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CASE ONE: DR. REDDY’S LABORATORIES LTD - CONQUERING THE WORLD WITH AFFORDABLE MEDICINE FOR THE MASSES...

CASE ONE:
DR. REDDY’S LABORATORIES LTD - CONQUERING THE WORLD WITH AFFORDABLE MEDICINE FOR THE MASSES

Dr. Reddy’s Laboratories Ltd. is a pharmaceutical company based in Hyderabad, Andhra Pradesh, India. The company was founded by Anji Reddy. Dr. Reddy’s manufactures and markets a wide range of pharmaceuticals in India and overseas. The company’s portfolio includes over 190 medications, 60 APIs (active pharmaceutical ingredients) for drug manufacture, diagnostic kits and critical care and biotechnology products.

Dr. Reddy’s is not just a generic company, but an API company with a much broader activity. It is the only Indian company to have significant R&D activities being undertaken overseas. Dr. Reddy’s has enormous capabilities in chemistry, formulation development, manufacturing, environmental management and research. With this depth of capabilities as well as a history of continuous progress, a workforce of more than 12,000 employees, and a global orientation, Dr. Reddy’s represents a company with great potential to become a brand in Western (US and European) markets.
1984–1990: Taking the first steps. In 1984, Dr. Reddy’s originally launched the production of active pharmaceutical ingredients. In 1986, Reddy’s started operations on branded formulations. Within a year, Reddy’s had launched Norilet, the company’s first recognized brand in India. Soon, Dr. Reddy’s obtained another success with Omez, and Reddy’s became the first Indian company to export the active ingredients for pharmaceuticals to Europe. Reddy’s started to transform itself from a supplier of pharmaceutical ingredients to other manufacturers into a manufacturer of pharmaceutical products in 1987.

1991–1999: Expanding and Innovating. The company’s first international move in 1992 took it to Russia, where Dr. Reddy’s formed a joint venture with Biomed. Dr. Reddy’s Research Foundation was established to carry out research in the area of new drug discovery. The focus has since changed to innovative R&D, hiring new scientists, especially Indian students studying abroad in doctoral and post-doctoral courses. In 1994, Reddy’s started targeting the US generic market and in 1997, it was ready for the next major step. From being an API and bulk drug supplier to regulated markets like the USA and the UK, and a branded formulations supplier in unregulated markets like India and Russia, Reddy’s made the transition into generics by filing an Abbreviated New Drug Application (ANDA) in the USA. In the same year, Reddy’s out-licensed a molecule for clinical trials to Novo Nordisk, a Danish pharmaceutical company. Reddy’s strengthened its Indian manufacturing operations in 1999 by acquiring American Remedies Ltd.

2000–2009: Growing Globally. In 2000, Dr. Reddy’s Research Foundation set up an American laboratory in Atlanta which was dedicated to discovery and design of novel therapeutics. The laboratory is called Reddy US Therapeutics Inc. and its main aim is the discovery of next-generation drugs. Reddy’s research thrust focused on large niche areas in Western markets: anti-cancer, anti-diabetes, cardiovascular and anti-infection drugs. In the year 2001, it became the first non-Japanese pharmaceutical company from the Asia-Pacific region to obtain a New York Stock Exchange listing, a ground-breaking achievement for the Indian pharmaceutical industry.

Reddy’s started its European operations in 2002 by acquiring two pharmaceutical firms in the United Kingdom. The acquisition of BMS Laboratories and its wholly owned subsidiary, Meridian UK, allowed Reddy’s to expand geographically into the European market. The American launch of Reddy’s house-branded ibuprofen tablets in 400, 600 and 800 mg strengthened in 2003. Direct marketing under the Reddy’s brand name represented a significant step in the company’s efforts to build a strong and sustainable US generic business. It was the first step in building Reddy’s fully-fledged distribution network in the US market. In 2005, Dr. Reddy’s entered into a marketing agreement with Eurodrug Laboratories, a pharmaceutical company based in the Netherlands, to improve its product portfolio for respiratory diseases. Dr. Reddy’s acquired Betapharm Arzneimittel GmbH from 3i for €480 million in March 2006. This is one of the largest-ever foreign acquisitions by an Indian pharmaceutical company. Betapharm is Germany’s fourth-largest generics pharmaceutical company. In 2008, Reddy’s also acquired Dowpharma’s small molecule business in the UK. Dr. Reddy’s announced in 2009 that it had entered into a strategic partnership with GlaxoSmithKline plc (GSK) to develop and market select products across emerging markets outside India.

Having started in 1984 as an API manufacturer, Dr. Reddy’s Laboratories are currently offering over 150 patented medications and more than 60 APIs, with more than 500 DFM fillings, and assuring safety and quality of the medicinal products. The main business of Dr. Reddy’s Laboratories, however, is the production and distribution of generic drugs: drugs that can be legally reproduced after the branded drug goes off-patent, which is usually after a time period ranging from 20 to 25 years, as well as biologically-similar alternatives, new chemical entities, and differentiated formulations. In other words, Dr. Reddy’s is mostly involved in cheap and efficient reproduction of medications which are no longer protected by patents. Thus, they can be sold under the brand-name price since expensive steps such as research and innovation of the drug have already taken place.

Dr. Reddy’s Laboratories offers more than 200 generic drugs which are distributed to countries in the West and to Asia. The production of generic drugs is more cost efficient since the drugs have already been developed and tested. Therefore, based on the original price of the off-patent drug, generic drugs are substantially cheaper to purchase, in agreement with Dr. Reddy’s Laboratories’ philosophy of making crucial pharmaceuticals available for everyone. These generic drugs are mostly offered in the major therapeutic areas of cardiological diseases, pain management and anti-infection drugs, as well as those used in dermatology and oncology. Generic and biologically-similar pharmaceuticals are sold under brand names, also known as branded generics, in order to supply people, who are willing to pay a small premium in order to get an efficient and recognizable product, with high quality yet affordable drugs. Well known generic brands by Dr. Reddy’s include Omez, Ciprolet, and Nise, which are holding leadership positions in various key markets, especially in India, Russia, and Commonwealth of Independent States countries.

In developed markets such as the USA, Germany, UK, and Australia, however, the drugs are not sold under branded names but their generic names, also called pure generics, in order to keep costs low in the production stage and lower the healthcare costs for the patients. Furthermore, Dr. Reddy’s Laboratories’ product range does not only contain copycat or generic drugs but also includes APIs and is the second largest provider of APIs since it distributes to more than 75 countries in the world. Being a world leader in generic APIs also has multiple advantages, such as keeping prices low and making it available for patients in the shortest amount of time.

Dr. Reddy’s Laboratories has performed very well in the past two years. It made revenues of more than 96,737,323.00 Indian Rupees (€1.3 billion) during the fiscal year 2012 with a gross profit of more than 55 %. The year 2013 followed with a remarkable growth of 20 % in revenues, which demonstrates the quick growth the company is experiencing due to their successful business strategies mentioned above. Because Dr. Reddy’s LTD is listed on NASDAQ, the past years were very beneficial for the stockholders due to a strong increase in earnings per share as well as dividend pay-out. The company’s stock was strongly bullish and share prices have risen significantly when compared to other indexes within the last 5 years and this has made Dr. Reddy’s a stable and efficient investment opportunity.

“If one analyses why we have been so successful, the single most important fact is our strength in the R&D and our ability to commercialize technologies developed in a quick and efficient manner”.
This quote by the Chairman and CEO of Dr. Reddy’s, G.V. Prasad, states why the company was able to become a world pharmaceutical company in less than 30 years: the fact that high priority was put on the R&D sector.

There are multiple daughter companies wholly owned by Dr. Reddy’s, such as Promius Pharma, which focus solely on innovation and new product development which are positioned not only to produce generic drugs but also to research new and affordable alternatives. Another important fact, which greatly contributed and still contributes to the company’s success, is the patient-friendliness of the company. Dr Reddy’s is different from other pharmaceutical companies because it does not exploit the end-consumer by exaggerating medicinal products but puts efforts into making medicine affordable for everyone. This fact almost instantly provided the company with a good reputation. Furthermore, Dr. Reddy’s was the first pharmaceutical company in India that approached the end-consumer directly, providing in depth customer services and using it as a tool to keep patients both satisfied and updated on upcoming products.

Another major point contributing to the success of the company is the very diverse manufacturing and distribution of medicinal products in emerging and developed markets. In emerging markets, generic drugs by Dr. Reddy’s Laboratories are sold under branded names, whereas the opposite approach is taken when acting in developed markets: that is, distributing the product solely under the generic name to make it more competitive in Western markets in particular. Hence, a focus on R&D, the right marketing efforts, and the company’s philosophy that healthcare must be affordable, made Dr. Reddy’s a world leading pharmaceutical company in less than 30 years.

Through multiple R&D laboratories all over the world, Dr. Reddy’s Laboratories assures high quality standards for all their products. Targeting Western specialty generics in order to establish a foundation for drug production constituted the first step for the company towards its own innovation and research. The company has multiple research and development institutes in India and North America which are pioneering next generation pharmaceuticals using genomics and proteomics. The laboratory, Reddy US Therapeutics Inc., located in Atlanta, is only doing research on next-generation drugs, and focuses on Western niche markets such as anti-cancer, anti-diabetes, and anti-infection drugs. Additionally, more and more new medical products are developed on a biologically similar basis, focusing more on the conversion of natural ingredients rather than just on synthetic ones. Dr. Reddy’s Laboratories are also strongly engaging in novel molecule innovations which are crucial in developing new treatments for therapeutic use.

Dr Reddy’s Laboratories capitalized on the regulatory troubles of Indian rivals to post its highest ever quarterly income and operating profit during October-December 2013. India’s largest pharmaceutical company by sales announced in January 2014 that net profit in the third quarter swelled by 70% compared to the previous year whilst revenue grew by 23%.” (Economic Times 2014) Based on this citation written by The Economic Times in February 2014, it become clear what a huge growth potential and thus growth development Dr. Reddy’s Laboratories has displayed in the past year especially, but also in general, since it was founded in 1984.

The biggest growth in market size and capitalization has been made primarily in the US market as a result of several crucial factors. The business benefited the most from the launch of new products in the generic business and the expansion of key products with limited competition due to patenting and complex development. Additionally, Dr. Reddy’s Laboratories was able to increase its market share in the US because competing pharmaceutical companies, such as Wockhardt and Ranbaxy, had been dealing with legal issues concerning the safety of a new plant and so production was unable to meet the market demand.

Dr. Reddy’s has a long history of being guided by principles. The strong belief that they can make medicines of higher quality and lower prices compared to Western companies was a driving factor for the company to enter the overseas market as an API supplier in 1986. At that time, Dr. Reddy’s Laboratories was one of the first suppliers in the overseas market. It gained more and more attention when it became the biggest supplier of methyldopa to the German pharmaceutical giant Merck. By delivering high quality for low prices and by getting US FDA (Food and Drug Administration) approval for their plants, Dr. Reddy’s Laboratories was able to supply ibuprofen to the US market shortly thereafter. Hence, within a short time, Dr. Reddy’s made a name in the European and North American markets.

This reputation began to grow as the company also launched several products for which they had gained marketing exclusivity rights: that is, being able to make extra revenues of more than 200 million US$ just by having exclusive selling rights due to patenting and FTF regulations (Mahalingam, 2013). Not only has Dr. Reddy’s Laboratories been successful in expanding into the European and US market, but it also has been reaching out to the emerging markets. It has become a trustworthy partner with Russia, which is currently the biggest growing market of the pharmaceutical company. Through the company’s willingness to strive to its best potential and to take on new challenges by entering into such difficult markets as the US, it inspired other smaller Indian companies and became a benchmark for success.

Dr. Reddy’s Laboratories has a strong position in the global market. While playing a minor role in the domestic market, it established itself in the global market with its generic business and over-the-counter drugs in North America, West Europe, and in Russia, its fastest growing market. The pharma market accounts currently for more than 65 % of Dr. Reddy’s Laboratories total revenues. The main business of the company in the North American market is the development and production of global generics, whereas a pipeline with more than 200 generic drugs are on file in order to instantly replace products which are going off-patent within the next few years. In addition to those generics which have yet to be launched, other key products with limited competition have been constantly introduced to the market over the previous years and are expected to continue to build high market share with little price erosion.

The strongest growing market for Dr. Reddy’s Laboratories, however, is the Russian market, which is currently experiencing a strong restructuring of their pharmaceutical sector as it is trying to reach a level of 50 % in domestic production of pharmaceuticals. The huge increase in demand is mainly in the middle to low cost generics produced by Dr. Reddy’s Laboratories as well as over-the-counter drugs. Since the company already has strong business connections with Russia since 1988, it was able to increase its revenues significantly (20 % on average) during the past years. Even if Russia passes a specific law which requires generic and innovative companies to have a manufacturing presence when selling its products, Dr. Reddy’s Laboratories has already stated that they are willing to locate production facilities in Russia, and the only thing to evaluate is whether to acquire existing facilities or build new ones.

Despite the generally strong growth of Dr. Reddy’s Laboratories in the USA, Russia, and the emerging markets, Dr. Reddy’s Laboratories is not one of the biggest players in the domestic Indian market; it does not even rank in the top 10 in the domestic pharma market although it is ranked as the second largest pharmaceutical company in India. The strong focus on profitable foreign markets is surely to some extent a reason for the lack of performance in the domestic market. The Indian pharmaceutical market is flooded with several new products from companies such as Sun Pharma and Cipla, whereas Dr. Reddy’s Laboratories had been focusing on a few selected brands which limits the company’s portfolio to a much greater extent and thus makes it difficult to acquire additional market share.

Therefore, in the past four years, the company has invested heavily in boosting the sales force by 50 % and marketing efforts have been expanded into rural areas, as they are seen as an emerging market in India itself. Furthermore, through the development of new product lines and the extension of existing key brands in the area of gastrointestinal or cardiovascular, which account for more than 50 % of its revenues, the company will have new possibilities to gain a bigger market share. However, as Dr. Reddy’s has been showing so little effort in the domestic market as compared to foreign markets, it will be very challenging for the company to gain acceptance within the Indian medical community and therefore increase sales since time has shown that the Indian pharma community is hesitant when it comes to new portfolios, unlike the North American community. Furthermore, Dr. Reddy’s may also be influenced by the new Drug Pricing Controls, which will increase the prices for some of its essential products perhaps causing a decent loss in profits in the home market (Economic Times, 2014). Since the medical portfolio of the company is relatively small compared to its competitors, another way of gaining market share more quickly is by acquisition of other medical businesses, individual brands, or entire portfolios.

However, Dr. Reddy’s Laboratories has far more possibilities than only acquiring other businesses or expanding their existing portfolio, including making use of the huge R&D facilities in developing biologically similar products. These products have little competition in the domestic market and are expected to increase from US$2 billion to US$ 4–6 billion through 2016. Since the possibility of new entrants remains small due to the complexity of the products and production processes in this new emerging pharmaceutical sector, Dr. Reddy’s may use this favourable position to grow its market share.
Additionally, by entering into a partnership with Merck Sereno, a division of the pharmaceutical company Merck, Dr. Reddy’s will lower the risk by splitting development costs, which are estimated to be at more than US$200 million. The fact that the company is already heavily engaged in the development of biologically-similar products, and that developed countries are still far from launching biologically-similar products to such an extent, gives Dr. Reddy’s a crucial advantage in its home market among its Indian competitors. High entry barriers and the difficulty of domestic companies to increase their capabilities also work in Dr. Reddy’s favour. Thus, the key driver for the company to gain market share with little competition within its domestic market is its high expenditure in R&D.

Dr. Reddy’s Laboratories is a multinational pharma company, which provides high amounts of tax yearly to the government from producing, importing or exporting products. The new regulations in the Indian Drug Pricing Policy will most likely lead to higher prices and to shrinking profit margins, and also to having to pay more taxes, which is a clear disadvantage for the company as well as for the whole pharma sector in India. Furthermore, Russia passed a law which would force pharmaceutical suppliers to build domestic plants in order to be able to distribute their products to the Russian market. This would lead to higher taxation as well in the Russian market, although the good, general relationship between Russia and Dr. Reddy’s Laboratories would suggest that both parties would be in favour of such an idea since having production facilities in Russia opens new supply channels towards Eastern European countries. A special-purpose program will support the restructuring of the Russian pharmaceutical industry, which might provide beneficial incentives for companies such as Dr. Reddy’s to produce in this market in the near future. Nevertheless, the general advantages and benefits, which Dr. Reddy’s already possesses and seeks to expand over the coming years, are primarily their own successes in technology, long term thinking, and a high degree of innovation.

As one of the largest pharmaceutical companies in India, Dr. Reddy’s Laboratories averages 200 orders a day alone for its US generic pharmaceutical and over-the-counter products. A triple-digit percentage revenue increase in the past year (2013) demonstrates the agility of the company’s move into the generic marketplace. Getting to market first following US FDA approval is a key with generics. Dr. Reddy’s needed a streamlined supply chain and the flexibility to position its new products against the large number of prescription drugs due to come off patent protection. Since it manufactures in India, Dr. Reddy’s must plan for additional lead times to get products to the USA. When drugs move from branded to generic, pharmaceutical companies face a host of regulatory and supply chain challenges to get products to clinicians and retail pharmacies. Since the FDA approves the sale of branded drugs as generic as late as the day of patent expiration, acting quickly and efficiently means being first out of the gate, sometimes even getting products to the drug wholesalers or store distribution centres the next day. That drives critical planning for the right warehousing and distribution solutions linked with transportation. Further complicating the process, the FDA also may require label and packaging changes to some medicines prior to approval for generic sales.

Since Dr. Reddy’s Laboratories’ company mission is to make “affordable medicine for everybody,” the challenge is going to be how to remain sustainable in the low pricing class in order to build and keep their customer base. Newly imposed regulations are obstacles which have to be overcome by the company using even more technological advantages in order to still make profit by keeping costs low throughout the production process. In addition, Dr. Reddy’s has to show initiative and strong cooperation with the new ‘healthcare project’ in order to gain a favourable position in the Russian pharmaceutical market. As Dr. Reddy’s plays more of a minor role in their domestic Indian drug market due to the intense competition, a different approach, such as the production of highly technological medicine, rather than lower costing has to be found in order to retain a leading position in the Indian market.

CASE ONE QUESTIONS:
A. Critically discuss the strategy/strategies adopted by Dr. Reddy’s Laboratories Ltd. to become a global company.
B. Discuss the issues and challenges Dr. Reddy’s Laboratories Ltd. faced in its march to become a global company.
C. With reference to strategic management concepts/tools, discuss how the company dealt with the issues and challenges it faced.

In: Operations Management

On April 1, 2020, Larkspur Company sold 16,200 of its 12%, 15-year, $1,000 face value bonds...

On April 1, 2020, Larkspur Company sold 16,200 of its 12%, 15-year, $1,000 face value bonds at 97. Interest payment dates are April 1 and October 1, and the company uses the straight-line method of bond discount amortization. On March 1, 2021, Larkspur took advantage of favorable prices of its stock to extinguish 7,500 of the bonds by issuing 247,500 shares of its $10 par value common stock. At this time, the accrued interest was paid in cash. The company’s stock was selling for $32 per share on March 1, 2021.

Prepare the journal entries needed on the books of Larkspur Company to record the following. (Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(a) April 1, 2020: issuance of the bonds.
(b) October 1, 2020: payment of semiannual interest.
(c) December 31, 2020: accrual of interest expense.
(d) March 1, 2021: extinguishment of 7,500 bonds. (No reversing entries made.)

In: Accounting

Interest During Construction Alta Company is constructing a production complex that qualifies for interest capitalization. The...

Interest During Construction

Alta Company is constructing a production complex that qualifies for interest capitalization. The following information is available:

  • Capitalization period: January 1, 2019, to June 30, 2020
  • Expenditures on project:
    2019:
    January 1 $ 516,000
    May 1 477,000
    October 1 648,000
    2020:
    March 1 1,404,000
    June 30 684,000
  • Amounts borrowed and outstanding:
       $1.7 million borrowed at 10%, specifically for the project
       $8 million borrowed on July 1, 2018, at 12%
       $13 million borrowed on January 1, 2017, at 6%

Required:

Note: Round all final numeric answers to two decimal places.

  1. Compute the amount of interest costs capitalized each year.
    Capitalized interest, 2019 $ fill in the blank 1
    Capitalized interest, 2020 $ fill in the blank 2
  2. If it is assumed that the production complex has an estimated life of 20 years and a residual value of $0, compute the straight-line depreciation in 2020.

    $ fill in the blank 3

  3. Since GAAP requires accrual accounting, if a company capitalizes interest during the construction period it will report   income than if it had not capitalized interest. In future periods, the same company will report   income than if it had not capitalized interest.

In: Accounting

Alta Company is constructing a production complex that qualifies for interest capitalization. The following information is...

Alta Company is constructing a production complex that qualifies for interest capitalization. The following information is available:

  • Capitalization period: January 1, 2019, to June 30, 2020
  • Expenditures on project:
    2019:
    January 1 $ 516,000
    May 1 549,000
    October 1 492,000
    2020:
    March 1 1,512,000
    June 30 600,000
  • Amounts borrowed and outstanding:
       $1.4 million borrowed at 12%, specifically for the project
       $5 million borrowed on July 1, 2018, at 14%
       $18 million borrowed on January 1, 2017, at 8%

Required:

Note: Round all final numeric answers to two decimal places.

  1. Compute the amount of interest costs capitalized each year.
    Capitalized interest, 2019 $ fill in the blank 1
    Capitalized interest, 2020 $ fill in the blank 2
  2. If it is assumed that the production complex has an estimated life of 25 years and a residual value of $0, compute the straight-line depreciation in 2020.

    $ fill in the blank 3

  3. Since GAAP requires accrual accounting, if a company capitalizes interest during the construction period it will report _________ income than if it had not capitalized interest. In future periods, the same company will report ________ income than if it had not capitalized interest.

In: Accounting

Suppose that you are part of the Management team at Porsche. Suppose that it is the...

Suppose that you are part of the Management team at Porsche. Suppose that it is the end of December 2019 and a novel coronavirus that causes a respiratory illness was identified in wuhan city, China.

You (as part of the management team) are reviewing Porsche’s hedging strategy for the cash flows it expects to obtain from vehicle sales in North America during the calendar year 2020. Assume that Porsche’s management entertains three scenarios:

Scenario 1 (Expected): The expected volume of North American sales in 2020 is 35,000 vehicles. Scenario 2 (Pandemic): The low-sales scenario is 50% lower than the expected sales volume. Scenario 3 (High Growth): The high-sales scenario is 20% higher than the expected sales volume.

Assume, in each scenario, that the average sales price per vehicle is $85,000 and that all sales are realised at the end of December 2020. All variable costs incurred by producing an additional vehicle to be sold in North America in 2020 are billed in euros (€) and amount to €55,000 per vehicle. Shipping an additional vehicle to be sold in North America in 2020 are billed in € and amount to €3,000 per vehicle.

The current spot exchange rate is (bid-ask) $1.11/€ - $1.12/€ and forward bid-ask is $1.18/€ - $1.185/€. The option premium is 2.5% of US$ strike price, and option strike price is $1.085/€. Your finance team made the following forecasts about the exchange rates at the end of December 2020:

  • bid-ask will be $1.45/€ - $1.465/€ if the investors (and speculators) consider the euro (€) a safe haven currency during the pandemic.

  • bid-ask will be $0.88/€-$0.90/€ if the investors (and speculators) consider the U.S. dollar ($) a safe haven currency during the pandemic

  1. You decided not to hedge Porsche’s currency exposure. Assuming that the expected final sales volume is 35,000, what are your total costs
    a) if the exchange rate (bid-ask) remains at $1.11/€ - $1.12/€? Let’s call this the baseline scenario.

    b) if the investors consider the euro a safe haven currency during the pandemic? How does this compare to the baseline case?
    c) if the investors consider the U.S. dollar a safe haven currency during the pandemic? How does this compare to the baseline case?

  2. Assume that you and the Porsche’s management team decided to hedge using forward contracts. Assume that the expected final sales volume is 35,000. What are your total benefit/cost and the percentage benefit/cost from hedging (compared to no hedging)
    a) if the exchange rate (bid-ask) remains at $1.11/€ - $1.12/€?

    b) if the investors consider the U.S. dollar a safe haven currency during the pandemic?

  1. As the CFO, you decided to hedge using option contracts. Assuming expected final sales volume is 35,000, what are your total benefit/cost and the percentage benefit/cost from hedging (compared to no hedging)
    a) if the exchange rate (bid-ask) remains at $1.11/€ - $1.12/€?

    b) if the investors consider the U.S. dollar a safe haven currency during the pandemic?

  2. Assume that the Scenario 2 (Pandemic) took place in 2020 and the euro became a safe haven currency during the pandemic. What are your euro cash flows if you did not hedge, hedged using forward contracts, and hedged using option contracts?

  3. Assume that the Scenario 2 (Pandemic) took place in 2020 and the U.S. dollar became a safe haven currency during the pandemic. What are your euro cash flows if you did not hedge, hedged using forward contracts, and hedged using option contracts?

  4. Based on the calculations in Part B, do you believe that it is a good policy to hedge Porsche’s currency exposure? Why?

In: Finance

Genovieve MacIntyre is an Australian resident taxpayer. Genovieve was studying nursing at Curtin University and had...

Genovieve MacIntyre is an Australian resident taxpayer. Genovieve was studying nursing at Curtin University and had one year left of her degree. However, in 2018, she decided to discontinue her studies and pursue a career as a beautician. She began working as a beautician in a high-end salon in Nedlands called “Polish.”

The following information relates to the tax year ending 30 June 2020. Please discuss the income tax implications of each of the below.

1. In addition to working at the salon, on the weekends, Genovieve provides beauty services to her oldest friend Aurora. Aurora has a busy social life and Genovieve estimates that she provides her with beauty services such as makeup and nail application every two weeks. In January 2020, Aurora gifted Genovieve two amounts. One was $2,000 in respect of Genevieve’s beauty services for many years and another amount of $1,000 which Aurora begged Genovieve to accept as a gift for being such a wonderful friend. Genovieve did not want to accept the money but eventually took the $2000 and told Aurora to give the $1,000 to a worthy charity. Aurora chose Greenpeace, as that was a charity she knew Genovieve had supported in the past.

2. As a result of her work for Aurora, Genovieve finds she has a number of friends who want beauty services performed on the weekends. She doesn’t keep detailed books and records. However, Genovieve thinks she has around 20 friends for which she regularly performs these services. She tells them to leave a small token of their appreciation and leaves a price list of “suggested prices” for various services on her coffee table that they might like to donate. Genovieve has received $10,000 in the current income year from these friends.

3. As a result of the increase in beauty procedures she is performing for her friends on the weekend Genovieve purchases an EVO 2 Deluxe Spa Table for $7,500 on 1 January 2020. This will have an effective life of 7 years.

In: Economics

In this problem, assume that the distribution of differences is approximately normal. Note: For degrees of...

In this problem, assume that the distribution of differences is approximately normal. Note: For degrees of freedom d.f. not in the Student's t table, use the closest d.f. that is smaller. In some situations, this choice of d.f. may increase the P-value by a small amount and therefore produce a slightly more "conservative" answer.

Are America's top chief executive officers (CEOs) really worth all that money? One way to answer this question is to look at row B, the annual company percentage increase in revenue, versus row A, the CEO's annual percentage salary increase in that same company. Suppose a random sample of companies yielded the following data:

B: Percent increase
for company		 26 25 27 18 6 4 21 37
A: Percent increase
for CEO		 21 23 22 14 −4 19 15 30

Do these data indicate that the population mean percentage increase in corporate revenue (row B) is different from the population mean percentage increase in CEO salary? Use a 5% level of significance. (Let d = B − A.)

What is the value of the sample test statistic? (Round your answer to three decimal places.)

In this problem, assume that the distribution of differences is approximately normal. Note: For degrees of freedom d.f. not in the Student's t table, use the closest d.f. that is smaller. In some situations, this choice of d.f. may increase the P-value by a small amount and therefore produce a slightly more "conservative" answer.

Is fishing better from a boat or from the shore? Pyramid Lake is located on the Paiute Indian Reservation in Nevada. Presidents, movie stars, and people who just want to catch fish go to Pyramid Lake for really large cutthroat trout. Let row B represent hours per fish caught fishing from the shore, and let row A represent hours per fish caught using a boat. The following data are paired by month from October through April.

Oct Nov Dec Jan Feb March April
B: Shore 1.4 1.8 2.0 3.2 3.9 3.6 3.3
A: Boat 1.3 1.3 1.6 2.2 3.3 3.0 3.8

Use a 1% level of significance to test if there is a difference in the population mean hours per fish caught using a boat compared with fishing from the shore. (Let d = B − A.)

What is the value of the sample test statistic? (Round your answer to three decimal places.)

In: Statistics and Probability

In 2020, Ibran Corp. required additional cash for its business. Management decided to use accounts receivable...

In 2020, Ibran Corp. required additional cash for its business. Management decided to use accounts receivable to raise the additional cash and has asked you to determine the income statement effects of the following transactions:

1. On July 1, 2020, Ibran assigned $600,000 of accounts receivable to Provincial Finance Corporation as security for a loan. Ibran received an advance from Provincial Finance of 90% of the assigned accounts receivable less a commission of 3% on the advance. Before December 31, 2020, Ibran collected $220,000 on the assigned accounts receivable, and remitted $232,720 to Provincial Finance. Of the latter amount, $12,720 was interest on the advance from Provincial Finance.

2. On December 1, 2020, Ibran sold $300,000 of accounts receivable to Wunsch Corp. for $275,000. The receivables were sold outright on a without recourse basis and Ibran has no continuing interest in the receivables.

3. On December 31, 2020, an advance of $120,000 was received from First Bank by pledging $160,000 of Ibran's accounts receivable. Ibran's first payment to First Bank is due on January 30, 2021. Instructions a. Prepare a schedule showing the income statement effects of 1004 these transactions for the year ended December 31, 2020.

Instructions
a. Prepare a schedule showing the income statement effects of
these transactions for the year ended December 31, 2020.

In: Accounting

Matthew, Inc., owns 30 percent of the outstanding stock of Lindman Company and has the ability...

Matthew, Inc., owns 30 percent of the outstanding stock of Lindman Company and has the ability to significantly influence the investee’s operations and decision making. On January 1, 2021, the balance in the Investment in Lindman account is $341,000. Amortization associated with this acquisition is $17,400 per year. In 2021, Lindman earns an income of $159,000 and declares cash dividends of $53,000. Previously, in 2020, Lindman had sold inventory costing $47,200 to Matthew for $59,000. Matthew consumed all but 25 percent of this merchandise during 2020 and used the rest during 2021. Lindman sold additional inventory costing $60,800 to Matthew for $80,000 in 2021. Matthew did not consume 40 percent of these 2021 purchases from Lindman until 2022.

  1. What amount of equity method income would Matthew recognize in 2021 from its ownership interest in Lindman?

  2. What is the equity method balance in the Investment in Lindman account at the end of 2021?

In: Accounting

List and describe major systematic factors that had major influence over the Australian stock exchange from...

List and describe major systematic factors that had major influence over the Australian stock exchange from March 2020 to May 2020. These influences can be good or bad.

In: Finance