that taking on $100,000 of new long-term bonds will increase your Beta from 0.88 to 1.1.

You now have two WACC, one for the current capital structure and one that assumes the investment is financed by $100,000 of new long-term bonds and the balance being funded by Retained Earnings. You will use both WACC to evaluate the two investment alternative (renew or replace).

Now that you have all the calculations of incremental after-tax cash flow and WACC you are ready to evaluate the alternatives. To do this you decide to calculate all the classic evaluation methods, Payback Period, PV and its related Profitability Index and Internal Rate of Return. You have also heard about Modified Internal Rate of Return (MIRR) and aren’t sure if you will need/use it, but you will calculate it just in case. The company is concerned about an economic downturn in the near future which could throw off the revenue projections, and therefore has established a 4-year payback period as a pre-qualification for any new investments. You will now complete your project evaluation and do an accept/reject determination and a ranking for the two alternatives at both WACC.

Alt 1 Alt 2

26300   50100
36000   65200
35980   39420
43460   16340
33460   15940
1800   2200

a.) The article states that Bird generated $3.65 per ride. This is

1. Total revenue
2. Marginal revenue
3. Average revenue
4. Profit margin

b. Categorize the following costs as fixed, variable, or opportunity costs.

Charging costs:

Repair costs:    

Regulatory costs:

Customer support staff costs:

Profit that could be made if Bird invested in pedal bikes:

Credit card processing costs:

Office space staff:

Engineers:

c. Bird has lost tens of millions of dollars and has never turned a profit since it entered the scooter rental service market. How and why does Bird continue to operate if it has never generated a profit?

d. There are typically 3-4 scooter rental companies operating in the same city. Would you predict demand for one specific scooter company, say Bird, is elastic or inelastic? Explain.

e.   Do you think the scooter-rental industry is perfectly competitive? What characteristics are like a perfectly competitive industry? What characteristics are unlike a perfectly competitive industry

The scooter wars flared up seemingly overnight, driving huge amounts of scorn, hype, and fundraising as traffic-choked tech workers in California fell in love and hate with electric scooters brought to their cities by two now famous startups: Bird and Lime. The scooter space quickly gave birth to unicorns, regulatory spats, lawsuits, and more. It was a wild ride for the companies and the tech industry as a whole. But now some time has passed, and although scooters are very much still in the conversation, the early hype has faded. That brings us to a fun question: Are the scooter companies any good as businesses? As capital-accepting and headline-generating vehicles, they are tremendous. But does that mean they’ll mint profits?Index The Bird Income Statement: Happily, after we spent time scratching about in the dark trying to answer our viability question without too much to work with, we have new data on Bird, one of the two leading American scooter companies, via this excellent report from The Information.The report in question covers the company’s performance metrics: revenue (total money brought in from riders), gross margin (the percent of revenue that Bird has left over to pay for its operating costs, like office space and staff), and its costs of revenue (the money required to provide its basic service to customers).The report’s data helps us understand Bird’s chance of long-term survival. It also helps us understand the scooter sector, as other key players have similar business models.Constructing gently, here’s a partial income statement of sorts for Bird based on what The Information gleaned from a Bird investor digest. Revenue: Bird generated $3.65 per ride, far above our estimate of $2.50. Bird scooters were handling six rides per day in January of this year, a figure that fell to five by May. The number of rides per day matters for Bird and other scooter companies. If they can generate more revenue per day per scooter by increasing utilization, their model makes more sense. Here we see the opposite trend.Those rides grew Bird’s revenue from a run rate of $65 million  in May of 2018 to “hundreds of millions of dollars annually” by this October.So the company has growth figured out; however, its profitability is a different matter.Gross Margins: As the above chart indicates, Bird has a diverse set of revenue costs. Let’s explore them.Bird’s gross margin is 19 percent. That’s what left of revenue after charting (47 percent of revenue), repair (14 percent), credit card processing (11 percent), regulatory costs (5 percent), and customer support and insurance (3 percent).Is 19 percent good? Not really. Keep in mind that a company has to pay its operational costs from its gross profit. Gross profit is revenue minus cost of revenue. So if you only have 19 percent gross margins, you’ve spent most of your revenue just generating your top line. At Bird’s old $65 million run rate, for example, the firm would only have $12.4 million left over after costs of revenue to pay for offices and staff with 19 percent gross margins.Software companies sport gross margin percentages in the high 70s to low 80s. That’s why they are worth so much; their revenue is extremely profitable on a per-dollar basis.The figures above tell us margin improvement (getting that gross margin percentage higher) at scooter companies will be paramount. At Bird’s current gross margins, the firm and its cohort will struggle to generate operating profits.The Information goes on to note that “Bird projected much better economics in the ‘near term,’ allowing it to generate a 33% gross profit margin.” I’d wager that’s the golden ticket. Every percent of gross margin that Bird can drive at the moment, holding revenue flat, raises its gross profit by around 5 percent. That’s enormous.Thinking a bit more, Bird and Lime must be consuming mountains of cash (more here and here) for investing purposes; neither, given our math, generate anything like enough cash to finance their employee costs—let alone what they are spending on new hardware. So I’d hazard that while either firm is adding markets to their portfolio, they are working to add capital to their accounts.

ID   SEX   SMOKE    AGE    PULSE_1  PULSE_2     NAME       ID    SEX   SMOKE   AGE    PULSE_1     PULSE_2     NAME

1        1         1           31          62             126         ALLAN        21 1          1         38            70 122            ARTHUR

2        2          1         20 78              154         MARY 22 1          0        20            80 139             SAMUEL

3        2          1           28       76 146        BILLIE 23      2 1 33   76 148 AMY

4        2          1          29          81             174        LINDA          24      2         0 25 78 148            ANNIE

5        1         1           21          66            128       MICHAEL      25     2          0 37    76 136            JANE

6        2          1           27         96            265        CATHY          26     2          0 22 80 158            BETH

7        1          0          21           68             120        HARVEY       27     1          0     32   68   116            CHRIS

8        2         1          42           74             149       JENEE            28      1          0     22 70 120            FRANCIS

9        2          1          22          88            160       JEAN               29      1         1      22    68 126             ERNIE

10      1         1          28          90             144       FREEDY         30     1          1        19          70 144           BERTRAM

11      2          0          21          82            140       PAT                 31      2        0        21          86 144            NANCY

12      2          1         22           79            156       MARKIE         32     1         0       26         72 126            BRUCE

13      2         1          43           66           148        SUSAN           33      2        0      32   84 136             MARGE

14      2         0          19           68            142     DENISE           34      2        0        24        72 142             BARBARA

15      1         1          23           92           134       JOHN              35      2       0 28         80 138              JENNY

16      1         0          41          68           112      DAVID 36      1        1 34      62 132              WILLIAM

17      1         0          24          76           158      ROBERT           37      1        0        35            74    164            KYLE

18      2         0          21          86           146      ALLISON          38       1       1       21 90     138           BEN

19      2         1          21           88           156      JILL                 39      1       0       21 66 142           GREG

20      1         1         20            66         132       JACKSON        40       1      0        30 70 132           RICHARD

1. Read the data into R or R-studio and report the summary of the data for all variables. R command to get the summary followed by output without the change of format should be pasted in your document.

The paper “Outcomes at School Age After Postnatal Dexamethasone Therapy for Lung Disease of Prematurity”, New England Journal of Medicine, Volume 350, reports the outcomes at school age in children participating in a trial of an early postnatal therapy for preventing chronic lung disease of prematurity. All of the infants in the study had severe respiratory distress syndrome requiring mechanical ventilation shortly after birth. The attached dataset ‘Child_IQ’ contains the IQs of 74 randomly selected children from the study. Use the technology of your choice to answer the following question:

Give a 95% confidence interval for the standard deviation of IQ scores for children in the study group. ANS:  (10.8, 15.0)

Do confidence interval Estimate the difference between grade of Male and female students using 98% level of confidence and write your conclusion - insert the SPSS output in the space below.

Do ANOVA test

Test to see if there is a difference between grade of different ethnic groups - insert the SPSS output in the space below. What conclusion can you make based on your analysis?

Do confidence interval

Estimate the difference between grade of Male and female students using 98% level of confidence and write your conclusion - insert the SPSS output in the space below.