Our group incentive option gives us a bonus at the end of the year based on how profitable we were for the year.

      [ Choose ]            Stock Options.            Gainsharing.            Profit Sharing.            Stock Purchasing.      

Our group incentive option plan worked like this. The manager told us that if we could cut cost in our department by 5%, as a group we would get 5% of the savings to the company distributed evenly among us.

      [ Choose ]            Stock Options.            Gainsharing.            Profit Sharing.            Stock Purchasing.      

Our group incentive option allows me to buy company stock for 10% less than the market value.

      [ Choose ]            Stock Options.            Gainsharing.            Profit Sharing.            Stock Purchasing.      

Our group incentive option plan allows me to buy $50 shares of the company stock for only $13 apiece next year.

[ Choose ]            Stock Options.            Gainsharing.            Profit Sharing.            Stock Purchasing.

In Langer's study of CEO perceptions of IT, he found that the role of IT was not generally understood in most of the organizations he surveyed, especially at the CEO level. Discuss this statement. What evidence has been found to prove this statement true?

Two of the world’s largest economies, that is, the United States (U.S.) and China are presently involved in a trade dispute whereby the US is threatening to raise tariffs on $200 billion worth of Chinese exports. The position of the US is that they will be taking in billions of dollars in tariffs from this increase. In its retaliation, China’s Finance Ministry announced that it would raise tariffs on a wide range of American goods to 20% or 25% from the existing 10% tariff rate.

Provide an assessment of the current trade dispute between the US and China. Include in your assessment discussions on the following among other trade related matters of relevance to this topic;

(1) What is a tariff?

(2) What do you think are the motives for the trade tension particularly the tariff increase?

(3) What are the products which China exports to the US which the US is proposing to increase tariffs as high as 25% on?

(4) What are the products which the US exports to China which China is proposing to increase tariffs on in its retaliation against the US?

(5) Do you think businesses of the Caribbean region will be impacted if the tariff increases take effect? Give reasons for your answer. (give an example of a business/industry from the region to support your points, if applicable)

(6) What is the World Trade Organization (WTO)? Is the US a member of the WTO? What about China?

(7) Do you think the WTO can play a critical role in trying to resolve this ongoing trade war between the US and China? Give reasons for your answer.

Ipswich Construction Company is a private company that follows ASPE. The company has a December 31 year-end. Ipswich commenced business operations on January 1, 2020. The company’s board of directors is currently meeting to choose between use of the completed-contract method and use of the percentage-of-completion method for reporting long-term construction contracts in its financial statements. You have been engaged to assist the company’s controller at the board meeting and have been provided with the following information:

construction activities for the year ended december 31, 2020

                                        Total Contract          Billings Through     Cash Collections

         Project                           Price                          12/31/20          Through 12/31/20

            A                           $   615,000                   $ 340,000               $   310,000

            B                                450,000                       135,000    135,000

            C                                475,000                       475,000    390,000

            D                                600,000                       240,000    160,000

            E                                 480,000                       400,000                      400,000

                                          $2,620,000                  $1,590,000            $1,395,000

                                         Contract Costs               Estimated

                                      Incurred Through     Additional Costs to

         Project                        12/31/20              Complete Contract

            A                           $   510,000                     $120,000

            B                                130,000                       260,000

            C                                350,000                               -0-

            D                                370,000                       290,000

            E                                 320,000                         80,000

                                          $1,680,000                     $750,000

Each contract is with a different customer and any work remaining to be done on contracts is expected to be completed in 2021.

Required:

1. Assume Ipswich Construction Company follows the completed contract method. Calculate the amount of gross profit/(loss) to be recorded for each project for 2020. If no gross profit/(loss) is to be recorded for a given project, enter a zero. Enter your answers in the table provided.

2. Assume Ipswich Construction Company follows the percentage of completion method. Calculate the amount of gross profit/(loss) to be recorded for each project for 2020. If no gross profit/(loss) is to be recorded for a given project, enter a zero. Enter your answers in the table provided.

3. Prepare the general journal entry to record revenue and gross profit on Project B for 2020, assuming that the company decides to follow the percentage-of-completion method.

            Note:   Supporting calculations must be shown.

An international travel company wanted to see if the US and Canadian citizens have different holiday preferences. They polled nationals and found:

Use a chi-square test to test the hypothesis (Ha) that nationality and type of vacation is not independent. Please show all six steps.

You’re a researcher looking at whether or not applicants are accepted to a prestigious law internship. Only 10% of applicants receive a call to a first interview. You’re interested in two samples: all students from a rural community college who applied (24) and all students from Arizona who applied over the last five years (5804).

What are the mean and standard deviation for the large sample?

Explain in the context of this scenario what the mean represents, with appropriate rounding and units.

For the large sample, what is the probability that at least 600 students in the past five years received a first call?

Stephenson Real Estate Company was founded 25 years ago by the current CEO, Robert Stephenson. The company purchases real estate, including land and buildings, and rents the properties to tenants. The company has shown a profit every year for the past 18 years, and the shareholders are satisfied with the company’s management. Prior to founding Stephenson Real Estate, Robert was the founder and CEO of a failed alpaca farming operation. The resulting bankruptcy made him extremely averse to debt financing. As a result, the company is entirely equity financed, with 9 million shares of common stock outstanding. The stock currently trades at $37.80 per share. Stephenson is evaluating a plan to purchase a huge tract of land in the southeastern United States for $95 million. The land will subsequently be leased to tenant farmers. This purchase is expected to increase Stephenson’s annual pre-tax earnings (EBIT) by $18.75 million in perpetuity. Jennifer Weyand, the company’s new CFO, has been put in charge of the project. Jennifer has determined that the company’s current cost of capital is 10.20%. She feels that the company would be more valuable if it included debt in its capital structure, so she is evaluating whether the company should issue debt to entirely finance the project. Based on some conversations with investment banks, she thinks that the company can issue bonds at par (face value) with a 6 percent coupon rate. From her analysis, she also believes that a capital structure in the range of 70 percent equity/30 percent debt would be optimal. If the company goes beyond 30 percent debt, its bonds would carry a lower rating and a much higher coupon because of the possibility of financial distress and the associated costs would rise sharply. Stephenson has a 40 percent corporate tax rate.

1) What after-tax cash flow must Stephenson be currently producing per year, assuming that its current cash flows remain constant each year?

2) Construct Stephenson’s market value balance sheet before it announces the purchase. Market value balance sheet Debt Existing Assets Equity Total assets Total Debt + Equity

3) Suppose Stephenson decided to issue equity to finance the purchase.

a) What is the net present value of the land acquisition project?

b) Construct Stephenson’s market value balance sheet after it announces that the firm will finance the purchase using equity. (Assume that the value of the firm will immediately change to reflect the NPV of the new project.)

Market value balance sheet:

Old assets=

Debt=

NPV of project=

Equity=

Total assets=

Total Debt + Equity =

c) What would be the new price per share of the firm’s stock? How many shares will Stephenson need to issue to finance the purchase?

d) Construct Stephenson’s market value balance sheet after the equity issue, but before the purchase has been made. How many shares of common stock does Stephenson have outstanding? What is the price per share of the firm’s stock?

Market Value Balance Sheet:

Cash=

Old assets=

Debt=

NPV of project=

Equity=

Total assets=

Total Debt + Equity=

e) What is Stephenson’s weighted average cost of capital after the acquisition? What after-tax cash flow will be produced annually after the acquisition? What is the present value of this stream of after-tax cash flow? What is the stock price after the acquisition? Does this agree with your previous calculations?

4) Suppose Stephenson decides to issue debt to finance the purchase. a) What will be the market value of the Stephenson company be if the purchase is financed with debt?

b) Construct Stephenson’s market value balance sheet after both the debt issue and the land purchase. What is the price per share of the firm’s stock? Market Value Balance Sheet Value unlevered Debt Tax shield Equity Total assets Total Debt + Equity

c) What is Stephenson’s cost of equity if it goes forward with the debt issue? (Do not round your answer.)

d) What is Stephenson’s weighted average cost of capital if it goes forward with the debt issue? (Do not round your answer.)

e) What total after-tax cash flow is being generated by Stephenson after the acquisition?

f) What is the present value of this after-tax cash flow? What is the market value of equity? What is the stock price? Does this agree with your work from parts (a) and (b)?

5) Which method of financing maximizes the per-share price of Stephenson’s equity?

6) Does the resultant capital structure (with the land acquisition financed by debt) satisfy Jennifer’s concerns about the negative effects of moving beyond the optimal capital structure?

Stephenson Real Estate Company was founded 25 years ago by the current CEO, Robert Stephenson. The company purchases real estate, including land and buildings, and rents the properties to tenants. The company has shown a profit every year for the past 18 years, and the shareholders are satisfied with the company’s management. Prior to founding Stephenson Real Estate, Robert was the founder and CEO of a failed alpaca farming operation. The resulting bankruptcy made him extremely averse to debt financing. As a result, the company is entirely equity financed, with 9 million shares of common stock outstanding. The stock currently trades at $37.80 per share.

Stephenson is evaluating a plan to purchase a huge tract of land in the southeastern United States for $95 million. The land will subsequently be leased to tenant farmers. This purchase is expected to increase Stephenson’s annual pre-tax earnings (EBIT) by $18.75 million in perpetuity. Jennifer Weyand, the company’s new CFO, has been put in charge of the project. Jennifer has determined that the company’s current cost of capital is 10.20%. She feels that the company would be more valuable if it included debt in its capital structure, so she is evaluating whether the company should issue debt to entirely finance the project. Based on some conversations with investment banks, she thinks that the company can issue bonds at par (face value) with a 6 percent coupon rate. From her analysis, she also believes that a capital structure in the range of 70 percent equity/30 percent debt would be optimal. If the company goes beyond 30 percent debt, its bonds would carry a lower rating and a much higher coupon because of the possibility of financial distress and the associated costs would rise sharply. Stephenson has a 40 percent corporate tax rate.

What after-tax cash flow must Stephenson be currently producing per year, assuming that its current cash flows remain constant each year?

Construct Stephenson’s market value balance sheet before it announces the purchase.

3)Suppose Stephenson decided to issue equity to finance the purchase.

What is the net present value of the land acquisition project?

Construct Stephenson’s market value balance sheet after it announces that the firm will finance the purchase using equity. (Assume that the value of the firm will immediately change to reflect the NPV of the new project.)

What would be the new price per share of the firm’s stock? How many shares will Stephenson need to issue to finance the purchase?

Construct Stephenson’s market value balance sheet after the equity issue, but before the purchase has been made. How many shares of common stock does Stephenson have outstanding? What is the price per share of the firm’s stock?

e)What is Stephenson’s weighted average cost of capital after the acquisition? What after-tax cash flow will be produced annually after the acquisition? What is the present value of this stream of after-tax cash flow? What is the stock price after the acquisition? Does this agree with your previous calculations?

Suppose Stephenson decides to issue debt to finance the purchase.

What will be the market value of the Stephenson company be if the purchase is financed with debt?

Construct Stephenson’s market value balance sheet after both the debt issue and the land purchase. What is the price per share of the firm’s stock?

c)What is Stephenson’s cost of equity if it goes forward with the debt issue? (Do not round your answer.)

d)What is Stephenson’s weighted average cost of capital if it goes forward with the debt issue? (Do not round your answer.)

e)What total after-tax cash flow is being generated by Stephenson after the acquisition?

f)What is the present value of this after-tax cash flow? What is the market value of equity? What is the stock price? Does this agree with your work from parts (a) and (b)?

Which method of financing maximizes the per-share price of Stephenson’s equity?

Does the resultant capital structure (with the land acquisition financed by debt) satisfy Jennifer’s concerns about the negative effects of moving beyond the optimal capital structure?

The following figures have been extracted from statement of comprehensive income of Rochester (Pty) LTD for the year ended 31 December 2019 Sales R 3600 000 Cost of sale R 2160 000 Operation expenses R 864 000 Interest expenses 72 000 Company tax ( 30% of profit before tax 151 200 Net profit 352 800 Additional information 1 . The sales forecast for the year ended 31 December 2020 is 4 000 000 2. Rochester has identified cost of sales, operating expenses and interest expenses as varying in production to sales Required Prepare the pro- for a statement of comprehensive income for the year ended 31 December 2020 using the percentage of sales method .

Multiple Regression Analysis

The company has been able to determine that its sales in dollars depend on advertising and

of the number of sellers and for this reason, it uses the data from previous years to

be able to forecast possible sales for the year 2020.

Y           X1 ($ 000)   X2 ($ 000)

Year          Sales    Advertising   Salesman

2013        $ 10          $ 1                       1

2014       $ 15            $ 2                     1

2015       $ 25            $ 3                      2

2016      $ 40            $ 5 3

2017      $ 70             $6                       3

2018      $ 110         $ 8                        4

2019      $ 150          $ 9                        6

INSTRUCTIONS:

a) Calculate the values ​​of the letters a, b1, b2. (excel)

b) Write down the problem Regression equation

c) Calculate sales by 2020 if the advertising were $ 14,000 and the number of sellers out of 10.