Target ROE problem You are given the following information regarding KTC for 2019: RETURN ON ASSETS = 7.5% NET PROFIT MARGIN = 6.0% DEBT EQUITY RATIO = 1.5x SALES = $550,000.00 GROSS PROFIT RATE = 50.0% TAX RATE = 34.0% 1) What must KTC project as its 2020's sales in order to generate an additional 5% Return on Equity above last year’s levels (2019’s ROE + 5%, not 2019’s ROE x 105%) 2) Prepare a projected 2020 Profit and Loss Statement and Balance Sheet (general categories are fine). 3) Calculate: 2020’s projected RETURN ON EQUITY (use the DuPont model) 2020’s projected RETURN ON ASSETS 2020’s projected NET PROFIT MARGIN 2020’s projected EQUITY MULTIPLIER 2020’s projected TOTAL ASSET TURNOVER 4) In addition to the above, determine the increase in sales necessary to also provide for dividends to be paid at the rate of 30% of 2020’s after-tax profits.

Target ROE problem

You are given the following information regarding KTC for 2019:

RETURN ON ASSETS = 7.5% NET PROFIT MARGIN = 6.0% DEBT EQUITY RATIO = 1.5x SALES = $550,000.00 GROSS PROFIT RATE = 50.0% TAX RATE = 34.0%

1) What must KTC project as its 2020's sales in order to generate an additional 5% Return on Equity above last year’s levels (2019’s ROE + 5%, not 2019’s ROE x 105%)

2) Prepare a projected 2020 Profit and Loss Statement and Balance Sheet (general categories are fine).

3) Calculate: 2020’s

projected RETURN ON EQUITY (use the DuPont model)

2020’s projected RETURN ON ASSETS

2020’s projected NET PROFIT MARGIN

2020’s projected EQUITY MULTIPLIER

2020’s projected TOTAL ASSET TURNOVER

4) In addition to the above, determine the increase in sales necessary to also provide for dividends to be paid at the rate of 30% of 2020’s after-tax profits.

Thorp Inc. maintains a defined benefit pension plan for its employees. Pension plan balances as at January 1, 2020 include:    

¹ These prior service costs are from 2019 and already included in PBO on January 1,2020.

Required:

1. Determine the pension expenses recognized in 2020.
2. Prepare the journal entries to reflect the accounting for the pension plan for 2020.
3. Prepare the ending balances (31 December 2020) for plan assets, PBO, and calculate net pension liability.
4. What will be the expected impact of the current pandemic (Covid-19) on PBO?  

Grayson (single) is in the 24 percent tax rate bracket and has sold the following stocks in 2020: (Loss amounts should be indicated by a minus sign.)

Problem 7-46 Part-a (Algo)

a. What is Grayson’s net short-term capital gain or loss from these transactions?

b. What is Grayson’s net long-term gain or loss from these transactions?

c. What is Grayson’s overall net gain or loss from these transactions?

d. What amount of the gain, if any, is subject to the preferential rate for certain capital gains?

Assignment 2: Prologue: Sustainability and Corporate Social Responsibility (CSR); Reading pgs. 13-14 of Prologue (Worth 9 pts. total)

In recent years, there has been an increasing awareness and growing interest in sustainability and social responsibility by both consumers and corporations.

Merriam-Webster defines sustainability as the ability of a system to maintain its own viability, endure without giving way, or use resources so they are not depleted or permanently damaged. Or, in other words, it’s the ability of a system to operate in such a manner that it is able to continue indefinitely. The United Nations has defined sustainability as the “ability to meet the needs of the present without compromising the ability of future generations to meet their own needs.” Others have defined sustainability as an expansion of the golden rule: “Do unto others, including future generations, as you would have done unto you.”

Sustainability has three overlapping pillars: environmental, social, and economic. They are not mutually exclusive and are often mutually reinforcing. The pillars are interdependent and none can exist without the other. Many have come to believe that a company will only be viable in the long run if all three of these factors are considered when making business decisions. As a result, many companies, including The United Nations and other public sector organizations, adhere to the notion of a triple bottom line (TBL or 3BL). TBL recognizes that a company’s performance should be viewed not only in terms of its ability to generate economic profits for its owners, as has traditionally been the case, but also by its impact on people (social) and the planet (environmental). Most of the leading companies in the world are now issuing corporate social responsibility (CSR) reports through which they communicate their social and environmental impact. Businesses are now viewing sustainability and social responsibility as opportunities for innovation and business development.

Part 1: Worth 6.5 pts. (1/2 pt. each)

Below are examples of green initiatives recently undertaken at The Coca-Cola Company. For each example, indicate whether this initiative would primarily impact the environmental (EN), social (S), or economic (EC) factors.

1.      ______ Provided on-site wellness coaching for employees in the Baltimore sales facility to help to improve employee health.

2.      ______ Diverted more than 2.5 million beverage containers from landfills by placing more than 3,000 recycling bins at NASCAR racetracks across the United States.

3.      ______ Generated a positive economic benefit in every community in which Cocoa-Cola has facilities in the United States.

4.      ______ Reduced beverage calories in U.S. schools by 88% since 2006.

5.      ______ Prohibited marketing to children under the age of 12 in its global marketing policy.

6.      ______ Deployed hybrid electric trucks, which generate approximately one-third fewer CO2 emissions than a regular truck, in several major U.S. cities.

7.      ______ Minimized the amount of water used in the manufacturing and cleaning processes, resulting in a water use savings of over 2 billion liters since 2008.

8.      ______ Recruited from a wide cross section of the communities that its services so that the representation of women and minority groups in management can be improved.

9.      ______ Displayed total calorie counts on the selection buttons on company-controlled vending machines so that consumers can make informed choices.

10.    ______ Generated a profit for the company’s shareholders.

11.    ______ Removed the side walls on the corrugated trays that carry products, which resulted in savings of almost 2,400 metric tons of corrugated packaging.

12.    ______ Provided training and career training for employees to help to provide a rewarding work life.

13.    ______ Reduced the bottle cap size by .5 millimeters and shortened the bottle neck, which resulted in a total plastics savings of more than 11,000 metric tons since 2007.

The finance manager wants to prepare a cash budget for the July, 2020 through December, 2020 period.
The finance manager has received the following information from the marketing and operations
managers:
• The Sales were $140,000 in January, 2020 and then the sales grew by 2% each month in the first
three months (i.e., from February to April 2020) and by 5% in the next two months (i.e., in May
and June 2020). The sales are expected to grow by 1% each month thereafter.
• 45% of the Sales are collected in the same month. 30% of the sales are collected in the following
month. 24% of the sales are collected after two months and the remainder are not collected.
• The Purchases are 80% of each month’s sales and paid in the same month.
• Wages and Salaries are $25,000 each month and paid in the same month.
• Other administrative expenses are $15,000 and paid in the same month.
• Depreciation expense is $5,000 each month.
• An electrical device worth $30,000 will be purchased in October 2020. 50% of the amount due
will be paid immediately and the balance will be paid in November, 2020.
• The company had previously taken a loan of $200,000. The annual interest rate on the loan
amount is 4%. The interest is paid once a year in December each year. Assume that no principal
repayments are made in this period, only interest payments are made.
• The company pays rent of $3,500 quarterly (in March, June, September, and December each
year).

1. Determine the total cash inflows for each month from July 2020 to December 2020.
Show your work in Excel.

2. Determine the total cash outflows for each month from July 2020 to December 2020.
Show your work in Excel.

3. Determine the expected change in cash for each month from July 2020 to December 2020.
Show your work in Excel.

4. Describe in your own words some of the short-term borrowing options that the company may adopt.

On January 1, 2020, McGee Co. had the following balances:

         Projected benefit obligation                                                $7,800,000

         Fair value of plan assets                                                        7,800,000

Other data related to the pension plan for 2020:

         Service cost                                                                               315,000

         Contributions to the plan                                                         459,000

         Benefits paid                                                                             450,000

         Actual return on plan assets                                                     444,000

         Settlement rate                                                                                 9%

         Expected rate of return                                                                    6%

         No prior service cost, no prior OCI gains/losses

Required:

(a)    Prepare the journal entry to record pension expense, the contributions for 2020 and adjustments to Pension Asset/Liability and OCI (g/l).

(b) Answer the following questions:

(1) What is the plan assets balance on 12/31/2020?

(2) What is the Pension Benefit Obligation balance at December 31, 2020?

(3) What is the ending balance in the pension asset/liability at December 31, 2020?

(4)    What is Pension Expense for 2020?

A pension worksheet is provided to help you calculate and answer the questions, although you are not required to use it but feel free to fill it out here if you would like to. If you do, please make sure to answer the questions in the response area, do not expect to be graded only on what you might have included in the worksheet.

(a)    Prepare the journal entry to record pension expense, the contributions for 2020 and adjustments to Pension Asset/Liability and OCI (g/l).

(enter Journal entry here)

-->

(b) Answer the following questions. Type your response after each question:

(1) What is the plan assets balance on 12/31/2020? -->

(2) What is the Pension Benefit Obligation balance at December 31, 2020? -->

(3) What is the ending balance in the pension asset/liability at December 31, 2020? -->

(4)    What is Pension Expense for 2020? -->

Case 6-1  Chobani

Chobani LLC, is a producer and marketer of Greek yogurt. The company was founded in 2005 by Hamdi Ulukaya, an immigrant from Turkey, who recognized the lack of options for high-quality yogurt in the United States. The company is headquartered in Norwich, New York, and it employs approximately 2,000 employees. It operates two manufacturing plants—its original facility in central New York and a second new state-of-the-art facility in Twin Falls, Idaho.

The mission of the company is “To provide better food for more people. We believe that access to nutritious, delicious yogurt made with only natural ingredients is a right, not a privilege. We believe every food maker has a responsibility to provide people with better options, which is why we’re so proud of the way our food is made.” Chobani’s core values are integrity, craftsmanship, innovation, leadership, people, and giving back.

The company’s beginning in 2005 occurred when Hamdi Ulukaya discovered a notice about an old Kraft yogurt factory in South Edmeston that was closed. He decided to obtain a business loan in order to purchase it. Between 2005 and 2007, Ulukaya worked with four former Kraft employees and yogurt master Mustafa Dogan to develop the recipe for Chobani Greek Yogurt. Between 2007 and 2009, the company started to sell its yogurt in local grocery stores including Stop and Shop and ShopRite. By 2010, Chobani Greek yogurt became the best selling Greek yogurt in the United States. The company pursued global expansion by entering Australia in 2011 and the United Kingdom in 2012. In 2013, the company opened its international headquarters in Amsterdam, and Hamdi Ulukaya was named the Ernst and Young World Entrepreneur of the Year.

Chobani has achieved its success in large part due to its ability to innovate in its product lineup. For example, in 2016, it launched a new line of yogurt drinks, more flavors of its Flip mix-in product, and even a concept café in Manhattan.

The company also created a food incubator program that is designed to provide resources, expertise (e.g., brand and marketing, packaging and pricing), and funding to small, young companies that have promising ideas for new natural foods that they aspire to develop.

Although Hamdi Ulukaya has been extremely successful in his founding and establishment of Chobani, he has recognized that there are some key lessons learned from his experience as the head of a young but very successful and industry-leading company. These include the importance of hiring people with functional experience such as marketing, supply chain, logistics, operations, and quality control, as they were essential to the smooth operation of the company. In addition, remembering to respect the competition and not to underestimate it is critical, as Chobani’s two main competitors, Dannon and Yoplait, launched their own Greek yogurt lines, and they were able to win back some of Chobani’s market share over time.

Discussion Questions

5.   Think about managing change at a personal level. Why is it so hard for so many people to change their behavior or way of thinking? Are these personal challenges to managing change also relevant to managing change in organizations?

6.   What can you learn from Hamdi Ulukaya about what is needed to become a successful entrepreneur?

Case 6-1  Chobani

Chobani LLC, is a producer and marketer of Greek yogurt. The company was founded in 2005 by Hamdi Ulukaya, an immigrant from Turkey, who recognized the lack of options for high-quality yogurt in the United States. The company is headquartered in Norwich, New York, and it employs approximately 2,000 employees. It operates two manufacturing plants—its original facility in central New York and a second new state-of-the-art facility in Twin Falls, Idaho.

The mission of the company is “To provide better food for more people. We believe that access to nutritious, delicious yogurt made with only natural ingredients is a right, not a privilege. We believe every food maker has a responsibility to provide people with better options, which is why we’re so proud of the way our food is made.” Chobani’s core values are integrity, craftsmanship, innovation, leadership, people, and giving back.

The company’s beginning in 2005 occurred when Hamdi Ulukaya discovered a notice about an old Kraft yogurt factory in South Edmeston that was closed. He decided to obtain a business loan in order to purchase it. Between 2005 and 2007, Ulukaya worked with four former Kraft employees and yogurt master Mustafa Dogan to develop the recipe for Chobani Greek Yogurt. Between 2007 and 2009, the company started to sell its yogurt in local grocery stores including Stop and Shop and ShopRite. By 2010, Chobani Greek yogurt became the best selling Greek yogurt in the United States. The company pursued global expansion by entering Australia in 2011 and the United Kingdom in 2012. In 2013, the company opened its international headquarters in Amsterdam, and Hamdi Ulukaya was named the Ernst and Young World Entrepreneur of the Year.

Chobani has achieved its success in large part due to its ability to innovate in its product lineup. For example, in 2016, it launched a new line of yogurt drinks, more flavors of its Flip mix-in product, and even a concept café in Manhattan.

The company also created a food incubator program that is designed to provide resources, expertise (e.g., brand and marketing, packaging and pricing), and funding to small, young companies that have promising ideas for new natural foods that they aspire to develop.

Although Hamdi Ulukaya has been extremely successful in his founding and establishment of Chobani, he has recognized that there are some key lessons learned from his experience as the head of a young but very successful and industry-leading company. These include the importance of hiring people with functional experience such as marketing, supply chain, logistics, operations, and quality control, as they were essential to the smooth operation of the company. In addition, remembering to respect the competition and not to underestimate it is critical, as Chobani’s two main competitors, Dannon and Yoplait, launched their own Greek yogurt lines, and they were able to win back some of Chobani’s market share over time.

Discussion

1. Start with a brief (1-2 paragraphs) summary of the case.

2. List the management issues short term & longer term you see in the case.

3.Propose a solution to fix the major current problem and a longer term course of action to prevent the problem.