Exercise One

The final grades in immunology at State University are recorded in the accompanying table (ranged from a possible 0 to 80; Also See Problem 13):

           29   74 51    42   55   75   74   74   79   74    43   79   55   74   25   04   69   78   74   52

           76 74   04    64   76   79   69   77   79   24    75   78   74 69   65   80   72   79   62   79

           08   66   79    43   76   72   45   73   05   79    74   74   75   38   60   02   74   78   79   73

           63   45   74    64   63   75   62   43   67   72    62   62   54   03   45   79   62   64   75   72

     From the above data (80 cases):

1. (5 pts.) construct a frequency table, include relative frequency and cumulative relative frequency.
2. (8 pts.) Construct a histogram and frequency polygon.
3. (2 pts.) Why did you select the intervals you used for your table and graphs?
4. (2 pts.) Is the above distribution skewed? Explain your answer.

(3 pts.) Define skewed. Demonstrate what that would look like graphically. Why is skewed data problematic?

(3 pts.) What is the relation between kurtosis and variability of the data?

(2 pts.) What do measures of central tendency not tell us? Demonstrate this problem graphically.

(11 pts.) Find the mean, median, and mode for all 80 cases in problem #9. Imagine that you are a graduate teaching assistant for the course. What does you tell us the professor about the students' performance in immunology? Be specific. (Note: The instructor uses a grading scale of A=72-80; B=63-71; C=54-62; D=45-53; F=44 or less.)

Nihau Tech has equal amounts of low-risk, average-risk, and high-risk projects. The firm's overall WACC is 11%. The CFO, Ms Chen, believes that this is the correct WACC for the company's average-risk projects, but that a lower rate should be used for lower-risk projects and a higher rate for higher-risk projects. The CEO, Mr. Wu, disagrees, on the grounds that even though projects have different risks, the WACC used to evaluate each project should be the same because the company obtains capital for all projects from the same sources. If Mr. Wu's position is accepted, what is likely to happen over time?

a) The company will take on too many high-risk projects and reject too many low-risk projects.

b) The company's overall WACC should decrease over time because its stock price should be increasing.

c) Things will generally even out over time, and, therefore, the firm's risk should remain constant over time.

d) The company will take on too many low-risk projects and reject too many high-risk projects.

Rusted from the Rain, Inc. is a producer of specialized anti-rust automotive equipment. Currently, overhead costs are allocated at a rate of $50 per machine hour produced and the company used 2,000 machine hours last year. Rusted’s CEO, William Talent, has heard about ABC, and would like to see if it makes any difference in the costs allocated to jobs at the company.

The accounting staff has provided the following information about manufacturing overhead:

                                                            Amount                      Cost Driver

Setups                                                 $30,000                       Number of setups

Equipment                                           20,000                        Number of machine hours

Inspection                                           50,000                        Number of inspections

The company estimates that it will perform 150 setups and 1,000 inspections each year and will use 2,000 machine hours. Job CRT will require 18 setups, 85 machine hours, and 60 inspections.

Required:

1. Calculate the activity rates to be used under ABC costing.
2. Using ABC, what amount of manufacturing overhead will be allocated to Job CRT?
3. What amount would be allocated to job CRT using their current, traditional system? (1 mark)
4. Explain why and how the two overhead allocation methods yield such different answers.

1. Your company designs and makes electronic counting and control devices for manufacturers. It employs 300 people in the Midwest and has been in business on a privately owned basis for nine years. The industry is competitive, and your company must preserve an edge in getting new products to market faster than others, maintaining a high-quality product, offering good and sustained service to its customers, and selling at a competitive price. The company offers a privately insured health care plan, among other benefits and rewards, for all employees and their dependents. It is a traditional indemnity plan design and the cost as a percentage of total employee compensation has increased from 16 percent to 25 percent over the last two years. There is no cost to the employees for their health care. Your competitors are sponsoring much less expensive plans. Your CEO has asked you for a complete review of the health care plan and to create a design that is in line with the business strategy, is cost-effective, provides employees with choice and quality, and helps recruit and retain employees.

Can you link your health care plan to a potential increase in productivity? How? How would you measure?

Case Analysis 3: You are the General Manager at the Bicker, Slaughter, and Lynch Law Firm. There is an opportunity to buy out a small law firm that was just started by a young MBA/JD, and you believe the firm can be grown and become a lucrative part of your Firm. With help from your finance leader, you have estimated the following benefit streams for this new division:

Before Tax Cash Flow From Operations

Year 1 $(149,000)

Year 2 $0

Year 3 $51,380

Year 4 $88,760

Year 5 $114,100

Year 6 $129,780

Year 7 $143,640

Year 8 $167,300

After Tax Net Income From Operations

Year 1 $(103,500)

Year 2 $(50,500)

Year 3 $36,700

Year 4 $63,400

Year 5 $81,500

Year 6 $92,700

Year 7 $102,600

Year 8 $119,500

After Tax Cash Flow From Operations

Year 1 $(85,600)

Year 2 $15,000

Year 3 $48,600

Year 4 $72,200

Year 5 $95,550

Year 6 $101,300

Year 7 $125,200

Year 8 $140,200

You estimate that the purchase price for this firm would be $200,000 and that additional net working capital would be needed in the amount of $60,000 in year 0, an additional $15,000 in year 2 and then $15,000 in year 5.

• BSL usually spend about $275,000 per year in advertising. If you make this acquisition, you would ask that advertising spending be increased by an incremental one-time amount of $45,000 in year 0 to publicize the firm’s expansion.

• Your finance leader has indicated that the firm has access to a credit line and could borrow the funds at a rate of 6%. He also mentions that when he runs project economics for capital budgeting (such as a new copier or a company car), he recommends a standard 10% rate discount, but the one other time they looked at an acquisition of a smaller firm, he used a 13% rate discount. Obviously you will want to select the most appropriate discount rate for this type of project.

• At the end of 8 years, the plan is to sell this division. The estimated terminal value (the sale and the return of working capital) is conservatively estimated to be $350,000 of after-tax cash flow help.

Using the data that you need (and ignoring the extraneous information), for this potential acquisition, calculate each of the following items: the Nominal Payback, the Discounted Payback, the Net Present Value, the IRR.

In an MS Word document, in paragraph form, respond to the following questions:

1) From a purely financial (numbers) perspective, would you recommend this purchase to management? Why?

2) What are some of the non-financial elements that need to be considered for this proposal?

3) Assumptions in project economics can have a huge impact on the result. Identify 3 financial elements/assumptions in your analysis that would make this project financially unattractive? In other words, what would have to be true for this to be a bad investment?

4) If you were the CEO, would you approve this proposal? Why or why not?

Flounder Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2020. The purchase price was $1,031,800 for 46,900 shares. Kulikowski Inc. declared and paid an $0.80 per share cash dividend on June 30 and on December 31, 2021. Kulikowski reported net income of $714,000 for 2021. The fair value of Kulikowski’s stock was $25 per share at December 31, 2021. Assume that the security is a trading security.

Prepare the journal entries for Flounder Inc. for 2020 and 2021, assuming that Flounder cannot exercise significant influence over Kulikowski. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

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Prepare the journal entries for Flounder Inc. for 2020 and 2021, assuming that Flounder can exercise significant influence over Kulikowski. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

eTextbook and Media

At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2021? What is the total net income reported in 2021 under each of these methods?

Metlock Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2020. The purchase price was $1,310,000 for 52,400 shares. Kulikowski Inc. declared and paid an $0.75 per share cash dividend on June 30 and on December 31, 2021. Kulikowski reported net income of $667,000 for 2021. The fair value of Kulikowski’s stock was $28 per share at December 31, 2021. Assume that the security is a trading security.

Prepare the journal entries for Metlock Inc. for 2020 and 2021, assuming that Metlock cannot exercise significant influence over Kulikowski.

eTextbook and Media

List of Accounts

Prepare the journal entries for Metlock Inc. for 2020 and 2021, assuming that Metlock can exercise significant influence over Kulikowski.

At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2021? What is the total net income reported in 2021 under each of these methods?

1. Navarro Company began operations on 1/1/20 and produces tumbling mats and rebound mats for cheerleading. Both types of mats are manufactured from a joint process. During January 2020, the company incurred joint production costs of $89,500 and produced 2,000 tumbling mats and 500 rebound mats. Navarro believes the tumbling mats will require separate costs past the split-off point of $14.00 per unit, and the company believes it will be able to sell the tumbling mats for $150.00 per unit. Navarro believes the rebound mats will require separate costs past the split-off point of $10.00 per unit, and the company believes it will be able to sell the rebound mats for $100.00 per unit.

What amount of joint costs should be allocated to each product using the constant gross margin percentage method?

This assignment is an individual-specific assessment of the industry in which you currently work or of the industry in which you intend to work after completing your MBA. You should discussion the sources of the value created within your particular industry.  Your brief document should address the following issues:

1. Brief description of your current or intended industry
2. Evaluation of the unique value created by your firm (for its customers) relative to all of its competition.  In other words, what makes your firm special for its customers.  The value may be derived from the quality of the product (relative to others on the market), customer service, overall purchase experience, or a combination of these and other factors.
3. Concluding discussion that addresses how the factors that influence value created in this industry may change over the next five years.