Paul Rosenzweig is founder and CEO of? OpenStart, an innovative software company. The company is? all-equity financed, with100 million shares outstanding. The shares are trading at a price of $1.Rosenzweig currently owns 10 million shares. There are two possible states in one year. Either the new version of their software is a?hit, and the company will be worth $150?million, or it will be a? disappointment, in which case the value of the company will drop to $75 million. The current risk free rate is 4.3%.

Rosenzweig is considering taking the company private by repurchasing the rest of the outstanding equity by issuing debt due in one year. Assume the debt is?zero-coupon and will pay its face value in one year.

a. What is the market value of the new debt that must be? issued?

b. Suppose OpenStart had? risk-free debt with a face value of $75 million. What would be the value of its debt and levered equity? today?

c. What fraction of the levered equity in ?(b?) would you need to combine with the? risk-free debt in ?(b?) to raise the amount in left parenthesis Bold a right parenthesis(a)??

d. What are the payoffs of the portfolio in ?(c?)?

What face value of risky debt would have the same? payoffs?

e. What is the yield on the new debt that will be required to take the company? private?

f. If the two outcomes are equally? likely, what is? OpenStart's current WACC? (before the? transaction)???

g. What is? OpenStart's debt and equity cost of capital after the? transaction? Show that the WACC is unchanged by the new leverage.

Joseph Gallo, the founder of the famous wine company that bears his name, said that when he first started selling wine right after Prohibition (laws outlawing the sale of alcohol), he poured two glasses of wine from the same bottle and put a price of 10 cents a bottle on one and 5 cents a bottle on the other. He let people test both and asked them what they wanted. Most wanted the 10-cent bottle, even though they were the same wine.

• What does this tell us about people?
• Can you think of other areas where that may be the case?
• What does this suggest about pricing?

Joseph Gallo, the founder of the famous wine company that bears his name, said that when he first started selling wine right after Prohibition (laws outlawing the sale of alcohol), he poured two glasses of wine from the same bottle and put a price of 10 cents a bottle on one and 5 cents a bottle on the other. He let people test both and asked them which they wanted. Most wanted the 10-cent bottle, even though they were the same wine.

1. What does this tell us about people?
2. Can you think of other areas where that may be the case?
3. What does this suggest about pricing?

SolarTubeGen is a start-up company in the renewable energy sector. The founder of SolarTubeGen, Fritz Herzberg, has developed cutting-edge technology to convert the energy in the sun’s rays to electricity via a novel system of mirrors designed to focus the sun’s rays onto tubes containing a patented type of gas, which then heats and expands to drive turbines. Ramirez & Walker LLP has won the contract for the first audit of SolarTubeGen on the basis of its expertise in the energy sector. However, the lead partner, Mark Ramirez, recognizes the success of the audit is dependent on the correct assessment of the technology being used at SolarTubeGen. Mark specified in the successful audit bid documents that the audit will use an external specialist to help with valuation of the company’s assets.

Fritz Herzberg is very protective of his company’s intellectual property and is resistant to Mark’s first suggested specialist, Manfred Hamburg. Fritz believes that Manfred Hamburg is hostile toward him because they clashed when they both worked for a German company making photovoltaic cells in the 1990s. Fritz has suggested another specialist, Lily Beilherz, with whom he has had good working relations over the last 20 years.

Required

1. a. Advise Mark Ramirez about the choice of a specialist for the audit of SolarTubeGen. What must he consider when making his choice? Refer to AU-C 620 Using the Work of an Auditor’s Specialist to support your answer. (ASB standards can be accessed at www.aicpa.org/research/standards.)
2. b. SolarTubeGen takes over another renewable energy company during the second-year audit. The new subsidiary is based in another country and has previously been audited by a local audit firm. Evaluate how Mark should handle the new audit responsibilities brought about by the client’s ­expansion.

Schedule of Cash Receipts

Del Spencer is the owner and founder of Del Spencer's Men's Clothing Store. Del Spencer's has its own house charge accounts and has found from past experience that 10 percent of its sales are for cash. The remaining 90 percent are on credit. An aging schedule for accounts receivable reveals the following pattern:

15 percent of credit sales are paid in the month of sale.
65 percent of credit sales are paid in the first month following the sale.
14 percent of credit sales are paid in the second month following the sale.
6 percent of credit sales are never collected.

Credit sales that have not been paid until the second month following the sale are considered overdue and are subject to a 3 percent late charge.

Del Spencer's has developed the following sales forecast:

Required:

Prepare a schedule of cash receipts for August and September. Round all amounts to the nearest dollar.

One Laptop per Child Nicholas Negroponte is the founder of the MIT Media Lab and has spent his career pushing the edge of the information revolution as an inventor, thinker, and angel investor. His latest project, One Laptop per Child, plans to build $100 laptops that he hopes to put in the hands of millions of children in developing countries around the globe. The XO (the "$100 laptop") is a wireless, Internet-enabled, pedal-powered computer costing roughly $100. What types of competitive advantages could children gain from Negroponte's $100 laptop? What types of issues could result from the $100 laptop? Explain each of the efficiency metrics and effectiveness metrics that are required for each laptop to be considered successful.

Management Accounting Questions:

Grace Myer is the founder and CEO of Myer Sisters Apparel, a retailer of high?end women’s business apparel.  Earlier this year Grace opened her fourth retail store in Sydney’s Eastern Suburbs. While Grace has been pleased with the new store’s progress, she is concerned by the growing number of customer complaints and the low sales per square metre compared to some of her better?known competitors, such as Davie Laurie and HighChair Nine.  

When Grace had only one store that she individually owned and operated, she was able to control most of the details of the business. While she worked with a few employees, she always knew what they were doing. As the number of stores and the size of the stores increased, the number of employees also grew.  When Grace was running the one store, she rarely heard a customer complaint, and her sales per square metre were $500, compared to $400 today.  This concerned Grace greatly as her expansion plansfor Myer Sisters had to slow down because the stores were not producing the returns that she expected. T

he store managers were also complaining to Grace because of the high training costs of bringing on new employees. The turnover rate seemed to be very high and Grace could not understand why. She was paying one of the highest wages in the area to the sales clerks and store managers, yet they were leaving to work elsewhere. The customers were also complaining about the lack of helpfulness of the sales clerks. Even after extensive employee retraining, Grace was still hearing many complaints.  

Required:

1. Based on your understanding of the differences between intrinsic motivation and extrinsic motivation, discuss why paying good wages is not enough to elicit high performance in Myer Sisters.

2. Grace is considering implementing an alternative reward system for her staff: A “gain? sharing” plan, with a focus on generating sales revenue.  Specifically, 15% of any revenue in excess of the target sales level of $4 million per year will be placed in a “bonus pool” for distribution to allstores(last year’ssales were $3 million).  For example, if Myer Sisters as a group achieves total sales revenue of $4.5 million ($0.5 million more than the target level), then 15% of the additional $0.5 million in sales revenue will be distributed to employees.  All sales staff will receive a portion of the bonus pool, with store managers receiving a greater percentage compared to sales clerks.   Do you think this gain sharing plan is a good idea? Support your answer using

(a) Goal Setting Theory;

(b) Expectancy Theory and

(c) Agency Theory as appropriate (i.e., you do not need to refer to every part of every theory).

3. Based on your understanding of the various principles of incentive system/performance evaluation system design, make three suggestions as to how Myer Sisters’ performance measurement/incentive system could be improved.

A new online auction site specializes in selling automotive parts for classic cars. The founder of the company believes that the price received for a particular item increases with its age (i.e., the age of the car on which the item can be used in years) and with the number of bidders. The Excel multiple regression output is shown below.

(A) Estimate a multiple regression model for the data.

(B) Which of the variables in this model have regression coefficients that are statistically different from 0 at the 5% significance level?

Given your findings in (B), which variables, if any, would you choose to remove from the model estimated in (A)? Explain your decision.

Incorporated by the founder of the Tata Group, Jamsetji Tata, the company opened its first hotel,
the Taj Mahal Palace, in Mumbai in 1903.
For over a century, The Taj Mahal Palace, Mumbai, has remained an iconic flagship and has set a
benchmark for fine living with exquisite refinement, inventiveness and warmth. Indian Hotels
Company Limited (IHCL) has a portfolio of 170 hotels, including 25 under development, in over
eighty locations in twelve countries spread across four continents.
IHCL is amongst South Asia’s largest hospitality companies by market capitalization and represents
a global hallmark of quality in hospitality.
The Tata Group owns hotels in India and all over the world and in order to effectively control
its hotels systems the management have put the following in place:
• Hotel room key cards
• Security alarm systems
• Inventory control
• Hotel management systems
• Financial controls
According to your understanding of organisational control explain what is meant by the
following:
a) Planning, organising, coordination and controlling [25 marks]
b) Explain how the above control systems can be used to monitor, measure, and evaluate
the Tata Group Hotel Systems? [25 marks]
c) Give five purposes of control systems used by TATA Hotels and how staff are made
to contribute to their success? [25 marks]
d) Describe the steps in organisational control and explain why corrective action is
important? [15 marks]
e) Give three financial ratios which can be used in Financial controls and their use? (10
marks) [100 marks]

Schedule of Cash Receipts

Del Spencer is the owner and founder of Del Spencer's Men's Clothing Store. Del Spencer's has its own house charge accounts and has found from past experience that 10 percent of its sales are for cash. The remaining 90 percent are on credit. An aging schedule for accounts receivable reveals the following pattern:

15 percent of credit sales are paid in the month of sale.
65 percent of credit sales are paid in the first month following the sale.
14 percent of credit sales are paid in the second month following the sale.
6 percent of credit sales are never collected.

Credit sales that have not been paid until the second month following the sale are considered overdue and are subject to a 3 percent late charge.

Del Spencer's has developed the following sales forecast:

Required:

Prepare a schedule of cash receipts for August and September. Round all amounts to the nearest dollar.