Silver Sun Entertainment has a weighted-average cost of capital of 8.22 percent and is evaluating two projects: A and B. Project A involves an initial investment of 5,756 dollars and an expected cash flow of 8,519 dollars in 6 years. Project A is considered more risky than an average-risk project at Silver Sun Entertainment, such that the appropriate discount rate for it is 0.86 percentage points different than the discount rate used for an average-risk project at Silver Sun Entertainment. The internal rate of return for project A is 6.75 percent. Project B involves an initial investment of 4,760 dollars and an expected cash flow of 8,425 dollars in 5 years. Project B is considered less risky than an average-risk project at Silver Sun Entertainment, such that the appropriate discount rate for it is 1.78 percentage points different than the discount rate used for an average-risk project at Silver Sun Entertainment. The internal rate of return for project B is 12.1 percent. What is X if X equals the NPV of project A plus the NPV of project B?

Silver Sun Entertainment has a weighted-average cost of capital of 8.22 percent and is evaluating two projects: A and B. Project A involves an initial investment of 5,756 dollars and an expected cash flow of 8,519 dollars in 6 years. Project A is considered more risky than an average-risk project at Silver Sun Entertainment, such that the appropriate discount rate for it is 0.86 percentage points different than the discount rate used for an average-risk project at Silver Sun Entertainment. The internal rate of return for project A is 6.75 percent. Project B involves an initial investment of 4,760 dollars and an expected cash flow of 8,425 dollars in 5 years. Project B is considered less risky than an average-risk project at Silver Sun Entertainment, such that the appropriate discount rate for it is 1.78 percentage points different than the discount rate used for an average-risk project at Silver Sun Entertainment. The internal rate of return for project B is 12.1 percent. What is X if X equals the NPV of project A plus the NPV of project B?

Entity A is a listed company that operates the cruise ship business. One of the cruise ships was purchased on 1 Oct 2011. This cruise ship is made up of three main components: (1) cruise’s fabric, (2) cabins and entertainment area and (3) fittings propulsion system.

Details of the cost of its components and their estimated useful lives are as below:

Components Original cost Depreciation basis

(1) Cruise’s fabric (hull, decks, etc.) HK$37,500,000 50 years straight-line

(2) Cabins and entertainment area fittings HK$18,750,000 15 years straight-line

(3) Propulsion system HK$12,500,000 useful life of 80,000 hours

On 30 Sep 2019, no further capital expenditure had been incurred on the cruise ship.

In the year ended 30 Sep 2019, the cruise had experienced a high level of engine trouble, which had cost Entity A considerable revenue loss and compensation costs.  The measured expired life of the propulsion system on 30 Sep 2019 was 50,000 hours. Due to the unreliability of the engines, a decision was made by Entity A on 1 Oct 2019 to replace the whole of the propulsion system at a cost of HK$17,500,000. The old propulsion system was also sold to a second-hand machinery shop with a loss on disposal of $4,250,000. The cash from the disposal was received on 20 Oct 2019.  The expected life of the new propulsion system was 160,000 hours and in the year ended 30 Sep 2020, the cruise had used its engines for 10,000 hours.

At the same time as the propulsion system replacement, Entity A took this opportunity to upgrade the cabin and entertainment facilities at a cost of HK$7,500,000 and repaint the cruise’s fabric at a cost of HK$2,500,000 respectively. After the upgrade of the cabin and entertainment area fittings, it was estimated that their remaining useful life was 10 years.

For calculating depreciation, all the works on the cruise can be assumed to have been completed on 1 Oct 2019. All residual values can be taken as NIL.

REQUIRED:

(1) Measure the depreciation expense of the Cruise’s Fabric for the year ended 30 Sep 2020.

Answer = $

(2) Measure the depreciation expense of the Cabins and entertainment area fittings for the year ended 30 Sep 2020.

Answer = $

(3) Measure the depreciation expense of the Propulsion system for the year ended 30 Sep 2020.

Answer = $

(4) Measure the carrying amount of the Cruise’s Fabric on 30 Sep 2020.

Answer = $

(5) Measure the carrying amount of the Cabins and entertainment area fittings on 30 Sep 2020.

Answer = $

(6) Measure the carrying amount of the Propulsion system on 30 Sep 2020.

Answer = $

(7) Measure the carrying amount of Entity A’s cruise ship on 30 Sep 2020.

Answer = $

(8) Measure the cash received from the sale of the old propulsion system.

Answer = $

ndigo River Entertainment is considering a project that would last for 2 years. The project would involve an initial investment of 79,000 dollars for new equipment that would be sold for an expected price of 65,000 dollars at the end of the project in 2 years. The equipment would be depreciated to 23,000 dollars over 4 years using straight-line depreciation. In years 1 and 2, relevant annual revenue for the project is expected to be 77,000 dollars per year and relevant annual costs for the project are expected to be 29,000 dollars per year. The tax rate is 50 percent and the cost of capital for the project is 8.46 percent. What is the net present value of the project?

Explain the findings of Teoh, Welch and Wong (1998) in relation to abnormal accruals in IPO years.

In halliburton scandal of 1998-1999, how was collusion a part of their accouting and audit factors of failure??

What AICPA Codes of Professional Conduct were violated in the Waste Management scandal of 1998?

Exercise 1: Average daily hotel room rate (x) and amount spent on entertainment (y) is given in the following table for different cities. a.       Use these data to develop an estimated regression equation that could be used to predict the amount spent on entertainment for a given average daily hotel room rate. b.       What is the value of sample correlation coefficient? c.       Compute the coefficient of determination. What percentage of the variation in total amount spent on entertinment can be explained by room rate? d) Predict the amount spent on entertainment for a particular city that has a daily room rate of $89. City Room Rate ($) Entertainment ($) Boston 148 161 Denver 96 105 Nashville 91 101 New Orleans 110 142 Phoenix 90 100 San Diego 102 120 San Francisco 136 167 San Jose 90 140 Tampa 82 98

Sun Microsystems is a leading supplier of computer-related products, including servers, workstations, storage devices, and network switches. In 2009, Sun Microsystems was acquired by Oracle Corporation.

In the letter to stockholders as part of the 2001 annual report, President and CEO Scott G. McNealy offered the following remarks:

Fiscal 2001 was clearly a mixed bag for Sun, the industry, and the economy as a whole. Still, we finished with revenue growth of 16 percent—and that's significant. We believe it's a good indication that Sun continued to pull away from the pack and gain market share. For that, we owe a debt of gratitude to our employees worldwide, who aggressively brought costs down—even as they continued to bring exciting new products to market.

The statement would not appear to be telling you enough. For example, McNealy says the year was a mixed bag with revenue growth of 16 percent. But what about earnings? You can delve further by examining the income statement in Exhibit 4. Also, for additional analysis of other factors, consolidated balance sheet(s) are presented in Exhibit 5.

Exhibit 1

Exhibit 2

Part A

Referring to Exhibit 1, compute the annual percentage change in net income per common share-diluted (second numerical line from the bottom) for 1998–1999, 1999–2000, and 2000–2001.

Rate of change, 1998 to 1999:

Rate of change, 1999 to 2000:

Rate of change, 2000 to 2001:

Part B

Also in Exhibit 1, compute net income/net revenue (sales) for each of the four years. Begin with 1998.

1998 Profit Margin:

1999 Profit Margin:

2000 Profit Margin:

2001 Profit Margin:

Part C

Compute return on stockholders’ equity for 2000 and 2001 using data from Exhibits 1 and 2.

2000 Return on Stockholders' Equity:

2001 Return on Stockholders' Equity:

Part D

Analyze your results to Question 2 more completely by computing ratios 1, 2a, 2b, and 3b (all from this chapter) for 2000 and 2001. Actually, the answer to ratio 1 can be found as part of the answer to question 2, but it is helpful to look at it again.

Part E

The average stock prices for each of the four years shown in Exhibit 1 were as follows:

1998          11¼

1999          16¾

2000          28½

2001          9½

Compute the price/earnings (P/E) ratio for each year. That is, take the stock price shown above and divide by net income per common stock-dilution from Exhibit 1.

1998 P/E Ratio:

1999 P/E Ratio:

2000 P/E Ratio:

2001 P/E Ratio:

Income inequality and the poverty rate The following table summarizes the income distribution for the town of Perkopia, which has a population of 10,000 people. Every individual within an income group earns the same income, and the total annual income in the economy is $500,000,000. Suppose that in 1998, the poverty line is set at an annual income of $30,000 for an individual. Year Share of Total Income in Perkopia (Percent) Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest Quintile 1998 5.0 11.0 16.0 24.0 44.0 2004 3.9 9.7 15.2 22.6 48.6 2010 3.5 8.8 14.7 22.0 51.0 2016 3.0 8.6 14.0 21.5 52.9 The data in the table suggest that there was income inequality from 1998 to 2016. Complete the following table to help you determine the poverty rate in Perkopia in 1998. To do this, begin by determining the total income of all individuals in each quintile using the fact that total annual income in the economy is $500,000,000. Next, determine the income of an individual in each quintile by dividing the total income of that quintile by the number of people in that quintile. (Hint: Recall that Perkopia has a population of 10,000 people.) Finally, determine whether the individual income for each quintile falls below the poverty line of $30,000. Quintile Share of Income in 1998 Total Income Individual Income Below Poverty Line? (Percent) (Dollars) (Dollars) Lowest 5.0 Second 11.0 Middle 16.0 Fourth 24.0 Highest 44.0 Using the information in this table, the poverty rate in Perkopia in 1998 is . Suppose that the government introduces a welfare program in which any individual with an income of less than $30,000 per year receives a lump-sum transfer payment of $5,000 from the government. Assume that, in the short run, there is no change in labor-supply behavior among the people in Perkopia. In the year 1998, the poverty rate after the introduction of the welfare program in Perkopia is . Again, suppose the government introduces a welfare program in which any individual with an income of less than $30,000 receives a lump-sum transfer payment of $5,000 from the government. Kate, a resident of Perkopia who currently earns an income of $29,578, has the opportunity to work overtime and earn an additional $1,900 this year. Which of the following statements are correct? Check all that apply. Kate may accept the overtime if she feels that taking it will increase the chances of her receiving a significant promotion. The $5,000 in aid presents a disincentive for Kate to make more than $30,000 per year. Kate would gain more income by turning down the overtime than she would if she accepted the overtime