1a.    How has Sarbanes-Oxley of 2002 affected FASB’s jurisdiction and independence?

1b.    Is it possible that the rules of internal controls in Sarbanes-Oxley of 2002 are making firms excessively risk-averse? If so, how?

Internal Control : Performance Measures

Essex Engineering

Topic: Performance measures,

Essex is an industrial company with three divisions. Both the Midland Division and the North Division are long established. Senior managers are concerned that these divisions have a high percentage of products that are near the end of their product life-cycle. Forecast sales increases over the next 5 years is expected to be in the region of 4-5% per annum.

The East Division was acquired in 1999 and senior managers are optimistic that this division has very good growth potential. Most of the senior managers at this division have experience of working at the other divisions.

Since 1999 the head office has ranked all divisions according to return on investment (ROI) and residual income (RI). All managers believe that the rankings are important for future promotions and career development.

A small number of other performance measures are also used by managers. These include

These performance measures were agreed by all managers in 1999. At the time it was thought that managers should focus on only a small number of measures.

2002

The managers at the divisions provided the following information for the head office.

Selected data from the budgeted Management Accounts to 31 December 2002

Other measures

The head office has estimated that the group cost of capital is 10%

Ranking divisions in 2000

In 2000 the data on controllable and non-controllable costs and investments will be used to rank divisions.

Questions

Question 1

Based on the data provided comment on the relative financial performance of the two divisions and discuss how the ranking of the divisions changes if controllable and non-controllable costs and capital employed are analysed. (provide the calculation to prove your standpoint)

Question 2

Evaluate the choice of performance measures for the 3 divisions

Question 3

Identify and evaluate the difficulties faced by managers when measuring capital employed for a division.

Question 4

Discuss how using ROI can result in managers making poor investment decisions.

ROI has some built in biases that can lead managers to make poor decisions. First, ROI requires that all costs and benefits be stated in dollars. Because it is usually easier to quantify costs than benefits, ROI measurements can be biased in a way that gives undue weight to costs. Second, ROI focuses on benefits that can be predicted. It also tends to emphasize short run benefits over long run benefits. This biases ROI calculations to weigh short term costs and benefits more heavily than long term costs and benefits.

Question 5

Discuss the particular problems multinational companies have when evaluating the performance of divisions.   

Case Study- Microsoft Solving a Good Problem for a Company to Have (2004)

Strategic Overview:

Microsoft announced at the annual shareholders meeting in November 2002 that, despite having $40 billion in cash on its balance sheet, the company would be taking any substantive measures to distribute the cash to its roughly 4.2 billion shareholders. Microsoft state that the cash was needed to satisfy judgements that could arise from ongoing corporate and private antitrust lawsuits. While the company had a history of buying back its stock, Microsoft had never paid a dividend since going public in 1986. The no dividend policy made sense historically as high-tech, growth companies with high P/E’s, typically don’t issue dividends, but instead elect to plow their profits back into the business. But as of the shareholder meeting, Microsoft’s growth had slowed to about 10 percent annually, from 30 percent or more in the company’s early years, and the stock, as evidenced by its inclusion in the Dow Jones Industrial Average, had begun to look more like a stable blue chip that a high-flying tech issue. The announcement made at the 2002 meeting angered many shareholders. Growth had stagnated and the company was sitting on a pot of cash. It was an efficient business that was generating $1 billion a month in free cash. In a shrinking interest rate environment, Microsoft’s returns on short term investments were insignificant and reduced the firm’s return on equity. The state of affairs led one investor at the meeting to comment, “We need a reason to hold the stock. We need a dividend. We need something.”

Options:

Management was under pressure to act. They could choose between a myriad of options including: 1) Doing nothing, 2) Using the cash to finance acquisitions and expansion, 3) Returning the cash to shareholders by beefing-up the ongoing stock repurchase program, a program that had the company buying back shares at the rate of up to $ 6 billion a quarter, or 4) Returning cash to shareholders by issuing dividends. Given the company had virtually no debt (see below), share repurchase appeared to be an efficient way to solve the problem. Buybacks are tax efficient to individua investors and protect shares from dilution due to option exercise. Unlike repurchases, investors assume that dividends payments, once begun, will continue indefinitely.

Decision:

In mid-January of 2003, three months after the November 2002 shareholder meeting, the company surprised the investment community by announcing its first-ever annual cash dividend of 8 cents per share (2 cents per quarter). The dividend represented a total outlay of more than $850 million which translated into just over a quarter of 1 percent of the share price. While the dividend made big news, it was met with criticism that the dollar amount was insignificant. Following the announcement speculation immediately rose over Microsoft’s change in philosophy. One suggested reason for the dividend was President Bush proposed tax reform plan which would exempt shareholders from income tax on dividends (later changed to a 0.15 tax rate). Another possible reason, and the one that Microsoft stated publicly, is that many of the company’s legal risks are largely behind them. The company settled with the Justice Department and many private antitrust claimants and has made progress with the European Union.

Shareholder Reaction and Company Update:

Microsoft’s stock price dropped about $4 or 7% the day following the dividend announcement. This was partially attributable to the relatively weak outlook for the current quarters, but the falling price was likely an indication that some investors concluded that Microsoft had exhausted its growth options and the future looked uncertain. Despite the dividend payments and despite the stock buy back, Microsoft continued to increase its cash balance. In July of 2004, the company announced it would issue a special cash dividend of $3 per share payable on December 2, 2004. With almost 11 billion shares outstanding, the special dividend would return almost $33 billion in cash to shareholders. In July of 2004, the company also announced that it would begin to pay a regular quarterly dividend of $0.08 per quarter. The move represented a doubling of the dividend – the second time the dividend had doubled since the initial dividend issuance. But even with the latest doubling, Microsoft’s yield will still be below the 1.7% average yield for the S&P 500.

Questions:

1. Was the decision to start paying a cash dividend of $0.02 per share per quarter a good decision?

2. Was the $3 per share special dividend desirable?

3. What, if anything, should Microsoft have done with its $64 billion of cash and short term investments?

An organization monitors many aspects of elementary and secondary education nationwide. Their 2000 numbers are often used as a baseline to assess changes. In 2000 48 % of students had not been absent from school even once during the previous month. In the 2004 ​survey, responses from 6827 randomly selected students showed that this figure had slipped to 47 %. Officials would note any change in the rate of student attendance. Answer the questions below.

​(a) Write appropriate hypotheses.

Upper H 0 : The percentage of students in 2004 with perfect attendance the previous month ▼ is greater than 48%. is less than 48%. is different from 48%. is equal to 48%.

Upper H Subscript Upper A Baseline : The percentage of students in 2004 with perfect attendance the previous month ▼ is greater than 48%. is equal to 48%. is less than 48%. is different from 48%.

(b) Check the necessary assumptions.

The independence condition is ▼ satisfied. not satisfied. The randomization condition is ▼ not satisfied. satisfied. The​ 10% condition is ▼ satisfied. not satisfied. The​ success/failure condition is ▼ not satisfied. satisfied. ​

(c) Perform the test and find the​ P-value. ​P-value equals ________ ​(Round to three decimal places as​ needed.) ​

(d) State your conclusion. Assume a=0.05.

A. We fail to reject the null hypothesis. There is sufficient evidence to suggest that the percentage of students with perfect attendance in the previous month has changed.

B. We can reject the null hypothesis. There is sufficient evidence to suggest that the percentage of students with perfect attendance in the previous month has changed.

C. We fail to reject the null hypothesis. There is not sufficient evidence to suggest that the percentage of students with perfect attendance in the previous month has changed.

In Goa, India, the multiplier effect of iron ore exports is calculated to be 1.62 (Ta, 2003). Calculate the impact of an additional 1,000 rupees of iron ore exports on the economy of Goa.

2. Use the model of aggregate demand and short-run aggregate supply to explain how each of the following would affect real GDP and the price level in the short run.

1. an increase in government purchases
2. a reduction in nominal wages
3. a major improvement in technology
4. a reduction in net exports

3. The United Kingdom (UK) held a national referendum (vote) on whether the UK should remain in the European Union (EU), or should exit the EU. Exiting the EU is likely to have several consequences: (1) increased barriers to trade between the UK and the remaining EU countries; (2) Reduced refugee flows.

Use the AS/AD model to describe the short run and long run effect of the UK exit from the EU.

advantages and disadvantages of being employed by a boundary-less organization?

1 page paper

What fluid property is responsible for the develop­ment of the velocity boundary layer? Explain in detail.