Lon Timur is an accounting major at a midwestern state university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan area and visit their homes regularly on the weekends. Lon, an entrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. He believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Lon has gathered the following investment information.

Click here to view PV table.

(a)

Determine the annual (1) net income and (2) net annual cash flows for the commuter service. (Round answers to 0 decimal places, e.g. 125.)

(b)

Compute (1) the cash payback period and (2) the annual rate of return. (Round answers to 2 decimal places, e.g. 10.50.)

(c)

Compute the net present value of the commuter service. (Round answer to 0 decimal places, e.g. 125. If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Maria Gutierrez and Devin Duzan recently graduated from the same university. After graduation they decided not to seek jobs at established organizations but, rather, to start their own small business hoping they could have more flexibility in their personal lives for a few years. Maria’s family has operated Mexican restaurants and taco trucks for the past two generations, and Maria noticed there were no taco truck services in the town where their university was located. To reduce the amount they would need for an initial investment, they decided to start a business operating a taco cart rather than a taco truck, from which they would cook and serve traditional Mexican-styled street food.

They bought a used taco cart for $15,000. This cost, along with the cost for supplies to get started, a business license, and street vendor license brought their initial expenditures to $20,000. They took $5,000 from personal savings they had accumulated by working part time during college, and they borrowed $15,000 from Maria’s parents. They agreed to pay interest on the outstanding loan balance each month based on an annual rate of 4 percent. They will repay the principal over the next few years as cash becomes available. They were able to rent space in a parking lot near the campus they had attended, believing that the students would welcome their food as an alternative to the typical fast food that was currently available.

After two months in business, September and October, they had average monthly revenues of $20,000 and out-of-pocket costs of $16,000 for rent, ingredients, paper supplies, and so on, but not interest. Devin thinks they should repay some of the money they borrowed, but Maria thinks they should prepare a set of forecasted financial statements for their first year in business before deciding whether or not to repay any principal on the loan. She remembers a bit about budgeting from a survey of accounting course she took and thinks the results from their first two months in business can be extended over the next 10 months to prepare the budget they need. They estimate the cart will last at least five years, after which they expect to sell it for $5,000 and move on to something else in their lives. Maria agrees to prepare a forecasted (pro forma) income statement, balance sheet, and statement of cash flows for their first year in business, which includes the two months already passed.Page 535

Required

Prepare the annual pro forma financial statements that you would expect Maria to prepare based on her comments about her expectations for the business. Assume no principal will be repaid on the loan.

Review the statements you prepared for the first requirement and prepare a list of reasons why actual results for Devin and Maria’s business probably will not match their budgeted statements.

Assume you are 22 years old when you graduate from the University of Arizona and have a credit card of $2,000 credit balance with an 18% annual rate. If you only make minimun payments of 2% of the balance or just $10 (whichever is greater) each month , what birthday will you likely be celebrating when the credit card is paid off?

Derek and Meagan Jacoby recently graduated from State University and Derek accepted a job in business consulting while Meagan accepted a job in computer programming. Meagan inherited $36,000 from her grandfather who recently passed away. The couple is debating whether they should buy or rent a home. They located a rental home that meets their needs. The monthly rent is $2,450. They also found a three-bedroom home that would cost $136,000 to purchase. The Jacobys could use Meagan’s inheritance for a down payment on the home. Thus, they would need to borrow $100,000 to acquire the home. They have the option of paying two discount points to receive a fixed interest rate of 4.50 percent on the loan or paying no points and receiving a fixed interest rate of 5.70 percent for a 30-year fixed loan.

Though anything could happen, the couple expects to live in the home for no more than five years before relocating to a different region of the country. Derek and Meagan don’t have any school-related debt, so they will save the $36,000 if they don’t purchase a home. Also, consider the following information:

The couple’s marginal tax rate is 24 percent.

Regardless of whether they buy or rent, the couple will itemize their deductions.

If they buy, the Jacobys would purchase and move into the home on January 1, 2018.

If they buy the home, the property taxes for the year are $3,800.

Disregard loan-related fees not mentioned above.

If the couple does not buy a home, they will put their money into their savings account where they earn 5 percent annual interest.

Assume that all unstated costs are equal between the buy and rent option.

Required: Help the Jacobys with their decisions by answering the following questions: (Leave no answer blank. Enter zero if applicable.)

a If the Jacobys decide to rent the home, what is their after-tax cost of the rental for the first year (include income from the savings account in your analysis)? (Round your intermediate calculations to the nearest whole dollar amount.)

Derek and Meagan Jacoby recently graduated from State University and Derek accepted a job in business consulting while Meagan accepted a job in computer programming. Meagan inherited $36,000 from her grandfather who recently passed away. The couple is debating whether they should buy or rent a home. They located a rental home that meets their needs. The monthly rent is $2,450. They also found a three-bedroom home that would cost $136,000 to purchase. The Jacobys could use Meagan’s inheritance for a down payment on the home. Thus, they would need to borrow $100,000 to acquire the home. They have the option of paying two discount points to receive a fixed interest rate of 4.50 percent on the loan or paying no points and receiving a fixed interest rate of 5.70 percent for a 30-year fixed loan.

Though anything could happen, the couple expects to live in the home for no more than five years before relocating to a different region of the country. Derek and Meagan don’t have any school-related debt, so they will save the $36,000 if they don’t purchase a home. Also, consider the following information:

The couple’s marginal tax rate is 24 percent.

Regardless of whether they buy or rent, the couple will itemize their deductions.

If they buy, the Jacobys would purchase and move into the home on January 1, 2018.

If they buy the home, the property taxes for the year are $3,800.

Disregard loan-related fees not mentioned above.

If the couple does not buy a home, they will put their money into their savings account where they earn 5 percent annual interest.

Assume that all unstated costs are equal between the buy and rent option.

Required: Help the Jacobys with their decisions by answering the following questions: (Leave no answer blank. Enter zero if applicable.)

rev: 12_18_2018_QC_CS-151658

a. If the Jacobys decide to rent the home, what is their after-tax cost of the rental for the first year (include income from the savings account in your analysis)? (Round your intermediate calculations to the nearest whole dollar amount.)

Derek and Meagan Jacoby recently graduated from State University and Derek accepted a job in business consulting while Meagan accepted a job in computer programming. Meagan inherited $36,000 from her grandfather who recently passed away. The couple is debating whether they should buy or rent a home. They located a rental home that meets their needs. The monthly rent is $2,450. They also found a three-bedroom home that would cost $136,000 to purchase. The Jacobys could use Meagan’s inheritance for a down payment on the home. Thus, they would need to borrow $100,000 to acquire the home. They have the option of paying two discount points to receive a fixed interest rate of 4.50 percent on the loan or paying no points and receiving a fixed interest rate of 5.70 percent for a 30-year fixed loan.

Though anything could happen, the couple expects to live in the home for no more than five years before relocating to a different region of the country. Derek and Meagan don’t have any school-related debt, so they will save the $36,000 if they don’t purchase a home. Also, consider the following information:

The couple’s marginal tax rate is 24 percent.

Regardless of whether they buy or rent, the couple will itemize their deductions.

If they buy, the Jacobys would purchase and move into the home on January 1, 2018.

If they buy the home, the property taxes for the year are $3,800.

Disregard loan-related fees not mentioned above.

If the couple does not buy a home, they will put their money into their savings account where they earn 5 percent annual interest.

Assume that all unstated costs are equal between the buy and rent option.

Required: Help the Jacobys with their decisions by answering the following questions: (Leave no answer blank. Enter zero if applicable.)

rev: 12_18_2018_QC_CS-151658

a. If the Jacobys decide to rent the home, what is their after-tax cost of the rental for the first year (include income from the savings account in your analysis)? (Round your intermediate calculations to the nearest whole dollar amount.)

Derek and Meagan Jacoby recently graduated from State University and Derek accepted a job in business consulting while Meagan accepted a job in computer programming. Meagan inherited $36,000 from her grandfather who recently passed away. The couple is debating whether they should buy or rent a home. They located a rental home that meets their needs. The monthly rent is $2,450. They also found a three-bedroom home that would cost $136,000 to purchase. The Jacobys could use Meagan’s inheritance for a down payment on the home. Thus, they would need to borrow $100,000 to acquire the home. They have the option of paying two discount points to receive a fixed interest rate of 4.50 percent on the loan or paying no points and receiving a fixed interest rate of 5.70 percent for a 30-year fixed loan.

Though anything could happen, the couple expects to live in the home for no more than five years before relocating to a different region of the country. Derek and Meagan don’t have any school-related debt, so they will save the $36,000 if they don’t purchase a home. Also, consider the following information:

The couple’s marginal tax rate is 24 percent.

Regardless of whether they buy or rent, the couple will itemize their deductions.

If they buy, the Jacobys would purchase and move into the home on January 1, 2018.

If they buy the home, the property taxes for the year are $3,800.

Disregard loan-related fees not mentioned above.

If the couple does not buy a home, they will put their money into their savings account where they earn 5 percent annual interest.

Assume that all unstated costs are equal between the buy and rent option.

Required: Help the Jacobys with their decisions by answering the following questions: (Leave no answer blank. Enter zero if applicable.)

a. If the Jacobys decide to rent the home, what is their after-tax cost of the rental for the first year (include income from the savings account in your analysis)? (Round your intermediate calculations to the nearest whole dollar amount.)

b. What is the approximate break-even point in years for paying the points to receive a reduced interest rate? (To simplify this computation, assume the Jacobys will make interest-only payments, and ignore the time value of money.) (Do not round intermediate calculations. Round your final answer to 1 decimal place.)

c. What is the after-tax cost (in interest and property taxes) of living in the home for 2018? Assume that the Jacobys' interest rate is 5.70 percent, they do not pay discount points, they make interest-only payments for the first year, and the value of the home does not change during the year. (Round your intermediate calculations to the nearest whole dollar amount.)

d. Assume that on March 1, 2018, the Jacobys sold their home for $159,000, so that Derek and Meagan could accept job opportunities in a different state. The Jacobys used the sale proceeds to (1) pay off the $100,000 principal of the mortgage, (2) pay a $10,000 commission to their real estate broker, and (3) make a down payment on a new home in the different state. However, the new home cost only $75,000. Assume they make interest-only payments on the loan.

  Required:

d1. What gain or loss do the Jacobys realize and recognize on the sale of their home?

d2. What amount of taxes must they pay on the gain, if any?

e. Assume the same facts as in part (d), except that the Jacobys sell their home for $124,500 and they pay a $7,500 commission. What effect does the sale have on their 2018 income tax liability? Recall that the Jacobys are subject to an ordinary marginal tax rate of 24 percent and assume that they do not have any other transactions involving capital assets in 2018.

The University of Arkansas recently approved out of state tuition discounts for high school students from any state. The students must qualify by meeting certain standards in terms of GPA and standardized test scores. The goal of this new policy is to increase the geographic diversity of students from states beyond Arkansas and its border states. Historically, 90% of all new students came from Arkansas or a bordering state. Ginger, a student at the U of A, sampled 180 new students the following year and found that 157 of the new students came from Arkansas or a bordering state. Does Ginger’s study provide enough evidence to indicate that this new policy is effective with a level of significance 10%? What would be the correct decision?

Que: Researcher Anne Case from Princeton University wrote of “Deaths of Despair”. In the research she combines the suicide epidemic and the opioid epidemic: “When looking at the suicide and death rates of middle-aged whites, the authors wrote: “It is also a crisis in which people are killing themselves in much larger numbers - especially whites. Deaths from alcohol have been rising as well. So we think of it all being signs that something is really wrong and whatever it is that's really wrong it's happening nationwide… They don't have a good job. They don't have a marriage that supports them. They may have children that they do or don't see. They have a much more fragile existence than they would have had a generation ago ... it may be the deaths from drugs, from suicide, from alcohol are related to the fact that people don't have the stability and a hope for the future that they might have had in the past.”

For this question, you are to become Durkheim and explain why we see each of these results. Remember to focus on the idea of social bonds. Which of Durkheim’s 4 types of suicide is represented by this data? Explain your choices.

(Answer need to be in Soft copy Only)

Lon Timur is an accounting major at a midwestern state university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan area and visit their homes regularly on the weekends. Lon, an entrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. He believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Lon has gathered the following investment information.

1. Five used vans would cost a total of $74,970 to purchase and would have a 3-year useful life with negligible salvage value. Lon plans to use straight-line depreciation.

2. Ten drivers would have to be employed at a total payroll expense of $48,000.

3. Other annual out-of-pocket expenses associated with running the commuter service would include Gasoline $16,000, Maintenance $3,600, Repairs $4,000, Insurance $4,300, and Advertising $2,700.

4. Lon has visited several financial institutions to discuss funding. The best interest rate he has been able to negotiate is 15%. Use this rate for cost of capital.

5. Lon expects each van to make ten round trips weekly and carry an average of six students each trip. The service is expected to operate 30 weeks each year, and each student will be charged $12 for a round-trip ticket. Click here to view PV table.

a)

Determine the annual (1) net income and (2) net annual cash flows for the commuter service. (Round answers to 0 decimal places, e.g. 125.)

Net income    $

Net annual cash flows    $

(b)

Compute(1) the cash payback period and (2) the annual rate of return. (Round answers to 2 decimal places, e.g. 10.50.)

Cash payback period    years

Annual rate of return %

(c)

Compute the net present value of the commuter service. (Round answer to 0 decimal places, e.g. 125. If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Net present value

Derek and Meagan Jacoby recently graduated from State University and Derek accepted a job in business consulting while Meagan accepted a job in computer programming. Meagan inherited $75,000 from her grandfather who recently passed away. The couple is debating whether they should buy or rent a home. They located a rental home that meets their needs. The monthly rent is $2,250. They also found a three-bedroom home that would cost $475,000 to purchase. The Jacobys could use Meagan’s inheritance for a down payment on the home. Thus, they would need to borrow $400,000 to acquire the home. They have the option of paying 2 discount points to receive a fixed interest rate of 4.50 percent on the loan or paying no points and receiving a fixed interest rate of 5.75 percent for a 30-year fixed loan.

Though anything could happen, the couple expects to live in the home for no more than five years before relocating to a different region of the country. Derek and Meagan don’t have any school-related debt, so they will save the $75,000 if they don’t purchase a home. Also, consider the following information:

• The couple’s marginal tax rate is 24 percent.
• Regardless of whether they buy or rent, the couple will itemize their deductions.
• If they buy, the Jacobys would purchase and move into the home on January 1, 2018.
• If they buy the home, the property taxes for the year are $3,600.
• Disregard loan-related fees not mentioned above.
• If the couple does not buy a home, they will put their money into their savings account where they earn 5 percent annual interest.
• Assume that all unstated costs are equal between the buy and rent option.

Required: Help the Jacobys with their decisions by answering the following questions: (Leave no answer blank. Enter zero if applicable.)

a. If the Jacobys decide to rent the home, what is their after-tax cost of the rental for the first year? (include income from the savings account in your analysis.)

b. What is the approximate break-even point in years for paying the points to receive a reduced interest rate? (To simplify this computation, assume the Jacobys will make interest-only payments, and ignore the time value of money.) (Do not round intermediate calculations. Round your final answer to 1 decimal place.)

c. What is the after-tax cost (in interest and property taxes) of living in the home for 2018? Assume that the Jacobys' interest rate is 5.75 percent, they do not pay discount points, they make interest-only payments for the first year, and the value of the home does not change during the year.

d. Assume that on March 1, 2018, the Jacobys sold their home for $525,000, so that Derek and Meagan could accept job opportunities in a different state. The Jacobys used the sale proceeds to (1) pay off the $400,000 principal of the mortgage, (2) pay a $10,000 commission to their real estate broker, and (3) make a down payment on a new home in the different state. However, the new home cost only $300,000. Assume they make interest-only payments on the loan.

Required:

1. d1. What gain or loss do the Jacobys realize and recognize on the sale of their home?
2. d2. What amount of taxes must they pay on the gain, if any?

Anna Sheen, upon graduating from a Boston-area university with a degree in journalism and operations research, returned to her hometown of Hamptonshire, Pennsylvania, to start a daily newspaper. The Hamptonshire Express emphasized local news, which Sheen believed was not adequately covered by big-city newspapers such as the The Philadelphia Inquirer, Pittsburgh Post-Gazette, and The New York Times.

Working in leased space that cost approximately $10 per day, Sheen wrote stories and articles daily around news and feature material that she gathered from around town, and then typeset the newspaper using desktop software. A local printer printed the newspapers overnight at a marginal cost of $0.20 per copy. Anna sold the copies the following morning from 6 a.m. to 10 a.m. from a newsstand at the intersection of Main Street and Center Street in the center of Hamptonshire. Newsstand rental was $30 per day. Express was sold to consumers for $1 per copy. Copies not sold by 10 a.m. were discarded.

Demand for newspapers was unpredictable; Sheen estimated demand daily before delivering the typeset paper to the printer. Based on data from similar entrepreneurial ventures and interviews with potential Hamptonshire customers, she estimated that daily demand for the Express was normally distributed with a mean of 500 and standard deviation of 100.

a. How many newspapers should Sheen stock (i.e., order from the printer)? What is the profit at this stocking quantity?

b. Verify that the value derived in part (a) is consistent with the optimal stocking quantity in the Newsvendor model using excel: Q*= µ + Normsinv(Cu/Cu+Co))σ

*Please show work

Buenaventura

Growth is more than merely one part of the mission and vision of Buenaventura – the leading mining company in Peru and one of the largest gold and silver producers in the world. It is the company’s daily mantra. Operating in a capital-intensive industry and in a geographic environment not as welcoming to investments as it should be, the company has to be persistent to maintain the degree of success it has achieved over the years. Joint ventures, offerings through the Lima Stock Exchange, and American Depositary Receipts (ADR) issuance on the New York Stock Exchange (NYSE) were all means to achieve the company’s goal of continued growth. But when it came to creating long-term sustainable shareholder value, there was only one way to do it: by enhancing governance practices.

The Roots of the Need for Governance

Buenaventura has focused on exploration and acquisitions, both on its own and through joint ventures, since its founding in 1953. For Buenaventura, conducting business responsibly and effectively is part of its strategy to increase shareholder value. Buenaventura suffered several years of losses that ultimately led to a high level of debt amid Peru’s weak economic environment during the 1980s. In the early 1990s, however, Peru emerged into a period of greater stability, allowing Buenaventura to plan for a more promising future. When the company decided to invest in Yanacocha, now a world class gold deposit, Buenaventura faced high-cost exploration and development investments.

Convinced that the market pays for good corporate governance practices, Buenaventura chose to cancel its debt with the proceeds of an initial public offering (IPO) of ADRs on the NYSE in 1996. The decision reflected Buenaventura’s Board of Directors’ and management’s commitment to comply with United States Securities & Exchange Commission (SEC).regulations. Prior to the IPO, the company took several critical steps toward improving its governance: revamping its Board of Directors, incorporating independent members and establishing Board Committees; implementing an Ethics Code; creating a Disclosure Committee; and finally, eliminating its dual class share structure and converting all its shares into a single class, with equal voting rights.

         Corporate Governance Steps

Buenaventura has implemented a comprehensive set of rules to ensure good governance. The reforms were inspired by the recommendations of major international organizations, such as the OECD and the World Bank/IFC. The decision to convert all shares into a single class of common shares served to keep the controlling group together, and was also considered the best way to continue to maximize the value of the company. The stock’s liquidity was bolstered as a result, as investors responded positively to the single voting class of shares. In the event of a tender offer, the Board must review the proposal and make its recommendation all shareholders, who in turn make their own decisions on whether to accept the offer. Buenaventura takes voting rights seriously. To facilitate the participation of all shareholders in General Meetings, the company calls Meetings 25 days in advance and provides shareholders the Meeting’s agenda. ADR holders receive proxies through the depositary bank and special procedures have been put in place to ensure that ADR holders have sufficient time to consider how to vote and that their votes are duly represented at General Meetings.

         Results

Buenaventura recognizes that it must continue to improve its governance framework as it strives to maximize shareholder value. Its governance improvements are clearly recognized by the market, as demonstrated by its three-fold increase in market capitalization, from around US$ 400 million to US$ 3.6 billion. The company reported net revenue of US$ 316 million in 2004, generating operating income of US$ 86.6 million in that year. Today, Buenaventura is working on complying with the Sarbanes-Oxley requirements. The company expects to be certified by external auditors as Sarbanes-Oxley compliant in June 2006.

Critically evaluate how Buenaventura achieves success through corporate governance. Provide justifications within the case study.

Imagine that you have been appointed as the CEO of Buenaventura. Discuss how you would strengthen the corporate governance using BRC Model.