#4

REVISED PROBLEM 13-42

ACC 650 - Management Accounting

Megatronics Corporation, a massive retailer of electronic products, is organized in four separate divisions.
The four divisional managers are evaluated at year-end, and bonuses are awarded based on ROI.
Last year, the company as a whole produced a 13 percent return on its investment.
During the past week, management of the company’s Northeast Division was approached about the
possibility of buying a competitor that had decided to redirect its retail activities. (If the competitor is
acquired, it will be acquired at its book value.) The data that follow relate to recent performance of the
Northeast Division and the competitor:

Management has determined that in order to upgrade the competitor to Megatronics’ standards, an
additional $275,000 of invested capital would be needed.

REQUIRED:

4. Would the division be better off if it didn’t upgrade the competitor to Megatronics’ standards?
Show computations to support your answer.

Assuming a cash flow statement is prepared using the indirect method, indicate the

reporting of the transactions and events listed below by major categories on the

statement. Use the following code letters to indicate the appropriate category under which

the item would appear on the cash flow statement.

Codes:

A

Cash flows from operating activities (Add to profit)

D

Cash flows from operating activities (Deduct from profit)

IA

Cash flows from investing activities

FA

Cash flows from financing activities

Category

1. Common shares are issued for cash.

_____

2. Merchandise inventory increased during the period.

_____

3. Depreciation expense recorded for the period.

_____

4. Building was purchased for cash.

_____

5. Bonds payable were acquired and retired at their carrying value.

_____

6. Accounts payable decreased during the period.

_____

7. Prepaid expenses decreased during the period.

_____

8. Investment in common shares of another company were acquired for

cash.

_____

9. Land is sold for cash at an amount equal to carrying amount.

_____

10. Loss on sale of equipment was recorded on the income

statement.

____

COMPANY ABC engaged in the following transactions:

It issued $20 million in bonds to purchase a new municipal office building. The proceeds were recorded in a capital projects fund.

It acquired the building for $20 million.

It recognized, as appropriate, $300,000 of depreciation on municipal vehicles.

It transferred $2,060,000 from the general fund to a debt service fund.

It paid $60,000 in interest on long-term debt and repaid $2 million of principal on the same long-term debt.

It sold for $5 million village land that had been acquired for $4 million. The proceeds were recorded in the general fund.

REQUIRED:

Answer the following question based on the transactions outlined:

1. For each of the transactions, prepare journal entries to record them in appropriate governmental funds (which are accounted for on a modified accrual basis).

2. Prepare journal entries to reflect how the transactions would be reflected in government-wide statements (which are prepared on a full accrual basis).

3. How can governments justify preparing two sets of financial statements, each on a different basis?

1. Suppose the domestic U.S. beta of IBM is 1.0, the expected return on the U.S. market portfolio is 12 percent, and that the U.S. T-bill rate is 6 percent. At same time, suppose the world beta measure of IBM is 0.80 and the expected return on the world market portfolio is 14%.
   1. Find the cost of equity capital for IBM assuming that the U.S. market is fully integrated.
   2. Find the cost of equity capital for IBM assuming that the U.S. market is segmented
2. Blues, Inc. is a multinational corporation based in the U.S. Blues would like to estimate its weighted average cost of capital. On average, Blues pays a pre-tax rate of 9 percent for its debt. Currently, T-bill rates are 3 percent. The return on the S&P 500 stock index is expected to be 10 percent and the return on the world market portfolio is expected to be 14 percent. Furthermore, Blues’ stock has a domestic U.S. beta of 1.5 and a world beta of 1.2. Blues’ target capital structure is 30 percent debt and 70 percent equity. If Blues is in the 35 percent tax bracket,
   1. what is its weighted average cost of capital assuming that the U.S. market is fully integrated?
   2. what is its weighted average cost of capital assuming that the U.S. market is segmented?

Progressive Studios​ Corporation’s sales in Year 2019 is 800 million dollars.​ Let’s make the following assumptions on the​ firm’s performance to forecast its free cash flow in Year​ 2020:

​• Sales grow​ 25% from Year 2019 to Year 2020.

​• Corporate tax rate is​ 25%.

​• COGS is​ 40% of the sales in Year 2020.

​• SG&A is​ 20% of the sales in Year 2020.

​• Depreciation is​ 10% of the sales in Year 2020.

​• Net working capital amounts to​ 30% of the sales for each year​ (i.e., NWC for 2019 is​ 30% sales in​ 2019, NWC for 2020 is prediced to be​ 30% sales in​ 2020).

​• Capital expenditure is​ 5% of the sales in Year 2020.

a. What is the forcasted EBIT of Progressive Studios Corporation in Year​ 2020? Progressive Studios ​Corporation’s forecasted EBIT in Year 2020 is $___.(Round to the nearest​ dollar.)

b. What is Progressive Studios ​Corporation’s forecasted free cash flow in Year​ 2020? Progressive Studios ​Corporation’s forecasted free cash flow in Year 2020 is ​$___.​(Round to the nearest​ dollar.)

c. Assume that starting from Year 2021 and​ beyond, Progressive​ Studios' free cash flow will grow​ 2% per year. The weighted average cost of capital is ​ 12%. The corporation has debt outstanding of​ $100 million and cash of​ $50 million in Year 2019. The number of shares outstanding is 100 million shares. What is the price of Progressive Studios stock will be consistent with the​ forecast? The price per share of $___ will be consistent with the forecast

Write a function that accepts a dictionary and produces a sorted list of tuples

The dictionary looks like this:

{‘US’: [{'Chicago, IL': ('2/1/2020 19:43', 2, 0, 0)}, {'San Benito, CA': ('2/3/2020 3:53', 2, 0, 0)}, {'Santa Clara, CA': ('2/3/2020 0:43', 2, 0, 0)}, {'Boston, MA': ('2/1/2020 19:43', 1, 0, 0)}, {'Los Angeles, CA': ('2/1/2020 19:53', 1, 0, 0)}, {'Orange, CA': ('2/1/2020 19:53', 1, 0, 0)}, {'Seattle, WA': ('2/1/2020 19:43', 1, 0, 0)}, {'Tempe, AZ': ('2/1/2020 19:43', 1, 0, 0)}], 'Australia' : [{'New South Wales': ('2/1/2020 18:12', 4, 0, 2)}, {'Victoria': ('2/1/2020 18:12', 4, 0, 0)}, {'Queensland': ('2/4/2020 16:53', 3, 0, 0)}, {'South Australia': ('2/2/2020 22:33', 2, 0, 0)}]

For these counts, I need to use the numbers that are bolded above). The returned sorted list (in descending order) will contain key-value pairs such that each key is a country and the corresponding value is the number of cases observed within that country.

For example: [('Australia', 13),(‘US’: 11)]

What is the Foreign Corrupt Practices Act? Briefly explain what payments the law permits and what it does not allow. What happened to Siemens AG as relates to the FCPA. What is the Sons and Daughters FCPA issue? In the case of Taikang Life insurance, a Chinese company, J.P. Morgan settled for $264million, but was not charged under the FCPA., Why not? Why do U.S. companies feel the FCPA is unfair.

Aston Blue plans to manufacture bicycle helmets. Sales will be dependent on the length of the summer season. The company operates under ideal conditions of uncertainty.

On January 1, 2020, Aston Blue started operations by acquiring the necessary equipment which will last 2 years at which time there will be no salvage value. Aston Blue financed the equipment purchase through a $950,000 bank loan at a 8% interest rate and the balance was financed through the issuance of common shares.

Aston Blue’s annual net cash flows will be $1,350,000 if the summer remains hot for 12 weeks and $600,000 if the summer is warm for 6 weeks. Assume that the cash flows are received at year-end. In each year the objective probability that the summer is hot for 12 weeks is 65% and warm for 6 weeks 35%. The interest rate in the economy is 8% in both years.

Aston Blue will pay a dividend of $110,000 at the end of each year of operations.

Assume that in 2020 that the season is hot for 12 weeks.

A. Calculate the present value of the equipment on January 1, 2020.

B. Determine the following items that would appear on the December 31, 2020 financial statements: Cash, equipment, total assets, common shares, retained earnings, net income/loss.

C. Assuming that Aston Blue paid the present value for the equipment, calculate the net income/loss for the year ended December 31, 2021 on a historical cost basis. The equipment is amortized on a straight-line basis.

Aston Blue plans to manufacture bicycle helmets. Sales will be dependent on the length of the summer season. The company operates under ideal conditions of uncertainty.

On January 1, 2020, Aston Blue started operations by acquiring the necessary equipment which will last 2 years at which time there will be no salvage value. Aston Blue financed the equipment purchase through a $950,000 bank loan at a 8% interest rate and the balance was financed through the issuance of common shares.

Aston Blue’s annual net cash flows will be $1,350,000 if the summer remains hot for 12 weeks and $600,000 if the summer is warm for 6 weeks. Assume that the cash flows are received at year-end. In each year the objective probability that the summer is hot for 12 weeks is 65% and warm for 6 weeks 35%. The interest rate in the economy is 8% in both years.

Aston Blue will pay a dividend of $110,000 at the end of each year of operations.

Assume that in 2020 that the season is hot for 12 weeks.

A. Calculate the present value of the equipment on January 1, 2020.

B. Determine the following items that would appear on the December 31, 2020 financial statements: Cash, equipment, total assets, common shares, retained earnings, net income/loss.

C. Assuming that Aston Blue paid the present value for the equipment, calculate the net income/loss for the year ended December 31, 2021 on a historical cost basis. The equipment is amortized on a straight-line basis.