CASE STUDY 2

The Wedding

Tony and Peggy Sue graduated from a university in Texas last May. She received a degree in elementary education, and he graduated from the culinary school. They both now work in the Dallas area. Peggy Sue is a teacher, and Tony is a chef at a resort hotel restaurant.

It is Christmas Day and Tony asks Peggy Sue to marry him. She excitedly accepts. They set a wedding date of June 30.

Tony is from New York City. He is the only son of “Big Tony" and Carmella. He is known as “Little Tony" to his family. He has three younger sisters, none of whom are yet married. The family owns a restaurant called Big Tony's, and all four children have worked in the restaurant since they were young. They have a large extended family with many relatives, most of whom live in New York City. They also have many friends in the neighborhood.

Peggy Sue is from Cornfield, Nebraska. She is the youngest of four sisters. She and her sisters worked on the family farm when they were young. Her father passed away several years ago. Her mother, Mildred, now lives alone in the family farmhouse and leases the farmland to a neighboring farmer. Peggy Sue's sisters all married local men and all live in Cornfield. All of their weddings were small (about 50 people), simple, and pretty much the same. Mildred has the wed- ding plans down to almost a standard operating procedure–9:00 A.M. ceremony at the small church, followed by a buffet brunch in the church hall, and that is about it. They really could not afford much more elaborate weddings because the income from the farm had been pretty meager. Peggy Sue's sisters did not go to college, and she had to take out loans to pay for her college expenses.

Tony and Peggy Sue decide to call home and announce the good news about their engagement and the forthcoming wedding.

Tony calls home and tells his mom, Carmella, the news. She replies, "That's great, honey! I've been waiting for this day. I can't believe my little baby is getting married. I'm so excited. We're going to have the biggest, best wedding ever. All our friends and family will come to celebrate. We'll probably have 300 people. And, of course, we'll have the reception at our restaurant; the banquet room should be big enough. I'll tell your cousin Vinnie that you want him to be best man. You grew up together, although you haven't seen much of each other since you went off to college in Texas. I'll call Aunt Lucy as soon as we're done talking and tell her that we want her little Maria and Teresa to be flower girls and little Nicky to be ring bearer. And, oh, I almost forgot the most important thing, your sisters, they'll all be bridesmaids. I already know what color their gowns will be-a decp rose; they'll be gorgeous. And sweetie, I didn't ask your papa yet, but I know he'll agree with me-on Monday, I'm going to call my friend Francine, the travel agent, and get two tickets for you for a two-week honeymoon in Italy. You've never been there, and you must go. It will be a gift from your papa and me. And tell Peggy Lee or Peggy Susie or whatever congratulations. We are so happy for both of you. It's your wedding, and I don't want to interfere. I'll just be here to help. You know what I'm saying. So, my little Tony, whatever you want me to do, you just tell me. And one more thing, I'll see Father Frank after Mass on Sun- day and tell him to mark his calendar already for a two o'clock ceremony on June 30. Goodbye, my big boy. I'll tell Papa you called. And I can't wait to start telling everybody to get ready to party on June 30."

Peggy Sue also calls her mom to tell her the news about the upcoming wed- ding. Mildred responds, “That's wonderful, dear. I'm glad you're finally getting married. You waited so long with going off to college and everything. I'il start getting everything ready. I know how to do this in my sleep by now. Tīl mention it to Reverend Johnson after Sunday service. I'll tell your sisters to expect to be bridesmaids again in keeping with the family tradition. I guess Holley will be the matron of honor; it's her turn. By the way, she's expecting her third child probably right around the same time as your wedding, but I don't think that will matter. Well, I guess pretty soon you'll be having babies of your own, like all your sisters. I'm glad you are finally settling down. You should really be thinking about moving back home, now that you are done with college. I saw Emma Miller, your second-grade teacher, at grocery store the other day. She told me she is retiring. I told her you would be excited to hear that and probably want to apply for her job."

"She said she didn't think they would have too many people applying so you would have a good chance. You could move in with me. The house is so big and lonely. There is plenty of room, and I can help you watch your babies. And your boyfriend, Tony—isn't he a cook or something? I'm sure he could probably get a job at the diner in town. Oh dear, I'm so happy. I've been praying that you would come back ever since you left. I'll tell all your sisters the news when they all come over for family dinner tonight. It won't be long before we're all together again. Goodbye, my dear, and you be careful in that big city."

Tony and Peggy Sue start discussing their wedding. They decide they want a big wedding—with their families and friends, including a lot of their college friends. They want an outdoor ceremony and outdoor reception, including plenty of food, music, and dancing into the night. They are not sure how much it will cost, though, and realize Peggy Sue's mother cannot afford to pay for the wedding, so they will have to pay for it themselves. Both Tony and Peggy Sue have college loans to pay back, but they hope that the money gifts they get from the wedding guests will be enough to pay for the wedding expenses and maybe have some left over for a honeymoon.

It is now New Year's Day, and Tony and Peggy Sue decide to sit down and start laying out the detailed plan of all the things they need to do to get ready for their wedding

CASE QUESTIONS

1. Develop an estimated duration for each activity.

2. Using a project start time of 0 (or January 1) and a required project completion time of 180 days (or June 30), calculate the ES, EF, LS, and LF times and TS for each activity. If your calculations result in a project schedule with negative TS, revise the project scope, activity estimated durations, and/or sequence or dependent relationships among activities to arrive at an acceptable baseline schedule for completing the project within 180 days (or by June 30). Describe the revisions you made.

3. Determine the critical path, and identify the activities that make up the critical path.

4. Produce a bar chart (Gantt chart) based on the ES and EF times from the schedule in item 2.

If subjects are randomly selected from a university using ID numbers, what sampling method is used?

If the psychologist first takes all the women, and randomly selects 51 of them by randomly drawing ID numbers. Then, she takes all the men and randomly selects 51 of them by randomly drawing ID numbers. What sampling technique did she use?

Lon Timur is an accounting major at a midwestern state university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan area and visit their homes regularly on the weekends. Lon, an entrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. He believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Lon has gathered the following investment information.

Click here to view PV table.

(a)

Determine the annual (1) net income and (2) net annual cash flows for the commuter service. (Round answers to 0 decimal places, e.g. 125.)

(b)

Compute (1) the cash payback period and (2) the annual rate of return. (Round answers to 2 decimal places, e.g. 10.50.)

(c)

Compute the net present value of the commuter service. (Round answer to 0 decimal places, e.g. 125. 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.)

Lon Timur is an accounting major at a midwestern state university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan area and visit their homes regularly on the weekends. Lon, an entrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. He believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Lon has gathered the following investment information.

Click here to view PV table.

(a)

Determine the annual (1) net income and (2) net annual cash flows for the commuter service. (Round answers to 0 decimal places, e.g. 125.)

(b)

Compute (1) the cash payback period and (2) the annual rate of return. (Round answers to 2 decimal places, e.g. 10.50.)

(c)

Compute the net present value of the commuter service. (Round answer to 0 decimal places, e.g. 125. 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.)

Maria Gutierrez and Devin Duzan recently graduated from the same university. After graduation they decided not to seek jobs at established organizations but, rather, to start their own small business hoping they could have more flexibility in their personal lives for a few years. Maria’s family has operated Mexican restaurants and taco trucks for the past two generations, and Maria noticed there were no taco truck services in the town where their university was located. To reduce the amount they would need for an initial investment, they decided to start a business operating a taco cart rather than a taco truck, from which they would cook and serve traditional Mexican-styled street food.

They bought a used taco cart for $15,000. This cost, along with the cost for supplies to get started, a business license, and street vendor license brought their initial expenditures to $20,000. They took $5,000 from personal savings they had accumulated by working part time during college, and they borrowed $15,000 from Maria’s parents. They agreed to pay interest on the outstanding loan balance each month based on an annual rate of 4 percent. They will repay the principal over the next few years as cash becomes available. They were able to rent space in a parking lot near the campus they had attended, believing that the students would welcome their food as an alternative to the typical fast food that was currently available.

After two months in business, September and October, they had average monthly revenues of $20,000 and out-of-pocket costs of $16,000 for rent, ingredients, paper supplies, and so on, but not interest. Devin thinks they should repay some of the money they borrowed, but Maria thinks they should prepare a set of forecasted financial statements for their first year in business before deciding whether or not to repay any principal on the loan. She remembers a bit about budgeting from a survey of accounting course she took and thinks the results from their first two months in business can be extended over the next 10 months to prepare the budget they need. They estimate the cart will last at least five years, after which they expect to sell it for $5,000 and move on to something else in their lives. Maria agrees to prepare a forecasted (pro forma) income statement, balance sheet, and statement of cash flows for their first year in business, which includes the two months already passed.Page 535

Required

Prepare the annual pro forma financial statements that you would expect Maria to prepare based on her comments about her expectations for the business. Assume no principal will be repaid on the loan.

Review the statements you prepared for the first requirement and prepare a list of reasons why actual results for Devin and Maria’s business probably will not match their budgeted statements.

Assume you are 22 years old when you graduate from the University of Arizona and have a credit card of $2,000 credit balance with an 18% annual rate. If you only make minimun payments of 2% of the balance or just $10 (whichever is greater) each month , what birthday will you likely be celebrating when the credit card is paid off?

Derek and Meagan Jacoby recently graduated from State University and Derek accepted a job in business consulting while Meagan accepted a job in computer programming. Meagan inherited $36,000 from her grandfather who recently passed away. The couple is debating whether they should buy or rent a home. They located a rental home that meets their needs. The monthly rent is $2,450. They also found a three-bedroom home that would cost $136,000 to purchase. The Jacobys could use Meagan’s inheritance for a down payment on the home. Thus, they would need to borrow $100,000 to acquire the home. They have the option of paying two discount points to receive a fixed interest rate of 4.50 percent on the loan or paying no points and receiving a fixed interest rate of 5.70 percent for a 30-year fixed loan.

Though anything could happen, the couple expects to live in the home for no more than five years before relocating to a different region of the country. Derek and Meagan don’t have any school-related debt, so they will save the $36,000 if they don’t purchase a home. Also, consider the following information:

The couple’s marginal tax rate is 24 percent.

Regardless of whether they buy or rent, the couple will itemize their deductions.

If they buy, the Jacobys would purchase and move into the home on January 1, 2018.

If they buy the home, the property taxes for the year are $3,800.

Disregard loan-related fees not mentioned above.

If the couple does not buy a home, they will put their money into their savings account where they earn 5 percent annual interest.

Assume that all unstated costs are equal between the buy and rent option.

Required: Help the Jacobys with their decisions by answering the following questions: (Leave no answer blank. Enter zero if applicable.)

a If the Jacobys decide to rent the home, what is their after-tax cost of the rental for the first year (include income from the savings account in your analysis)? (Round your intermediate calculations to the nearest whole dollar amount.)

Derek and Meagan Jacoby recently graduated from State University and Derek accepted a job in business consulting while Meagan accepted a job in computer programming. Meagan inherited $36,000 from her grandfather who recently passed away. The couple is debating whether they should buy or rent a home. They located a rental home that meets their needs. The monthly rent is $2,450. They also found a three-bedroom home that would cost $136,000 to purchase. The Jacobys could use Meagan’s inheritance for a down payment on the home. Thus, they would need to borrow $100,000 to acquire the home. They have the option of paying two discount points to receive a fixed interest rate of 4.50 percent on the loan or paying no points and receiving a fixed interest rate of 5.70 percent for a 30-year fixed loan.

Though anything could happen, the couple expects to live in the home for no more than five years before relocating to a different region of the country. Derek and Meagan don’t have any school-related debt, so they will save the $36,000 if they don’t purchase a home. Also, consider the following information:

The couple’s marginal tax rate is 24 percent.

Regardless of whether they buy or rent, the couple will itemize their deductions.

If they buy, the Jacobys would purchase and move into the home on January 1, 2018.

If they buy the home, the property taxes for the year are $3,800.

Disregard loan-related fees not mentioned above.

If the couple does not buy a home, they will put their money into their savings account where they earn 5 percent annual interest.

Assume that all unstated costs are equal between the buy and rent option.

Required: Help the Jacobys with their decisions by answering the following questions: (Leave no answer blank. Enter zero if applicable.)

rev: 12_18_2018_QC_CS-151658

a. If the Jacobys decide to rent the home, what is their after-tax cost of the rental for the first year (include income from the savings account in your analysis)? (Round your intermediate calculations to the nearest whole dollar amount.)

Derek and Meagan Jacoby recently graduated from State University and Derek accepted a job in business consulting while Meagan accepted a job in computer programming. Meagan inherited $36,000 from her grandfather who recently passed away. The couple is debating whether they should buy or rent a home. They located a rental home that meets their needs. The monthly rent is $2,450. They also found a three-bedroom home that would cost $136,000 to purchase. The Jacobys could use Meagan’s inheritance for a down payment on the home. Thus, they would need to borrow $100,000 to acquire the home. They have the option of paying two discount points to receive a fixed interest rate of 4.50 percent on the loan or paying no points and receiving a fixed interest rate of 5.70 percent for a 30-year fixed loan.

Though anything could happen, the couple expects to live in the home for no more than five years before relocating to a different region of the country. Derek and Meagan don’t have any school-related debt, so they will save the $36,000 if they don’t purchase a home. Also, consider the following information:

The couple’s marginal tax rate is 24 percent.

Regardless of whether they buy or rent, the couple will itemize their deductions.

If they buy, the Jacobys would purchase and move into the home on January 1, 2018.

If they buy the home, the property taxes for the year are $3,800.

Disregard loan-related fees not mentioned above.

If the couple does not buy a home, they will put their money into their savings account where they earn 5 percent annual interest.

Assume that all unstated costs are equal between the buy and rent option.

Required: Help the Jacobys with their decisions by answering the following questions: (Leave no answer blank. Enter zero if applicable.)

rev: 12_18_2018_QC_CS-151658

a. If the Jacobys decide to rent the home, what is their after-tax cost of the rental for the first year (include income from the savings account in your analysis)? (Round your intermediate calculations to the nearest whole dollar amount.)

Derek and Meagan Jacoby recently graduated from State University and Derek accepted a job in business consulting while Meagan accepted a job in computer programming. Meagan inherited $36,000 from her grandfather who recently passed away. The couple is debating whether they should buy or rent a home. They located a rental home that meets their needs. The monthly rent is $2,450. They also found a three-bedroom home that would cost $136,000 to purchase. The Jacobys could use Meagan’s inheritance for a down payment on the home. Thus, they would need to borrow $100,000 to acquire the home. They have the option of paying two discount points to receive a fixed interest rate of 4.50 percent on the loan or paying no points and receiving a fixed interest rate of 5.70 percent for a 30-year fixed loan.

Though anything could happen, the couple expects to live in the home for no more than five years before relocating to a different region of the country. Derek and Meagan don’t have any school-related debt, so they will save the $36,000 if they don’t purchase a home. Also, consider the following information:

The couple’s marginal tax rate is 24 percent.

Regardless of whether they buy or rent, the couple will itemize their deductions.

If they buy, the Jacobys would purchase and move into the home on January 1, 2018.

If they buy the home, the property taxes for the year are $3,800.

Disregard loan-related fees not mentioned above.

If the couple does not buy a home, they will put their money into their savings account where they earn 5 percent annual interest.

Assume that all unstated costs are equal between the buy and rent option.

Required: Help the Jacobys with their decisions by answering the following questions: (Leave no answer blank. Enter zero if applicable.)

a. If the Jacobys decide to rent the home, what is their after-tax cost of the rental for the first year (include income from the savings account in your analysis)? (Round your intermediate calculations to the nearest whole dollar amount.)

b. What is the approximate break-even point in years for paying the points to receive a reduced interest rate? (To simplify this computation, assume the Jacobys will make interest-only payments, and ignore the time value of money.) (Do not round intermediate calculations. Round your final answer to 1 decimal place.)

c. What is the after-tax cost (in interest and property taxes) of living in the home for 2018? Assume that the Jacobys' interest rate is 5.70 percent, they do not pay discount points, they make interest-only payments for the first year, and the value of the home does not change during the year. (Round your intermediate calculations to the nearest whole dollar amount.)

d. Assume that on March 1, 2018, the Jacobys sold their home for $159,000, so that Derek and Meagan could accept job opportunities in a different state. The Jacobys used the sale proceeds to (1) pay off the $100,000 principal of the mortgage, (2) pay a $10,000 commission to their real estate broker, and (3) make a down payment on a new home in the different state. However, the new home cost only $75,000. Assume they make interest-only payments on the loan.

  Required:

d1. What gain or loss do the Jacobys realize and recognize on the sale of their home?

d2. What amount of taxes must they pay on the gain, if any?

e. Assume the same facts as in part (d), except that the Jacobys sell their home for $124,500 and they pay a $7,500 commission. What effect does the sale have on their 2018 income tax liability? Recall that the Jacobys are subject to an ordinary marginal tax rate of 24 percent and assume that they do not have any other transactions involving capital assets in 2018.

The University of Arkansas recently approved out of state tuition discounts for high school students from any state. The students must qualify by meeting certain standards in terms of GPA and standardized test scores. The goal of this new policy is to increase the geographic diversity of students from states beyond Arkansas and its border states. Historically, 90% of all new students came from Arkansas or a bordering state. Ginger, a student at the U of A, sampled 180 new students the following year and found that 157 of the new students came from Arkansas or a bordering state. Does Ginger’s study provide enough evidence to indicate that this new policy is effective with a level of significance 10%? What would be the correct decision?

Que: Researcher Anne Case from Princeton University wrote of “Deaths of Despair”. In the research she combines the suicide epidemic and the opioid epidemic: “When looking at the suicide and death rates of middle-aged whites, the authors wrote: “It is also a crisis in which people are killing themselves in much larger numbers - especially whites. Deaths from alcohol have been rising as well. So we think of it all being signs that something is really wrong and whatever it is that's really wrong it's happening nationwide… They don't have a good job. They don't have a marriage that supports them. They may have children that they do or don't see. They have a much more fragile existence than they would have had a generation ago ... it may be the deaths from drugs, from suicide, from alcohol are related to the fact that people don't have the stability and a hope for the future that they might have had in the past.”

For this question, you are to become Durkheim and explain why we see each of these results. Remember to focus on the idea of social bonds. Which of Durkheim’s 4 types of suicide is represented by this data? Explain your choices.

(Answer need to be in Soft copy Only)

Lon Timur is an accounting major at a midwestern state university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan area and visit their homes regularly on the weekends. Lon, an entrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. He believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Lon has gathered the following investment information.

1. Five used vans would cost a total of $74,970 to purchase and would have a 3-year useful life with negligible salvage value. Lon plans to use straight-line depreciation.

2. Ten drivers would have to be employed at a total payroll expense of $48,000.

3. Other annual out-of-pocket expenses associated with running the commuter service would include Gasoline $16,000, Maintenance $3,600, Repairs $4,000, Insurance $4,300, and Advertising $2,700.

4. Lon has visited several financial institutions to discuss funding. The best interest rate he has been able to negotiate is 15%. Use this rate for cost of capital.

5. Lon expects each van to make ten round trips weekly and carry an average of six students each trip. The service is expected to operate 30 weeks each year, and each student will be charged $12 for a round-trip ticket. Click here to view PV table.

a)

Determine the annual (1) net income and (2) net annual cash flows for the commuter service. (Round answers to 0 decimal places, e.g. 125.)

Net income    $

Net annual cash flows    $

(b)

Compute(1) the cash payback period and (2) the annual rate of return. (Round answers to 2 decimal places, e.g. 10.50.)

Cash payback period    years

Annual rate of return %

(c)

Compute the net present value of the commuter service. (Round answer to 0 decimal places, e.g. 125. 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.)

Net present value