MERCOSUR is a free trade block, with current member countries including Argentina, Brazil, Paraguay, and Uruguay. The Bravo Luggage Company is a Latin American firm based in Buenos Aires, Argentina. Bravo has seen a sharp increase in orders over the last few months and needs to increase the amount of material purchased. Currently, the materials used to manufacture Bravo luggage come from suppliers in Paraguay. Bravo managers have been approached by suppliers from Mexico and China who are both offering very competitive prices on materials.

1. Which of the following questions would be most important for Bravo managers to evaluate when determining which supplier to use?

A) How will using non-South American material affect the Bravo brand name?

B) What other MERCOSUR nations sell leather and fabric supplies for luggage?

C) What will be the total cost of materials shipped from Paraguay, Mexico, and China?

D) Are other countries planning to join MERCOSUR in the near future?

2. Which of the following best supports using a supplier from Paraguay over a supplier from Mexico or China?

A) MERCOSUR members agree to use exporters from other MERCOSUR nations.

B) The Mexican supplier is in closer proximity to Bravo than the Chinese supplier.

C) Mexican and Chinese suppliers would pay the same tariff to export to Argentina.

D) Bravo could avoid tariffs because Paraguay is a member of MERCOSUR.

3. Which of the following should be considered when making the decision to use a MERCOSUR supplier or a non-MERCOSUR supplier?

A) Will the additional tariffs charged on non-MERCOSUR supplier offset the cost savings?

B) Do other MERCOSUR nations use outside suppliers?

C) What percentage of tariffs will Argentina receive?

D) How will Bravo managers handle the free trade area?

4. If the material prices from the Chinese and Mexican suppliers are both competitive enough to cover up the additional tariffs, which of the following should be most considered when choosing between the Chinese and Mexican supplier?

A) will Mexico join MERCOSUR in the future?

B) is China a member of the WTO?

C) which supplier requires higher transportation cost?

D) all of the above

Gary and Ace are happily married, and have adopted a daughter, Gidget, who is 2 years old. They met while attending Lindenwood, and still feel strong loyalty to their alma mater. Gary played on the Lions football team and majored in exercise science. He works as a construction worker, and earns $60,000/year. Ace majored in communications and works for a local radio station selling advertising. He earns $35,000/year. They expect to earn this amount of money annually for the next 30 years. 20% of their income is used to pay taxes and other payroll deductions. They think they can earn an annual rate of return, after inflation, of 6%.

Their home is worth $300,000, and has a $250,000 mortgage. They have two cars, each worth $25,000, and each with a loan of $15,000. If one of them dies, they won't need both cars, so the survivor would sell one of them. They have credit card debt of $10,000. Gary has $50,000 in his 401k, while Ace has $40,000 in his They have other investments totaling $75,000.

Gary wants to have a big party when he die. He wants his ashes spread to the end zone of Harlan Hunter Stadium. He says the Lions as a team are near dead anyway, so why not The cost for this is expected to be $20,000. Ace wants a New Orleans style funeral, with a parade. He wants to be buried in a mausoleum, because he is afraid of worms and doesn't want to be buried in the ground. The cost for his funeral is expected to be $40,000. They want to ensure that if one of them dies, the other will have enough money to pay off the car, home, and credit card bills, and fund the cost of their funerals and burial. They also want to make su that Gidget is provided for, which means they want $2,000/month for her care until she is age 23. They are uncertain whether social security will provide any benefits, as they are convinced that right-wing, zealots will take benefits away from those raised in alternative family situations, so don't plan on any social security income.

Using each of the three methods (Human Life Replacement, Needs Approach, and Capital Re how much life insurance will Ace and Gary EACH need?

(3) Suppose there are two suppliers of distilled water, labeled firm A and firm B. Distilled water is considered to be a homogenous good (well, all water tastes the same, anyway). Let p denote the price per gallon, qA quantity sold by firm A, and qB the quantity sold by firm B. Firm A is located nearby a spring and therefore bears a production cost of cA = $1 per one gallon of water. Firm B is not located near a spring, and thus bears a cost of cB = $2 per gallon. The inverse demand function for distilled water is given by p = 120 – 0.5 Q = 120 – 0.5 (qA + qB) ; where Q = qA +qB denotes the aggregate industry supply of distilled water.

Suppose in problem (3) firm A sets its quantity produced qA, before firm B does. That is, firm B sets its production level qB, only after observing the quantity produced by firm A. Solve the following problems.

(i) Derive firm B's (the follower) output best-response as a function of firm A's output level, qB = RB(qA).

(ii) Formulate and solve firm A's (the leader) output profit-maximization problem.

(iii) Compute the profit-maximizing output level produced by firm B (the follower).

(iv) Compute the aggregate industry supply of distilled water in Ann Barber and the equilibrium price.

(v) Compute the equilibrium profit level of each firm.

(vi) Compare the output and profit levels of firm A as a leader in a sequential-move equilibrium to the output and profit levels in the Cournot equilibrium which you computed in part (a).

(vii) Compare the output and profit levels of firm B as a follower in a sequential-move equilibrium to the output and profit levels in the Cournot equilibrium which you computed in part (a).

(viii) Compare aggregate industry output, aggregate profit levels and the price level under a sequentialmove equilibrium to those under the Cournot equilibrium.

Q1-Use Successful Effort Method

a. Jensen Oil and Gas (Jensen) is interested in exploring an area near Bakersfield, California. Jensen accounts for its costs using the successful efforts method. It engages an aerial surveying firm to                 take photos of the region at a cost of $15,000. This results in the following entry?                                                                                    

Description                                         Account Type                     Debit     Credit                                                                                                                                                   

b. Jensen then acquires a least to a 640-acre property, which calls for an up-front bonus payment of $70 per acre. The related journal entry is?                                                                                       

Description                                         Account Type                     Debit     Credit

c. Jensen then hires a drilling company to drill an exploratory well for $650,000. The related journal entry is:                                                                                      

Description                                         Account Type                     Debit     Credit                                                                                                                                                   

d. After the well has been evaluated, it is determined to be a dry hole. The related journal entry is?                                                                                        

Description                                         Account Type                     Debit     Credit                                                                                                                                                   

e. Following this setback, Jensen instructs the drilling company to drill another exploratory well for $875,000, which is immediately determined to be successful. The resulting journal entry is?

Description                                         Account Type                     Debit     Credit

f. As the well was deemed successful, the resulting entry of the unproven property is?    

Description                                         Account Type                     Debit     Credit                                                                   

g. Pleased with the results, Jensen decides to fully develop the property. Jensen engages the drilling company to drill a development well at a cost of $1,200,000. The related journal entry is?

Description                                         Account Type                     Debit     Credit                                                                                   

h. After an evaluation period, the development well is designated a dry hole. The resulting entry is?

Description                                         Account Type                     Debit     Credit

i. Jensen drills two more wells that prove to be successful. After drilling two successful wells, Jensen spends $450,000 on flow lines, separators, tubing and other production facilities, the resulting journal entry is?                                                                                     

Description                                         Account Type                     Debit     Credit

j. Productions begin and Jensen incurs monthly production costs of $65,000. The resulting journal entry is?                                                                                         

Description                                         Account Type                     Debit     Credit

Heinz's dilemma is a frequently used example in many ethics and morality classes. One well-known version of the dilemma, used in Lawrence Kohlberg's stages of moral development, is stated as follows:

A woman was near death from a special kind of cancer. There was one drug that the doctors thought might save her. It was a form of radium that a druggist in the same town had recently discovered. The drug was expensive to make, but the druggist was charging ten times what the drug cost him to produce. He paid $200 for the radium and charged $2,000 for a small dose of the drug. The sick woman's husband, Heinz, went to everyone he knew to borrow the money, but he could only get together about $1,000 which is half of what it cost. He told the druggist that his wife was dying and asked him to sell it cheaper or let him pay later. But the druggist said: “No, I discovered the drug and I'm going to make money from it.” So Heinz got desperate and broke into the man's laboratory to steal the drug for his wife. Should Heinz have broken into the laboratory to steal the drug for his wife? Why or why not?

Heinz dilemma. (2017, August 4 ). Retrieved August 4, 2017, from https://mymission.lamission.edu/userdata/beltray/docs/HEINZ%20DILEMMA.doc

Theresa, Jose, and Darnell all have different opinions about the best option in the Heinz dilemma.

Theresa agrees with option 1: Heinz should steal the drug and not go to prison, because this is unfair.

Jose agrees with option 2: Heinz should not steal the drug because he would be breaking the law.

Darnell agrees with option 3: Heinz should steal the drug and accept any prison sentence.

Write a justification for all 3 possibilities in the Heinz Dilemma. This will require you to take 3 different perspectives on the dilemma, including ones that you may not personally agree with. For each possibility, include these points:

CASE study Electricity Generation

Case study 8.1: Electricity generation

Electricity Generation

Here and now

Distributed power generation will end the long-distancetyranny of the grid. For decades, control over energy has been deemed too important to be left to the markets. Politicians and officials have been dazzled by the economies of scale promised by ever bigger power plants, constructed a long way from consumers. They have put up with the low efficiency of those plants, and the environmental harm they do, because they have accepted that the generation, transmission and distribution of power must be controlled by the government or another monopoly. Yet in the beginning things were very different. When Thomas Edison set up his first heat-and-power co-generation plant near Wall Street more than 100 years ago, he thought the best way to meet customers’ needs would be to set up networks of decentralised power plants in or near homes and offices. Now, after a century that saw power stations getting ever bigger, transmission grids spreading ever wider and central planners growing ever stronger, the wheel has come full circle.

The bright new hope is micropower, a word coined by Seth Dunn of the WorldWatch Institute in an excellent report.* Energy prices are increasingly dictated by markets, not monopolies, and power is increasingly generated close to the end-user rather than at distant stations. Edison’s dream is being The new power plants of choice the world over are using either natural gas or renewable energy, and are smaller, nimbler, cleaner and closer to the end-user than the giants of yesteryear. That means power no longer depends on the vagaries of the grid, and is more responsive to the needs of the consumer. This is a compelling advantage in rich countries, where the digital revolution is fuelling the thirst for highquality, reliable power that the antiquated grid seems unable to deliver. California provides the best evidence: although the utilities have not built a single power plant over the past decade, individuals and companies have added a whopping 6gW of nonutility micropower over that period, roughly the equivalent of the states installed nuclear capacity. The argument in favour of micropower is even more persuasive in developing countries, where the grid has largely failed the poor. This is not to say that the existing dinosaurs of power generation are about to disappear. Because the existing capital stock is often already paid for, the marginal cost of running existing power plants can be very low. That is why America’s coal-fired plants, which produce over half the country’s power today, will go on until the end of their useful lives, perhaps decades from now – unless governments withdraw the concessions allowing them to exceed current emissions standards.

While nobody is rushing to build new nuclear plants, old ones may have quite a lot of life left in them if they are properly run, as the success of the Three Mile Island nuclear power plant in Pennsylvania attests. After the near-catastrophic accident in 1979 that destroyed one of the plant’s two reactors, the remaining one now boasts an impressive safety and financial record. Safety and financial success are intimately linked, says Corbin McNeill, chairman of Exelon and the current owner of the revived plant. He professes to be an environmentalist, and accepts that nuclear power is unlikely to be the energy of choice in the longer term: ‘A hundred years from now, I have no doubt that we will get our energy using hydrogen.’ But he sees nuclear energy as an essential bridge to that future, far greener than fossil fuels because it emits no carbon dioxide.

GOOD OLD GRID

The rise of micropower does not mean that grid power is dead. On the contrary, argues CERA, a robust grid may be an important part of a micropower future. In poor countries, the grid is often so shoddy and inadequate that distributed energy could well supplant it; that would make it a truly disruptive technology. However, in rich countries, where nearly everyone has access to power, micropower is much more likely to grow alongside the grid. Not only can the owners of distributed generators tap into the grid for back-up power, but utilities can install micropower plants close to consumers to avoid grid bottlenecks. However, a lot of work needs to be done before any of this can happen. Walt Patterson of the Royal Institute of International Affairs, a British think-tank, was one of the first to spot the trend toward micropower. He argues that advances in software and electronics hold the key to micropower, as they offer new and more flexible ways to link parts of electricity systems together. First, today’s antiquated grid, designed when power flowed from big plants to distant consumers, must be upgraded to handle tomorrow’s complex, multi-directional flows. Yet in many deregulated markets, including America’s, grid operators have not been given adequate financial incentives to make these investments. To work effectively, micropower also needs modern command and communications software. Another precondition is the spread of real-time electricity meters to all consumers. Consumers who prefer stable prices will be able to choose hedged contracts; others can buy and sell power, much as day traders bet on shares today. More likely, their smart micropower plants, in cahoots with hundreds of others, will automatically do it for them.

In the end, though, it will not be the technology that determines the success of distributed generation, but a change in the way that people think about electricity. CERA concludes that for distributed energy, that will mean the transition from an equipment business to a service business. Already, companies that used to do nothing but sell equipment are considering rental and leasing to make life easier for the user. Forward-looking firms such as ABB, a Swiss- Swedish equipment supplier, are now making the shift from building centralised power plants to nurturing micropower. ABB is already working on developing ‘microgrids’ that can electronically link together dozens of micropower units, be they fuel cells or wind turbines. Kurt Yeager of the Electric Power Research Institute speaks for many in the business when he sums up the prospects: ‘ Today ’s technological revolution in power is the most dramatic we have seen since Edison’s day, given the spread of distributed generation, transportation using electric drives, and the convergence of electricity with gas and even telecoms. Ultimately, this century will be truly the century of electricity, with the microchip as the ultimate customer.’

* ‘Micropower: the next electrical era’, by Seth Dunn.WorldWatch Institute, 2000

Questions

(a) Explain why power generation has traditionally been a monopoly in all developed countries.                                                                                                                               

(b) Why is it easy for the operators to exploit consumers in this market?       

(c) What is the nature of barriers to entry in the market?        

(d) How is the transmission grid related to a monopolistic market structure?  

Case #1

Kumar Boats Limited manufactures and sells fishing boats. All of the company’s sales come from two products: the Hauler and the Deluxe. The Hauler is a basic boat built with the minimum required components necessary for a successful outing and sells for $24,000. The Deluxe includes additional features unavailable on the Hauler, such as adjustable padded seats, moveable storage boxes, and rod holders, and sells for $29,000. The boats are sold to retailers who then usually add an outboard motor and a trailer before selling to the consumer.

Kumar Boats Limited management is meeting to discuss recent financial results and to plan for the future. Richard Rajan, the sales manager, advocates for keeping the prices of the two boats close in price since they share many similar features (e.g., size and weight, seating capacity, etc.). Mary Borkowski, the CEO of Kumar Boats, is concerned and has reviewed the financial information for both product lines. She has noticed that sales volume has been increasing while profits (as a percentage of sales) are decreasing. Mary consulted with her production manager, Craig Steele, who informed her that he is doing his best to control costs but it is difficult since the proportion of the Deluxe boats being manufactured and sold is growing at a much faster rate than sales of the Hauler.

Mary has asked the CFO for more detailed financial information regarding the sales and manufacturing costs of each product line for the past year. The following information was provided to Mary.

1

•  Manufacturing overhead in the past year was $887,200.

•  In the existing system, manufacturing overhead is applied on the basis of direct labour hours.

•  The total direct labour hours for the past year were 22,180.

•  The hourly rate for direct labour hours is $33.

•  Selling and administrative costs for the past year was $1,468,000.

  To help Mary gain a better understanding of the costs of operations, she asked the CFO to provide her with information regarding the company’s activities for the past year. Using an activity-based costing (ABC) approach, the CFO gathered the following information:

  Financial data for the two products, based on ABC analysis, is as follows:

Required:

1. (A) Calculate unit cost using the existing costing system (i.e., using a single, plantwide rate to apply overhead costs). Calculate gross and net operating income generated for the company by the two products.

2. (B) Calculate activity rates, rounding to the nearest dollar.

3. (C) Calculate unit cost using activity-based costing, and recalculate gross and net operating

   income generated by the two products.

4. (D) Based on the results above, what advice would you give to Mary regarding her observation of increasing sales volume but decreasing profit?

2

Case #2

Hoyoh Skateboards Company (HSC) is looking to acquire another skateboard manufacturer, FreeLife Limited. Freelife Ltd. recently filed for bankruptcy and management at HSC believes that they can generate a profit from this bankrupt company. FreeLife Ltd. has accounts with all of the major sporting goods chains in Canada, a segment of the market where HSC not present.

FreeLife Ltd. manufactures two product lines: traditional boards and long boards. Traditional boards for $159 each and the long boards for $315 each. In the past year, FreeLife Ltd. produced and sold 245,000 traditional boards and 36,000 long boards.

FreeLife Ltd. uses the absorption method of costing and provided the information below to HSC. The controller of FreeLife Ltd., when presenting this financial information, suggested that Hoyoh discontinue the traditional board product line after the acquisition. The company uses just-in-time (JIT) to manage inventories and, as a result, beginning and ending inventories are kept near zero (note: at the beginning and end of the prior year, inventories had zero values).

Total production costs for the past year for each product line are as follows:

After reviewing the FreeLife Ltd.’s operational and financial information, HSCs management is certain they can eliminate 40% of FreeLife’s fixed manufacturing overhead and 80% of the fixed selling and administrative costs.

Required:
(A) Using the absorption costing approach, calculate the total manufacturing cost per unit for

each product line without the cost savings projected by HSC. What is a likely reason for FreeLife Ltd. controller’s suggestion to eliminate the traditional boards?

2. (B) Prepare a segmented income statement using variable costing (i.e., contribution margin income statement). Your income statement should reveal the overall impact of Hoyoh management’s expected savings resulting from the merger. Would you suggest that the traditional boards be discontinued under Hoyoh’s control?

3. (C) What is a significant disadvantage of JIT with regard to inventory management? If FreeLife Ltd. did have large beginning and ending inventories, what might management have done during the prior year to improve the appearance of the company’s income statement while looking for a buyer of the company?

3

1)McKnight Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $489,000, has an expected useful life of 11 years, a salvage value of zero, and is expected to increase net annual cash flows by $71,800. Project B will cost $321,000, has an expected useful life of 11 years, a salvage value of zero, and is expected to increase net annual cash flows by $48,600. A discount rate of 7% is appropriate for both projects. Click here to view the factor table.

Compute the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to 0 decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.25. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Which project should be accepted based on Net Present Value?

Which project should be accepted based on profitability index?

2)Thunder Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $158,800 and have an estimated useful life of 6 years. It can be sold for $69,100 at the end of that time. (Amusement parks need to rotate exhibits to keep people interested.) It is expected to increase net annual cash flows by $26,700. The company’s borrowing rate is 8%. Its cost of capital is 10%.
Click here to view the factor table.

Calculate the net present value of this project to the company and determine whether the project is acceptable. (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. Round present value answer to 0 decimal places, e.g. 125.)

3)Kanye Company is evaluating the purchase of a rebuilt spot-welding machine to be used in the manufacture of a new product. The machine will cost $179,000, has an estimated useful life of 7 years, a salvage value of zero, and will increase net annual cash flows by $37,987.

Click here to view the factor table.

What is its approximate internal rate of return? (Round answer to 0 decimal place, e.g. 13%.)

1. A publisher plans to boost the sales of its most popular magazine by sending out promotional mails. We refer to a customer as a responder if he/she subscribes to the magazine for the next year after receiving a promotional mail. Otherwise the customer is referred to as a non-responder. Denote responder by C1 and non-responder by C2. The publisher has built a model to classify each customer as either a responder or a non-responder. In practice only 1% of the customers are responders, and the remaining 99% are non-responders. In order to build an unbiased model, the publisher employed the oversampling method in creating the training set and the validation set, such that both datasets contain 50% responders and 50% non-responders. Please adjust the following validation confusion matrix for oversampling, then compute accuracy measures using the adjusted confusion matrix. Keep at least three digits after the decimal point.

.     For each of the following two situations, draw a diagram of the exchange rate market for U.S. dollars showing clearly the demand and supply of U.S. dollars in exchange for Japanese yen. Identify the initial equilibrium.

Next illustrate on the diagrams the impact of each of the following events. Then draw a conclusion on the resulting impact on the exchange rate.

(All axes, curves, and points should be clearly labeled to receive full credit)

1. An increased preference for American goods by Japanese consumers. For example, suppose that American firms come to dominate the video game market, with games that are more exciting and realistic than those produced in Japan. Or, Japanese airlines might find that U.S.-built aircraft are superior to others and decide to expand the number of American-made planes in their fleets.

2. The interest-rate on one-year Japanese government bonds rises relative to the interest rate on similar one-year U.S. Treasury bills. (4pts)