Prepare a New Business Venture BUSINESS PLAN for a VENDING business, using the following Chapter Headings: 1. General Company Description 2. Products and Services 3. Marketing Plan 4. Operational Plan 5. Management and Organization 6. Personal Financial Statement 7. Startup Expenses and Capitalization 8. Financial Plan 9. Appendices

1. You and a group of friends wish to start a company. You have an idea, and you are comparing startup incubators to apply to. (Startup incubators hold classes and help startups to contact venture capitalists and network with one another) Assume funding is normally distributed.

Incubator A has an 80% success ratio getting companies to survive at least 4 years from inception. The average venture funding of the 28 companies reaching that 4-year mark, is 1.3 million dollars with a standard deviation of 0.6 million

Incubator B has a 60% success ratio getting companies to survive at least 4 years from inception. The average venture funding of the 21 companies reaching that 4-year mark, is 1.9 million dollars with a standard deviation of 0.55 million

a. Are the success ratios significantly different? (note the count is given but not N, how do you find N?)

b. Is the average funding in incubator B significantly different from the average funding in a? (use a=0.01). Assume a normal distribution

Imagine that you are one of three partners in an accounting firm. Five years ago, the firm was appointed as external accountants to a successful startup company, engaged to prepare year end accounts and tax returns. The startup had begun trading with a handful of employees but now has a workforce of 200, while still remaining below the size of company requiring a statutory audit. Due to your close relationship with the director/owner of the company and several of its staff, you find out that staff purchases of goods manufactured by the company are authorized by production managers, and then processed outside the accounting system. The proceeds from these sales are used to fund the firms holiday party. In the discussion forum, answer the following questions: Would this practice of omitting income from staff sales result in misleading financial statements? Is the practice dishonest? What should be your involvement? How should you act in order to protect your reputation, you firms reputation, and the reputation of your profession?

Your startup is currently cash-constrained, and you must make a decision about whether to delay paying one of its suppliers, or take out a loan. You owe the supplier $11000 with terms of 5/10 Net 40, so the supplier will give you a 5% discount if you pay today (when the discount period expires). Alternatively, you can pay the full $11000 in one month when the invoice is due. You are considering three options:

Alternative A: Forgo the discount on its trade credit agreement, wait and pay the full $11000 in one month.
Alternative B: Borrow the money needed to pay its supplier today from Bank A, which has offered a one-month loan at an APR of 12%. The bank will require a (no-interest) compensating balance of 5% of the face value of the loan and will charge a $100 loan origination fee. Because your startup has no cash, you will need to borrow the funds to cover these additional amounts as well.
Alternative C: Borrow the money needed to pay its supplier today from Bank B, which has offered a one-month loan at an APR of 15%. The loan has a 1% loan origination fee, which again you will need to borrow to cover.

For each alternative, what is the amount owed in one month? Which alternative is the cheapest source of financing for your startup?

a. Alternative A: the amount owed in one month is $. (round to full $)

b. Alternative B: the amount owed in one month is $. (round to full $)

c. Alternative C: the amount owed in one month is $. (round to full $)

d. The cheapest source of financing is alternative . (fill in "A", "B", or "C")

CASE: Boeing and Airbus Are in a Dogfight over Illegal Subsides

            Boeing and Airbus are the dominant players in the global market for large commercial jet aircraft of 100 seats or more. The two companies are locked in a rent less battle for market share. For decades, these two companies have been accusing each other of benefitting from the government subsidies. In its early years, Airbus received 100 percent of the funds it needed to develop new aircraft from the governments of four European countries where Airbus’ operations were based: Germany, France, Spain, and the United Kingdom. These funds were provided in the form of loans at below-market interest rates. For its part, Airbus claimed the Boeing has long been the recipient of R&D grants form the U.S. Department of Defense and NASA, which amount to indirect subsides. The two companies reached an agreement on phasing out subsidies back in 1992, but Boeing walked away from that deal in 2004, claiming that Airbus was still benefiting from billions in illegal development subsidies.

            In 2006, the U.S. government filed a case with the World Trade Organization (WTO) alleging that Airbus had received $25 billion in illegal subsidies, mostly in the form of launch aid for developing new aircraft. In 2010, the WTO ruled that Airbus had benefited from $18 billion in illegal government subsidies, including $15 billion in launch aid. The WTO gave the European governments until December 2011 to remove the harmful effects of the subsidies.

            In September 2016, the WTO issued another ruling criticizing the Europeans for failing to comply with its 2010 ruling and, moreover, for giving another $5 billion to Airbus in the form of noncommercial loans to help develop its latest aircraft, the A350. In this latest ruling, the WTO stated that “it is apparent that the A350 could not have been launched and brought market in the absence of launch aid.” In total, the WTO calculated that Boeing had lost 104 wide-bodied jet orders and 271 narrow-bodied jet orders as a result of Airbus launch subsidies. This latest ruling opens the door for the United States to apply retaliatory trade sanctions against noncompliant European governments.

            However, it seems unlikely that the United States will apply retaliatory sanctions anytime soon. Part of the reason is the United States itself has been countersued by the EU through the WTO for providing illegal subsidies to Boeing. In November 2016, the WTO ruled that Boeing would receive around $5.7 billion in illegal tax breaks from Washington State, where Boeing’s main production facilities are located. The state of Washington had promised to give Boeing these tax breaks between 2020 and 2040 on the condition that the company kept to production of the wings for the wide-bodied 777X aircraft in the state. According to Airbus, these tax breaks give 777X an unfair advantage against its rival aircraft, an assessment that the WTO seems to agree with.

            It remains to be seen what the final outcome will be. The WTO has yet to rule on how much damage Boeing’s tax breaks might impose upon Airbus. For its part, Boeing claims that the benefits from the subsidies to the 777X program only amount to $50 million a year, an assessment that Airbus vigorously disagrees with. The EU appealed this decision. A final ruling isn’t expected until at least 2018.

Analyze the case and answer the following questions:

QUESTION 1: According to WTO rulings, both Airbus and Boeing have been recipients of government assistance at one point or another. Discuss the nature of aircraft manufacturing and why subsidies are seemingly part of the industry practice.

QUESTION 2: In its early years, Airbus received subsidies for 100 percent of its development costs. Discuss this situation. Is there a time when subsidies should be considered acceptable? Why or why not?

QUESTION 3: Boeing is expected to benefit from some $5.7 billion in tax breaks from the state of Washington. Why is the state of Washington willing to provide these tax breaks to Boeing?

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys debt securities, not intending to profit from short-term differences in price and not necessarily to hold debt securities to maturity, but to have them available for sale in years when circumstances warrant. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2020.

(Hint: Interest must be accrued.)

1.

What is a defining characteristic of a free trade area?

Multiple Choice

• Factors of production are allowed to move freely between member nations.

• Each member country is allowed to determine its own trade policies with regard to nonmembers.

• Member nations are required to have a common currency.

• Member nations are required to have a common monetary and fiscal policy.

• Member nations are required to have a central political apparatus that coordinates economic, social, and foreign policy.

2.

Establishment of the euro required participating national governments to

Multiple Choice

• have a sound fiscal situation.

• have stable exchange rates.

• be democratic in nature.

• give up control over monetary policy.

• have a high degree of price stability.

3.

Regional trade blocs in Africa have been slow to establish mostly because of

Multiple Choice

• significant political turmoil.

• inefficiencies in the economy.

• a lack of willing participants.

• an unwillingness to lower all nontariff barriers.

• a lack of intellectual property rights.

4.

Within a(n) _____, there is a level of economic integration that involves the use of a common currency, harmonization of members' tax rates, and a common monetary and fiscal policy.

Multiple Choice

• free trade area

• customs union

• common market

• economic union

• command economy

5.

The purpose of the Central America Free Trade Agreement is to

Multiple Choice

• lower trade barriers between the United States and the Central American Common Market countries.

• eliminate trade barriers between the CARICOM and Central American Common Market countries.

• reduce of trade barriers between Caribbean Single Market and Economy nations and Central American Common Market countries.

• introduce a common currency for Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua.

• reduce tariffs and quotas between Costa Rica, Dominican Republic, and Nicaragua.

6.

Since it was introduced in 1999, how has the euro compared to the U.S. dollar?

Multiple Choice

• The value of the euro has been stable against the U.S. dollar.

• The euro's value has steadily appreciated against the U.S. dollar.

• The euro's value initially appreciated and then steadily depreciated against the U.S. dollar.

• The euro has had a volatile trading history against the U.S. dollar.

• The value of the euro rapidly surpassed, and continues to appreciate against the U.S. dollar.

7.

An expected consequence of the implementation of the North American Free Trade Agreement was

Multiple Choice

• low-skilled jobs would be moved out to Mexico resulting in lowering of average wage rates in the United States and Canada.

• increased imports from Mexico would help reduce the huge trade deficit for United States and Canada.

• lower incomes of the Mexicans would allow them to import fewer U.S. and Canadian goods, thereby decreasing demand.

• a large number of Mexican firms would hire low-skilled workers from the United States.

• some U.S. and Canadian firms would move production to Mexico to take advantage of lower labor costs.

8.

The Central American Free Trade Agreement is an agreement to lower trade barriers between six nations and

Multiple Choice

• the United States.

• the EU.

• France.

• the Philippines.

• Germany.

9.

Which of these situations shows how concerns over national sovereignty can act as an impediment to regional economic integration?

Multiple Choice

• Organization of the Petroleum Exporting Countries regulating the supply of petroleum as a cartel

• Asia-Pacific Economic Cooperation failing to establish itself as a regional arrangement

• admission of eastern European nations into the European Union

• Great Britain refusing to adopt the common currency of the European Union, the euro

• rise of the World Trade Organization

10.

What was a change proposed by the Single European Act?

Multiple Choice

• establish frontier controls among European Community countries

• increase the resources required for complying with trade bureaucracy

• place barriers to competition in the retail banking and insurance businesses

• apply the principle of "mutual recognition" to product standards

• reduce costs directly by not allowing lower-cost suppliers into national economies

P. 4-2

For each of the following indicate the amount of revenue that Beanville should recognize in its 2020 (1) government‐wide statements and (2) governmental fund statements. Provide a brief justification or explanation for your responses.

1. The state in which Beanville is located collects sales taxes for its cities and other local governments. The state permits small merchants to remit sales taxes quarterly. The state sales tax rate is 6 percent. In December 2019, city merchants collected $50 million in sales taxes that they remitted to the state on January 15, 2020. The state, in turn, transferred the taxes to the city on February 15, 2020.
2. In December 2019, the federal government awarded Beanville a reimbursement grant of $500,000 to train law‐enforcement agents. The city had applied for the grant in January of that year. The city may incur allowable costs any time after receiving notification of the award. In 2020, the city incurred $400,000 in allowable costs and was reimbursed for $350,000. It was reimbursed for the $50,000 balance in February 2021. In January and February 2021, it incurred the remaining $100,000 in allowable costs and was reimbursed for them in April 2021.
3. In December 2019, the city levied property taxes of $1 billion for the calendar year 2020. The taxes are due on June 30, 2020. The city collected these taxes as follows:

December 2019                                                                                                                                 $56 million

January 1, 2019, to December 31, 2019    $858 million

January 1, 2020, through March 31, 2020 ($18 million per month) $54 million

Total                                                                                                                                                    $968 million

It estimates the balance of $32 million would be uncollectible. In addition, in the period from January 1 through February 28, 2020, the city collected $16 million in taxes that were delinquent as of December 31, 2019. In the period March 1 through June 30 2020, the city collected $8 million of taxes that were also delinquent as of December 31, 2019.

4. In December 2020 Beanville sold a city‐owned warehouse to a private developer. Sales price was $4.2 million. The warehouse had cost $4 million when it was acquired 10 years earlier. It had an estimated useful life of 40 years (with no salvage value).
5. In December 2020, Beanville's city‐owned radio station held its annual fund drive. A local business offered to match all pledges made on December 2, 2020, up to $50,000, assuming that the amount pledged was actually collected. Based on past experience the city estimates that 90 percent of the pledges will actually be collected. By year‐end 2020, the city had collected $25,000 of the pledges, and in January and February it collected an additional $15,000. It received $25,000 of the matching funds on February 15, 2021. Respond with respect only to the $50,000 in matching funds.