The article is after the questions

The July 6, 2011, edition of the Wall Street Journal Online includes an article by Michael Rapoport entitled “U.S. Firms Clash Over Accounting Rules.” The article discusses why some U.S. companies favored adoption of International Financial Reporting Standards (IFRS) while other companies opposed it.

Instructions

Read the article and answer the following questions.

(a) The articles says that the switch to IFRS tends to be favored by “larger companies, big accounting firms, and rule makers.” What reasons are given for favoring the switch?

(b) What two reasons are given by many smaller companies that oppose the switch?

(c) What criticism of IFRS is raised with regard to regulated companies?

(d) Explain what is meant by “condorsement.”

Ford Motor Co. has a special room for it.

It isn't a new hybrid car. The auto maker is preparing for a possible switch by U.S. companies to a new set of accounting rules already used in most of the rest of the world.

Ford supports the move to International Financial Reporting Standards, or IFRS, saying the company would save money by simplifying and standardizing its accounting across all 138 countries where Ford operates.

Charts, posters and other details about how Ford would make the switch fill the company's "IFRS Energy Room," a converted conference room at the company's headquarters in Dearborn, Mich. "For two days, we were thinking of it as the IFRS 'war room,"' says Susan Callahan, Ford's manager of global accounting policies, "but we couldn't think of who we were at war with."

The answer: companies like Hallador Energy Co., a small Denver coal-mining company that doesn't do business outside the U.S. and opposes moving to the international standards.

"We didn't join the metric system when everybody else did," says W. Anderson Bishop, Hallador's chief financial officer. U.S. accounting rules are "the gold standard, and why would we want to lower our standards just to make the rest of the world happy?"

The clash between big and small companies is likely to come up at a discussion session Thursday at the Securities and Exchange Commission in Washington.

U.S. and global rule makers already have worked for years to eliminate many of the biggest differences between IFRS and the U.S.'s generally accepted accounting principles, or GAAP. The SEC is expected to decide by year end whether to require U.S. companies to shift to IFRS altogether.

If U.S. companies are required by the SEC to move to IFRS, which wouldn't happen until at least 2015, some numbers on their financial statements will have to be calculated differently. (For example, a widely used method to value inventory under GAAP isn't allowed under IFRS.) Accounting could become simpler and more flexible, since IFRS is based on guiding principles rather than GAAP's detailed rules.

Larger companies, big accounting firms and top rule makers favor the switch. They contend that global unity would save companies money by consolidating their bookkeeping and make it easier to raise capital around the world. Investors would have less trouble comparing companies based in different countries, and global securities-law enforcement would improve, supporters say.

"It puts everybody on the same language and gives everybody a chance to coalesce along the same standards," said Joel Osnoss, Deloitte & Touche LLP's global IFRS leader for clients and markets. "The quality of financial reporting is going to improve globally."

But some smaller U.S. companies complain that the change will be a costly headache. Estimates for how much the move would cost vary. James Barlow, chief financial officer of drug company Allergan Inc. and an opponent of IFRS, estimates the change could cost companies as much as 1% of revenues.

Smaller companies also are less likely to have operations outside the U.S., or to have aspirations to expand or raise money globally.

"We don't see why the current reporting framework is insufficient," says Jim Lynch, chief financial officer of SJW Corp., a water utility in San Jose, Calif. IFRS lacks the specific rules GAAP has to deal with regulated companies like utilities, he adds.

Shannon Greene, finance chief of Tandy Leather Factory Inc., says the leather-products maker in Fort Worth, Texas, "won't get any benefit whatsoever" from switching to IFRS, though she accepts it as "one of those necessary evils." Once more small firms find out about the potential change, "you're going to see an outcry."

Given the sluggish economy and the far-off nature of the change, some companies have paid little attention to the debate. "I'm not only the CFO, but I'm also the 'OFO': the only financial officer," says Stephen Kuchen, chief financial officer at PacificHealth Laboratories, a Matawan, N.J., nutrition-technology company. "I'm not really thinking about 2016. I'm thinking about making payroll next week and making sure we have a sound business plan."

Not all small companies are opposed to IFRS. For instance, Cuisine Solutions Inc., an Alexandria, Va., maker of prepared gourmet foods, has a subsidiary in France, so standardized accounting would help the company, says Ron Zilkowski, its finance chief. Mr. Zilkowski and Ms. Greene are scheduled to speak at the SEC on Thursday.

SEC officials are concerned about IFRS's potential impact as well. "There are immediate questions when you talk to smaller companies as to whether they have the same benefits," SEC Chief Accountant James Kroeker said. Some of them also think the costs of a switch can't be scaled to their company's size, he said, so the expense would be a greater burden on them than on large companies.

There might be a compromise. Under an idea dubbed "condorsement"--a combination of "convergence" and "endorsement"--floated by the SEC, U.S. companies would stay under GAAP but efforts to move GAAP closer to IFRS would continue. At the same time, the Financial Accounting Standards Board would consider absorbing new IFRS rules into GAAP, based on whether each rule is in the best interest of U.S. investors and financial markets. The SEC says such a method would help align rules, while keeping down the costs of an accounting change.

One way or another, the U.S. needs to adopt the global accounting standards in IFRS or else "the whole idea of having one single global market starts to fall apart," says David Tweedie, who stepped down last week as chairman of the International Accounting Standards Board.

Write to Michael Rapoport at [email protected]

Credit: By Michael Rapoport

Word count: 946

(c) 2011 Dow Jones & Company, Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission.

Fajar Factory wants to build a rice processing factory that will take a year to build. $5 million is spent right away and another $5 million is spent next year. The company CEO is expecting that the factory will lose $1 million in its first year of operation and lose another half a million in its second year of operation. with that initial investment, the factory is expected to produce 8000 rice packs per month and sold fo $30 per unit for nest 20 years. meanwhile, the production cost for pack is $20.

Calculate the fajar factory profit for a year ? Show how you calculate TC,TR, PROFIT

C&P Trading Inc. is considering a project, initial investment is $260,000. The company board of directors set the maximum requirements of return of pay back 3 years and has set the cost of capital is 10%, below is the cash flow: CF1= $75,800 , CF2= $78,960 , CF3= $82,278, CF4= $117,612.

1. Would you accept the project based on NPV, IRR?
2. Would you accept the project based on Payback rule if project cut-off period is 3 years?
3. How would you explain to your CEO what NPV means?
4. What are advantages and disadvantages of using only Payback method?

Hoping to make his flight on time, Tom (the CEO of ABC Pty Ltd) signed a stack of paperwork on his desk without reading what he was signing. Unfortunately, one of the documents he signed authorised a high-risk investment which caused shareholders to lose millions of dollars.

Required:

(a) With reference to CA s 180, how does the court decide whether a director acted with care, skill and diligence?

(b) Analyse whether Tom breached his duty of care to the company.

(c) Analyse whether Tom qualifies for a defence under the business judgment rule. You must refer to relevant law

You have recently been hired by a company that wants to “go global” and you have been selected to help research this possibility. The CEO has selected you to research your chosen country and report back. You must prepare a report on your country’s four cultural values and provide examples of how they relate to business transactions.

For your chosen country of France write a three-page paper on the following:

Individual and collective dimension of the country
Equality and hierarchy dimension of the country
Change orientation dimension of the country
Time orientation dimension of the country
Give examples of these dimensions and how they relate to global business transactions

Fruits By the Foot By General Mills.

1) Your CEO has come to you and asked that you develop a NEW approach to pricing for your product for a specific new distribution outlet (he won’t tell you much, but it will reach a new target market: urban, mid to upper-income, multicultural, 20s-30s). What pricing strategy will you utilize and why?

2) How does this new pricing strategy fit with the Marketing Mix, Positioning, and Differentiation strategy for your company? What other creative new pricing methods might your brand consider to appeal to current customers and sell more product?

You work as an HR Manager at Chenoa Automotive. Chenoa Automotive is an automobile parts manufacturer and it employs roughly 1,100 employees of whom 825 work in production facilities and are unionized. The rest of the employees are office workers employed in a variety of clerical, professional, and managerial jobs. Lately, the company is dealing with increased tardiness, absenteeism, and accidents. A preliminary investigation suggests that there might be a “drug problem.” Your CEO wants you to develop and implement a drug testing program. Describe in detail what the program will look like, how you will communicate the program, how you will implement the program, and how you will evaluate the success of the program?

9-1. Nealon Energy Corporation engages in the acquisition, exploration, development, and production of natural gas and oil in the continental United States. The company has grown rapidly over the last 5 years as it has expanded into horizontal drilling techniques for the development of the massive deposits of both gas and oil in shale formations. The company’s operations in the Haynesville shale (located in northwest Louisiana) have been so significant that it needs to construct a natural gas gathering and processing center near Bossier City, Louisiana, at an estimated cost of $70 million.

To finance the new facility, Nealon has $20 million in profits that it will use to finance a portion of the expansion and plans to sell a bond issue to raise the remaining $50 million. The decision to use so much debt financing for the project was largely due to the argument by company CEO Douglas Nealon Sr. that debt financing is relatively cheap relative to common stock (which the firm has used in the past). Company CFO Doug Nealon Jr. (son of the company founder) did not object to the decision to use all debt but pondered the issue of what cost of capital to use for the expansion project. There was no doubt that the out-of-pocket cost of financing was equal to the new interest that must be paid on the debt. However, the CFO also knew that by using debt for this project the firm would eventually have to use equity in the future if it wanted to maintain the balance of debt and equity it had in its capital structure and not become overly dependent on borrowed funds.

The following balance sheet reflects the mix of capital sources that Nealon has used in the past. Although the percentages would vary over time, the firm tended to manage its capital structure back toward these proportions:

The firm currently has one issue of bonds outstanding. The bonds have a par value of $1,000 per bond, carry an 8 percent coupon rate of interest, have 16 years to maturity, and are selling for $1,035. Nealon’s common stock has a current market price of $35, and the firm paid a $2.50 dividend last year that is expected to increase at an annual rate of 6 percent for the foreseeable future.

1. What is the yield to maturity for Nealon’s bonds under current market conditions?

2. What is the cost of new debt financing to Nealon based on current market prices after both taxes (you may use a 21 percent marginal tax rate for your estimate) and flotation costs of $30 per bond have been considered?

3. What is the investor’s required rate of return for Nealon’s common stock? If Nealon were to sell new shares of common stock, it would incur a cost of $2.00 per share. What is your estimate of the cost of new equity financing raised from the sale of common stock?

4. Compute the weighted average cost of capital for Nealon’s investment using the weights reflected in the actual financing mix (that is, $20 million in retained earnings and $50 million in bonds).

5. Compute the weighted average cost of capital for Nealon where the firm maintains its target capital structure by reducing its debt offering to 40 percent of the $70 million in new capital, or $28 million, using $20 million in retained earnings and raising $22 million through a new equity offering.

6. If you were the CFO for the company, would you prefer to use the calculation of the cost of capital in part (d) or (e) to evaluate the new project? Why?

Nealon Energy Corporation engages in the acquisition, exploration, development, and production of natural gas and oil in the continental United States. The company has grown rapidly over the last 5 years as it has expanded into horizontal drilling techniques for the development of the massive deposits of both gas and oil in shale formations. The company's operations in the Haynesville shale (located in northwest Louisiana) have been so significant that it needs to construct a natural gas gathering and processing center near Bossier City, Louisiana, at an estimated cost of $90 million.

To finance the new facility, Nealon has $30 million in profits that it will use to finance a portion of the expansion and plans to sell a bond issue to raise the remaining $60million. The decision to use so much debt financing for the project was largely due to the argument by company CEO Douglas Nealon Sr. that debt financing is relatively cheap relative to common stock (which the firm has used in the past). Company CFO Doug Nealon Jr. (son of the company founder) did not object to the decision to use all debt but pondered the issue of what cost of capital to use for the expansion project. There was no doubt that the out-of-pocket cost of financing was equal to the new interest that must be paid on the debt. However, the CFO also knew that by using debt for this project the firm would eventually have to use the equity in the future if it wanted to maintain the balance of debt and equity it had in its capital structure and not become overly dependent on borrowed funds.

The following balance sheet,

​

reflects the mix of capital sources that Nealon has used in the past. Although the percentages would vary over time, the firm tended to manage its capital structure back toward these proportions.

The firm currently has one issue of bonds outstanding. The bonds have a par value of

$1,000per bond, carry a coupon rate of 99percent, have 16 years to maturity, and are selling for $1,050.

Nealon's common stock has a current market price of $ 34, and the firm paid a $2.20dividend last year that is expected to increase at an annual rate of 88percent for the foreseeable future.

a. What is the yield to maturity for Nealon's bonds under current market conditions?

b.What is the cost of new debt financing to Nealon based on current market prices after both taxes (you may use a marginal tax rate of 35 percent for your estimate) and flotation costs of $40per bond have been considered?

Note : Use N=16 for the number of years until the new bond matures.

c.What is the investor's required rate of return for Nealon's common stock? If Nealon were to sell new shares of common stock, it would incur a cost of $2.00 per share. What is your estimate of the cost of new equity financing raised from the sale of common stock?

d.Compute the weighted average cost of capital for Nealon's investment using the weights reflected in the actual financing mix (that is, $30 million in retained earnings and $60million in bonds).

e.Compute the weighted average cost of capital for Nealon where the firm maintains its target capital structure by reducing its debt offering to 40percent of the $90 million in new capital, or $36 million, using $30 million in retained earnings and raising $24 million through a new equity offering.

f.If you were the CFO for the company, would you prefer to use the calculation of the cost of capital in part (d ) or (e ) to evaluate the new project? Why?