1. You are a finance manager for the company JKL Limited based in the US. Your CFO comes to you and tells you that you intend to make a debt funding for a new 5-year project in Austria. Since he is not very familiar with such a funding, he tells you that he has heard of different aspects or variables of such a funding. Please name those and explain briefly.
2. Company JKL Limited has 10 million stocks outstanding. The shares are trading at 60$ per share. It also has 400 bonds outstanding – each valued at 500.000$. The marginal tax-rate is at 30%. For the expected return of the shareholders is about 14% and the interest rate for the bonds is at 8%. What is JKL’s after-tax WACC?

3. Recently you have been invited to the Directors meeting to decide on the future capital structure for the firm. One of your colleagues came with the following argument: “As the firm borrows more and debt becomes risky, both stockholders and bondholders demand higher rates of return. Thus, by reducing the debt ratio we can reduce both the cost of debt and the cost of equity, making everybody better off.”

   Using the argument of M&M Proposition I“The market value of a company is independent of its

   capital structure”, suggest why this argument is not relevant, for simplicity ignore the tax implications.

4. An investor considers whether to invest in debt or equity of STU Corporation. Since he already has to pay a high personal tax rate, he does not want to pay more taxes than necessary. Therefore, he weighs the pros and cons of investing in bonds or equities in the local financial markets. The personal tax rate on interest income is 45%, the corporate tax rate is 27.5% and the tax rate on dividends is 20%. Which strategy do you recommend the investor?  

5. STU Corporation wants to assess the value of interest savings due to the tax deductibility of interest on debt. The corporate tax rate is given above. The total debt stands at $ 7.5mn and the return on debt is 6.5%. Assuming that the current level of debt is permanent, calculate the annual interest payment due and the present value of the perpetual tax shield. Explain in what situations a tax shield might be less relevant and/or even misleading.

6. Most financial managers measure debt ratios from their companies’ book balance sheets. Many financial economists emphasize ratios from market-value balance sheets. Which is the right measure in principle? Does the trade-off theory propose to explain book or market leverage? How about the pecking-order theory?

7. The VWX Inc. has 100,000 bonds outstanding (1000$ each) that are selling at 100%. The bonds are yielding 7.5 percent. The company also has 1 million shares of preferred stock outstanding currently yielding 18.75 percent. It has also 5 million shares of common stock outstanding. The preferred stock sells for $56 per share and the common stock sells for $38 a share. The expected return on the common stock is 13.8%. The corporate tax rate is 34 percent. What is VWX Inc.’s weighted average cost of capital

8. The WACC formula implies that debt is “cheaper” than equity, that a firm with more debt could use lower discount rate. Does this make sense?  

9. The Rockettech Corp. is currently at its target debt ratio of 40%. It is contemplating a $1 million expansion of its existing business. This expansion is expected to produce a cash inflow of $130,000 a year in perpetuity.

   The company is uncertain whether to undertake this expansion and how to finance it. The two options are a $1 million issue of common stock or a $1 million issue of 20-year debt. The flotation costs of a stock issue would be around 5% of the amount raised, and the flotation costs of a debt issue would be around 1.5%.

   Rockettech’s financial manager, estimates that the required return on the company’s equity is 14%, but argues that the flotation costs increase the cost of new equity to 19%. On this basis, the project does not appear viable. On the other hand, she points out that the company can raise new debt on a 7% yield, which would make the cost of new debt 8.5%. She therefore recommends that Rockettech should go ahead with the project and finance it with an issue of long-term debt.

   Is the financial manager right? How would you evaluate the project, considering that the project has the same business risk as the firms other assets?

You are a finance manager for the company JKL Limited based in the US. Your CFO comes to you and tells you that you intend to make a debt funding for a new 5-year project in Austria. Since he is not very familiar with such a funding, he tells you that he has heard of different aspects or variables of such a funding. Please name those and explain briefly.

Question 2
E Inc (“EI”) is a company incorporated and tax resident in the US and recently the Board of Directors of EI (“the Board”) are looking to expand their business operations to Asia. Singapore is being considered one of the desirable locations for setting up the new Asian Headquarter (“HQ”).

Required: (a) From an international tax perspective, comment and appraise the use of Singapore as the Asian HQ. In other words, why should EI choose Singapore as its Asian HQ?

(b) Based on some online tax research, EI’s Board have identified a number of potential tax incentives the Singapore HQ may potentially qualify. For the purpose of this part, illustrate the benefits for EI to obtain Pioneer Service Incentive and Development & Expansion Incentive under the Economic Expansion Incentives (Relief from Income Tax Act) (“EEIA”).

(c) For the purpose of this part, illustrate the benefits for EI to obtain the investment allowance incentive under the EEIA and indicate under what circumstances EI should consider applying for this incentive.

In June 2002, it was discovered that Worldcom, a large US telecommunication company, committed one of the largest accounting frauds. Worldcom illegally capitalized $3.8 billion access fees during the year 2001 and the first quarter of 2002. The fees were paid to local network operators to connect calls from Worldcom services to telephones linked to local networks. This is a typical operating expense item for telecommunication companies. However, Worldcom capitalised these expenditures as assets and amortized them over future fiscal periods. Worldcom was persecuted and the penalties and corrections to the accounts eventually led it into bankruptcy.

The amount of capitalized access fees for each of the quarters are detailed as follows (in USD millions):

Quarter 1, 2001 $780

Quarter 2, 2001 $605

Quarter 3, 2001 $760

Quarter 4, 2001 $920

Quarter 1, 2002 $790

Required:

a) Describe how Worldcom’s accounting treatment of access fees affect the line items in the income statements, balance sheets and statements of cash flows.

b) Which accounting principle did Worldcom violate?

c) Assume that capitalized access fees were amortized over 5 years using the straight-line method. Compute the amount of misstatement for each quarter.

d) Without considering tax effects, prepare the journal entries for correcting the misstatements as of the reporting date of Quarter 1, 2002.

Consider the University Database with the following relations:

Professors (pid, pname, dept, ext)

Students (sid, sname, major-dept, year)

Courses (cid, cname, dept, credithours)

Enrollment (sem-year, sid, cid, grade)

Teaches (pid, cid, sem-year, class-size)

where,

Professors: All professors have professor id (pid), name (pname), department that they work (dept), and a phone number extension for their office (ext).

Students: All students have id (sid), name (sname), department for their major (major-dept), and a year (year i.e, freshman, sophomore, junior, etc). Courses: All courses have a course id (cid), course name (cname), department (dept), and total credit hours (credithours).

Enrollment: has a semester year (sem-year), enrolled student id (sid), course id (cid), and grade that student earns (grade).

Teaches: has a professor id (pid), course id (cid), semester year (sem-year), and class size (class-size).

Attributes “dept” in relations Professors and Courses, and attribute “major-dept” in relation Students have the same domain, and have values like “CDS”, “EE”, “CE”, etc. Attribute “sem-year” has values like “Spring2016”, “Fall2015”, etc. Assume that cids are unique, i.e. if there are multiple sections of a course, each section has a unique cid.

Express the queries below using Relational Algebra.

1. Find sids, names and major-dept of students who enrolled in a course that is taught by professor James.

2. Find pid and names of professors who teach no courses in “Fall2015”.

3. Find cid and cname of courses that are offered by “CDS” department that are taught by professors who are from another department in “Fall2015".

4. Find pid and names of professors who teach only courses offered by “CDS” department.

5. Find pnames and pids of professors who teach every course offered by “CDS” dept.

6. Find sids of students who enroll in “Fall2015” every 3 credit hour course offered by “CDS” department.

7. Find cids and names of courses in which every student majoring in “CDS” enrolled in “Fall2015”.

HelloFresh is at the forefront of disrupting a multi-trillion-dollar industry at the very beginning of its online transition. HelloFresh is a truly local food product, uniquely suited to individual tastes and meal-time preferences offering delivery of a giant box of delicious food with recipes to enable easy and enjoyable meal preparation for a weekly fee. HelloFresh aims to provide each and every household in its 7 markets with the opportunity to enjoy wholesome home-cooked meals with no planning, no shopping, and no hassle required. Everything required for weeknight meals, carefully planned, locally sourced and delivered to your door at the most convenient time for each subscriber. Behind the scenes, a huge data driven technology platform puts us in the prime position for disrupting the food supply chain and for fundamentally changing the way consumers shop for food. HelloFresh has local founders across the globe who are able to leverage the global platform, and at the same time ensure that the HelloFresh product in each market truly reflects the local community. The soft subscription model business enables us to leverage our weekly subscriber touchpoint to consistently manage supply chains and demand, and to optimize the customer experience as well as our business economics. Customers sign-up for a box containing between 2 and 5 meals per week for a flat fee. If the customer is out of town or unavailable he can easily cancel any week without a penalty provided they notify HelloFresh in advance. Dominik Richter has been CEO since starting HelloFresh in 2011. He has responsibility for keeping a general oversight of the business and strategy. Prior to HelloFresh, Dominik worked with Goldman Sachs in London. Dominik graduated with a degree in International Business in 2009, and from the London School of Economics in 2010 with a Masters in Finance. Thomas Griesel has been responsible for the logistics and operations behind HelloFresh since founding with Dominik in 2011. Previously, Thomas had spent time at OC&C Strategy Consultants and worked on a range of his own businesses and ideas. He graduated with a degree in International Business Administration in 2009, and from the London Business School in 2010 with a Masters in Management. 2011 All the way back in 2011, Dominik and Thomas arrived in Berlin, intent on starting a new and disruptive business. With a love of healthy food, nutrition, cooking, and a desire to make access to healthy food as easy as possible for as many people as possible - starting a Food at Home business seemed the natural choice. 2012 After examining business models from Sweden to Japan to very local ideas, they and a group of like-minded individuals formulated the recipe for HelloFresh. The team started early in 2012 packing shopping bags in Berlin, Amsterdam and London with a view to target the highest density population areas in Europe. Quite quickly, they started getting requests from people outside those areas who all wanted to become a part of the HelloFresh family. Wanting to serve as many people as possible, the team developed a logistics model that enabled them to deliver to every single household across a given country. 2013 The HelloFresh product started to rapidly gain in popularity, as subscribers shared the excitement about their weekly boxes, with friends and colleagues. Subscriber referrals accelerated, as it became clear that HelloFresh had finally solved the "What's for dinner tonight" problem for its subscribers. 2014 Having launched on the East Coast of the U.S in December 2012, HelloFresh moved to cover the entire country in September 2014. Over the short time since then, HelloFresh has grown rapidly to become one of the largest players in this market. QUESTIONS Do you consider HelloFresh a form of disruptive or sustaining technology? Is HelloFresh an example of Web 1.0 (ebusiness) or Web 2.0 (Business 2.0)? Describe the ebusiness model associated with HelloFresh. Describe the revenue model associated with HelloFresh.

Ryerson’s badminton team has 4 male members and 7 female members;

Ryerson’s tennis team has 4 male members and 3 female members.

These two groups have different members. The university decides to make the two teams have equal

number of members by randomly moving two persons from the badminton group to the tennis group. It then randomly

selects a person from the tennis group. What is the probability to get a female?

Ryerson’s badminton team has 4 male members and 7 female members; Ryerson’s tennis team has 4 male members and
3 female members. These two groups have different members. The university decides to make the two teams have equal
number of members by randomly moving two persons from the badminton group to the tennis group. It then randomly
selects a person from the tennis group. What is the probability to get a female?

1. Roland Carlow, age 21, is a full-time student at Morgan State University and a candidate for a bachelor’s degree. During 2019, Roland received the following payments:

Private scholarship for tuition   $9,600

Loan from financial aid office $7,200

Cash withdrawn from a qualified tuition program to pay tuition    $10,500

Cash dividends on qualified investments $185

Cash prize award in contest $1,400

What is Roland’s adjusted gross income?

Teenagers who spend an extra hour a day surfing the internet, watching TV or playing computer games risk performing two grades worse in quiz than their peers who don’t, according to research by British scientists.

In a study of more than 800 students aged 14 and 15, researchers from Cambridge University also found that physical activity had no effect on academic performance.

Since this was a prospective study, in which the researchers followed the pupils over time to see how different behaviors affected performance, the scientists said it was reasonable to conclude that too much screen time reduced academic achievement.

“We only measured this.. in Year 10, but this is likely to be a reliable snapshot of participants’ usual behavior, so we can reasonably suggest that screen time may be damaging to a teenager’s grades,” said Kirsten Corder of Cambridge’s Center for Diet and Activity Research, who co-led the work.

The study, published in the International Journal of Behavioral Nutrition and Physical Activity, found the average amount of screen time per day was four hours.

An extra hour in front of the TV or online at age 14-and-a-half was linked with 9.3 fewer quiz points at age 16 — equivalent to two grades, for example from a B to a D. Two extra hours was linked to 18 fewer points.

Unsurprisingly, the results also showed that pupils doing an extra hour of daily homework and reading scored better - getting on average 23.1 more points than their peers.

The scientists said further research was needed to confirm the effect conclusively, but advised parents worried about their children’s grades to consider limiting screen time.

In a breakdown analysis of different screen activities, the researchers found that TV came out as the most detrimental in terms of quiz performance.

1. Summarize main points.

2. Verify article’s interpretation of results to pinpoint any problems, which resulted in incorrect conclusions or application.

3. State your interpretation of the study.