You are the Chief Financial Officer of Incomprehensible Technologies Inc. (ITI). The CEO has asked you to calculate the firm’s overall WACC. Your team of analysts has presented you with the following data:

• Common Stock: The company has 50,000 shares of common stock outstanding that sells for $10 per share. The stock’s beta is 1.8, Treasury Bills are yielding 2%, and the expected return of the market is 7%.
• Bonds: The company also has 400 bonds outstanding with a par value of $1000 and make semi-annual coupon payments. The bonds have a coupon rate of 5%, there are 12.5 years to maturity, and they are currently selling on the market at $912.93.
• Preferred Stock: The company has 5,000 shares of preferred stock outstanding selling at $20 per share. The dividend on the Preferred Stock is $0.75 per quarter.
• Ignore the effect of taxes

Question 11: What is the company's cost of equity?

Multiple Choice

• 11.0%

• 14.6%

• 9.0%

• 12.6%

• 11.9%

  Question 12: What is the company's cost of debt?

  Multiple Choice

• 3.0%

• 5.0%

• 5.7%

• 6.0%

• 11.3%

  USE THE FOLLOWING DATA FOR QUESTIONS 11-14

  You are the Chief Financial Officer of Incomprehensible Technologies Inc. (ITI). The CEO has asked you to calculate the firm’s overall WACC. Your team of analysts has presented you with the following data:

• Common Stock: The company has 50,000 shares of common stock outstanding that sells for $10 per share. The stock’s beta is 1.8, Treasury Bills are yielding 2%, and the expected return of the market is 7%.
• Bonds: The company also has 400 bonds outstanding with a par value of $1000 and make semi-annual coupon payments. The bonds have a coupon rate of 5%, there are 12.5 years to maturity, and they are currently selling on the market at $912.93.
• Preferred Stock: The company has 5,000 shares of preferred stock outstanding selling at $20 per share. The dividend on the Preferred Stock is $0.75 per quarter.

• Question 13: What is the cost of the company's Preferred Stock?

  Multiple Choice

• 6.2%

• 3.8%

• 15.0%

• 4.4%

• 7.8%

  USE THE FOLLOWING DATA FOR QUESTIONS 11-14

  You are the Chief Financial Officer of Incomprehensible Technologies Inc. (ITI). The CEO has asked you to calculate the firm’s overall WACC. Your team of analysts has presented you with the following data:

• Common Stock: The company has 50,000 shares of common stock outstanding that sells for $10 per share. The stock’s beta is 1.8, Treasury Bills are yielding 2%, and the expected return of the market is 7%.
• Bonds: The company also has 400 bonds outstanding with a par value of $1000 and make semi-annual coupon payments. The bonds have a coupon rate of 5%, there are 12.5 years to maturity, and they are currently selling on the market at $912.93.
• Preferred Stock: The company has 5,000 shares of preferred stock outstanding selling at $20 per share. The dividend on the Preferred Stock is $0.75 per quarter.

• Question 14: What is the company's WACC?

  Multiple Choice

• 7.0%

• 8.2%

• 11.6%

• 8.9%

• 9.5%

• Ignore the effect of taxes
• Ignore the effect of taxes

1. Read carefully the below problem text and write the following proposal sections in paragraph format:

1. Analysis of the problem
2. The reasons
3. Proposed solutions
4. Risk to the organisation if the proposed changes are not made

Hunter Co.:

The Hunter Company is a chain of restaurants that are widely distributed across the Kingdom of Saudi Arabia. The business started in 1995 with one branch in Jeddah. It was very successful as it was always crowded and widely complimented by customers in terms of food quality, hygiene and service level. The company then created an expansion strategy to meet the increasing demand. Between 2000 and 2015, The Hunter Co. has opened 50 branches in 30 cities in Saudi Arabia. However, Hunter Co. reported 30% drop in earnings for the second quarter of 2015. In an attempt to understand the causes of such drop, The Hunter company has discovered that customer satisfaction level massively dropped! While gathering information related to the reasons behind the major drop in customer satisfaction, the following comments were given from customers. Many complaints about inappropriate staff behavior. Moreover, complaints about food quality. The service varies from time to time and from a branch to another. Long waiting time. Employees are not taking care of hygiene and cleanliness. In general, they confirm that the food and service quality are below the standards set by the company. The following comments were given by the restaurant staff: Salary is different for the same levels in different restaurants. Nobody cares about how we feel. The company`s CEO says that quality is a priority, but they have brought low quality raw materials to save money. High staff turnover pressure on existing serving staff and managers. The Hunter restaurant is under a real threat of going out of business. They need for transformation to re-gain customer trust.

Apple Computer CEO Steve Jobs announced he was taking a leave of absence for health reasons. Jobs has been fighting cancer and also recently underwent a liver transplant. Even though the computer giant is in good hands with Chief Operating Officer Tom Cook taking over the stock price fell by​ US$6.40, or nearly two​ percent, on the news.

Jobs is widely known as a visionary and a micromanager. Under his leadership Apple has transformed the computing industry. While​ Jobs' health outlook is unknown many investors are betting on his recovery and return. Those who bought Apple stock when Jobs stepped down in 2004 for health reasons made a nice profit when he returned to the helm.  

Question                                                                                                                               2 Marks

“When a financial manager makes good or bad financial decisions the impact of these decisions will be reflected in the​ company's Stock price”.

Do you agree with the decision taken in the above case? What decisions you will take to improve the stock price of Apple Computers in this situation?

Answer those questions.

Is Social Responsibility Too Much of a Burden for Corporations?

Globalization has had a positive effect on Corporate social responsibility

Globalization has had a negative effect on Corporate Social Responsibility

A Business Leader whose ethical Character virtues you Admire

Businesses’ Influence on Government and Public Policy will be beneficial to Society

Is Business Ethics an Indispensable Function of Corporations in the 21^st Century?

Do businesses have any Social Responsibility to the Communities in which they Operate?

The Social Responsibility of a Business in the 21^st Century Goes Beyond Just Making Profits

A Ethical Corporation you admire

Should a corporation be allowed to make unfettered profits regardless of its moral values?

A chief executive officer (CEO) you admire

The Stakeholder Approach is the perfect Framework in understanding the importance of Corporate Social Responsibility

Should Corporations or the Government Lead us towards a Sustainable Future?

The Ethical Challenges involving Technology

Diversity in any Corporation brings advantages

Affirmative action is not reverse discrimination.

Affirmative action is reverse discrimination

Whistle Blowing is an indispensable tool to keep Corporations Ethical

HI There, there is no solution for a problem that I am looking for. Advanced Accouting - Chapter 4, problem 30. Can you please assist? Thanks.

Posada Company acquired 7,000 of the 10,000 outstanding shares of Sabathia Company on January 1, 2013, for $840,000. The subsidiary’s total fair value was assessed at $1,200,000 although its book value on that date was $1,130,000. The $70,000 fair value in excess of Sabathia’s book value was assigned to a patent with a 5-year remaining life.

On January 1, 2015, Posada reported a $1,085,000 equity method balance in the Investment in Sabathia Company account. On October 1, 2015, Posada sells 1,000 shares of the investment for $191,000. During 2015, Sabathia reported net income of $120,000 and declared dividends of $40,000. These amounts are assumed to have occurred evenly throughout the year.

a.	How should Posada report the 2015 income that accrued to the 1,000 shares prior to their sale? (Do not round your intermediate calculations.) b. What is the effect on Posada’s financial statements from this sale of 1,000 shares? (Do not round your intermediate calculations.)

Brislin Company has four operating divisions. During the first quarter of 2020, the company reported aggregate income from operations of $213,000 and the following divisional results.

		Division
		I		II		III		IV
Sales		$250,000		$200,000		$500,000		$450,000
Cost of goods sold		200,000		192,000		300,000		250,000
Selling and administrative expenses		75,000		60,000		60,000		50,000
Income (loss) from operations		$ (25,000)		$ (52,000)		$140,000		$150,000

Analysis reveals the following percentages of variable costs in each division.

		I			II			III			IV
Cost of goods sold		70	%		90	%		80	%		75	%
Selling and administrative expenses		40			60			50			60

Discontinuance of any division would save 50% of the fixed costs and expenses for that division.

Top management is very concerned about the unprofitable divisions (I and II). Consensus is that one or both of the divisions should be discontinued.

Prepare a columnar condensed income statement for Brislin Company, assuming Division II is eliminated. Division II’s unavoidable fixed costs are allocated equally to the continuing divisions.

Kansas Company uses a standard cost accounting system. In 2020, the company produced 27,700 units. Each unit took several pounds of direct materials and 1.6 standard hours of direct labor at a standard hourly rate of $12.00. Normal capacity was 50,400 direct labor hours. During the year, 131,500 pounds of raw materials were purchased at $0.93 per pound. All materials purchased were used during the year.

If the materials quantity variance was $19,665 unfavorable, what was the standard materials quantity per unit? Standard materials quantity per unit pounds

What were the standard hours allowed for the units produced? Standard hours allowed hours

If the labor quantity variance was $7,200 unfavorable, what were the actual direct labor hours worked? Actual hours worked hours

If the labor price variance was $4,492 favorable, what was the actual rate per hour? (Round answer to 2 decimal places, e.g. 2.75.) Actual rate per hour $

If total budgeted manufacturing overhead was $327,600 at normal capacity, what was the predetermined overhead rate based on direct labor hours? (Round answer to 2 decimal places, e.g. 2.75.) Predetermined overhead rate $

What was the standard cost per unit of product? (Round answer to 2 decimal places, e.g. 2.75.) Standard cost per unit $

How much overhead was applied to production during the year? Overhead applied $

Using one or more answers above, what were the total costs assigned to work in process? (Round standard cost per unit to 2 decimal places, e.g. 2.75 and final answer to 0 decimal places, e.g. 125.) Total costs assigned $

Brislin Company has four operating divisions. During the first quarter of 2020, the company reported aggregate income from operations of $211,800 and the following divisional results.

		Division
		I		II		III		IV
Sales		$253,000		$198,000		$505,000		$445,000
Cost of goods sold		203,000		195,000		295,000		253,000
Selling and administrative expenses		75,200		57,000		61,000		50,000
Income (loss) from operations		$ (25,200)		$ (54,000)		$149,000		$142,000

Analysis reveals the following percentages of variable costs in each division.

		I			II			III			IV
Cost of goods sold		74	%		91	%		80	%		74	%
Selling and administrative expenses		41			58			50			57

Discontinuance of any division would save 50% of the fixed costs and expenses for that division.

Top management is very concerned about the unprofitable divisions (I and II). Consensus is that one or both of the divisions should be discontinued.Compute the contribution margin for Divisions I and II. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Division I		Division II
Contribution margin		$		$

  

  

Prepare an incremental analysis concerning the possible discontinuance of Division I. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Continue		Eliminate		Net Income Increase (Decrease)
Contribution margin		$		$		$
Fixed costs
Cost of goods sold
Selling and administrative
Total fixed expenses
Income (loss) from operations		$		$		$

  

  

Prepare an incremental analysis concerning the possible discontinuance of Division II. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Continue		Eliminate		Net Income Increase (Decrease)
Contribution margin		$		$		$
Fixed costs
Cost of goods sold
Selling and administrative
Total fixed expenses
Income (loss) from operations		$		$		$

  

  

What course of action do you recommend for each division?

Division I		ContinuedEliminated
Division II		ContinuedEliminated

  

  

Prepare a columnar condensed income statement for Brislin Company, assuming Division II is eliminated. Division II’s unavoidable fixed costs are allocated equally to the continuing divisions. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

BRISLIN COMPANY
CVP Income Statement
For the Quarter Ended March 31, 2020
		Divisions
		I		III		IV		Total
Sales		$		$		$		$
Variable costs
Cost of goods sold
Selling and administrative
Total variable costs
Contribution margin
Fixed costs
Cost of goods sold
Selling and administrative
Total fixed costs
Income (loss) from operations		$		$		$		$

  

  

Brislin Company has four operating divisions. During the first quarter of 2020, the company reported aggregate income from operations of $193,000 and the following divisional results.

		Division
		I		II		III		IV
Sales		$250,000		$198,000		$496,000		$443,000
Cost of goods sold		205,000		189,000		297,000		255,000
Selling and administrative expenses		70,000		63,000		61,000		54,000
Income (loss) from operations		$ (25,000)		$ (54,000)		$138,000		$134,000

Analysis reveals the following percentages of variable costs in each division.

		I			II			III			IV
Cost of goods sold		69	%		89	%		80	%		74	%
Selling and administrative expenses		37			61			51			58

Discontinuance of any division would save 50% of the fixed costs and expenses for that division.

Top management is very concerned about the unprofitable divisions (I and II). Consensus is that one or both of the divisions should be discontinued.

(a)

Compute the contribution margin for Divisions I and II. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Division I		Division II
Contribution margin		$		$

b

) Prepare an incremental analysis concerning the possible discontinuance of Division I. (Round answers to 0 decimal places, e.g. 1525. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

C)Prepare an incremental analysis concerning the possible discontinuance of Division II. (Round answers to 0 decimal places, e.g. 1525. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

D) Prepare a columnar condensed income statement for Brislin Company, assuming Division II is eliminated. Division II’s unavoidable fixed costs are allocated equally to the continuing divisions. (Round answers to 0 decimal places, e.g. 1525. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)