Disney raises theme park ticket prices, again. You've got to pay more to play in the Magic Kingdom, because Walt Disney just raised its ticket prices again, breaking the $100 mark. A one-day ticket to the Walt Disney World Resort's flagship theme park, the Magic Kingdom, now costs $105, up from $99. Prices had been jacked up by $4 just last year. The price of admission applies to anyone 10 years and older entering the Orlando-area theme park. Younger children, aged 3 to 9, pay $99 to enter the Magic Kingdom, compared to $94 last year. Prices also increased for the other Disney World theme parks -- EPCOT, the Animal Kingdom Park and Hollywood Studios -- to $97 for visitors aged 10 and older, compared to $94 last year. Children aged 3 to 10 now pay $91 for a single-day ticket to those parks, compared to $88 last year. The price hikes seem to be working for parent company Walt Disney World Resorts, which reported a 7% increase in revenue year-over-year, largely from its parks. "Increased guest spending was primarily due to higher average ticket prices for admissions at our theme parks," Walt Disney Company (DIS) said in a financial report. A Disney spokeswoman said the "vast majority" of visitors buy the multi-day passes, which can knock the price down to $96 per day for a two-day ticket, or $63 per day for a five-day ticket. She also said that a ticket for a single day at Walt Disney World buys 16 hours of entertainment.

1. What is the price of a one-day ticket to the Magic Kingdom?

2. Given the income elasticity of demand how do we know if a trip to Disney World is a normal good or an inferior good?

3. The news article tells us that with ticket prices rising, revenue is increasing. What does this tell us about the price elasticity of demand of a trip to Disney World?

The following data give the percentages of random samples of United Kingdom citizens who were smokers, in a variety of years.

  Age (years)

Year 16–19 20–24 25–34 35–49 50–59 60+

1978 34 44 45 45 45 30

1988    28 37 36 36 33 23

1998 31 40 35 30 27 16

2000 29 35 35 29 27 16

2002 25 38 34 28 26 15

2007 20 31 27 22 21 12

(a) Test the hypothesis that the actual percentages of smokers do not depend on the year considered. (b) Test the hypothesis that there is no effect due to age group.

1. A null and alternative hypothesis is given. determine whether the hypothesis test is left tailed, right-tailed, or two-tailed. Ho: u=37, H1: u>37

2. True or False. The t value for the area in the right tail is 0.02 and n=10 is 2.359

3. write the null and alternative hypothesis. according to a magazine, the mean donation per household in 1998 was $1623. a researcher claims that it has increased since then.

4.the following data are prices for a 4 GB flash memory card at different stores. 12.25, 14.99, 13.49, 16.38, 13.63, 14.95, 14.75, 20.88, 14.21, 20.38. construct a 99% confidence interval to estimate the mean price of a $ GB memory card. use t table

4.

5. X Co. has the following items of possible tax significance in 2006. Determine its current earnings and profits for 2006.

• book pre-tax income of 1,000,000.
• book tax expense of 340,000.
• taxable income of 400,000.
• federal taxes of 125,000.
• interest from municipal bonds of 100,000.
• premiums for officer's term life insurance of 25,000 (X is the beneficiary).
• X was allowed depreciation of 40,000 on an apartment building acquired in 1998. The building's original cost was 1,000,000.
• X exchanged land used in its business for another parcel of land also to be used in X's business. The land had a FMV of 1,000,000 and a basis of 500,000.
• X was able to currently utilize a net operating loss carryover of 100,000.

Suppose you have the following data.

Let H be the number of new homes sold and let M be the conventional mortgage interest rate.

1. Find the sample mean of H and the sample mean of M.

2. Find the sample variance of H and the sample variance of M. Additionally, calculate the sample covariance of H and M.

3. Calculate the linear regression where H is the independent variable and M is the dependent variable.

4. Based on the linear regression from part b what variable affects the other and what type of numerical effect does it have?

In its annual report 1999, Roche, the Swiss pharmaceuticals company provides for the following information relating to the balance sheet item ‘other current assets’: Other current assets (in millions of Swiss francs): 1999 1998 Accrued interest income 127 54 Prepaid expenses 1,122 536 (…) Total other current assets 2,633 1,469 Required Explain what the ‘accrued interest income’ represents. Illustrate your explanation showing with your own figures the impact of the adjusting entry on the financial statements. Explain what the ‘prepaid expenses’ represent. Provide examples of prepaid expenses a company such as Roche could have reported. Illustrate your explanation showing, with your own figures, the impact of the adjusting entries on the financial statements.

Blades, Inc. Case

Assessment of an Acquisition in Thailand

Recall that Ben Holt, Blades’ chief financial officer (CFO), has suggested to the board of directors that Blades proceed with the establishment of a subsidiary in Thailand. Due to the high growth potential of the roller blade market in Thailand, his analysis suggests that the venture will be profitable. Specifically, his view is that Blades should establish a subsidiary in Thailand to manufacture roller blades, whether an existing agreement with Entertainment Products (a Thai retailer) is renewed or not. Under this agreement, Entertainment Products is committed to the purchase of 180,000 pairs of Speedos, Blades’ primary product, annually. The agreement was initially for three years and will expire two years from now. At this time, the agreement may be renewed. Due to delivery delays, Entertainment Products has indicated that it will renew the agreement only if Blades establishes a subsidiary in Thailand. In this case, the price per pair of roller blades would be fixed at 4,594 Thai baht per pair. If Blades decides not to renew the agreement, Entertainment Products has indicated that it would purchase only 5,000 pairs of Speedos annually at prevailing market prices.

According to Holt’s analysis, renewing the agreement with Entertainment Products and establishing a subsidiary in Thailand will result in a net present value (NPV) of $2,638,735. However, if the agreement is not renewed and a subsidiary is established, the resulting NPV will be $8,746,688. Consequently, Holt has suggested to the board of directors that Blades establish a subsidiary without renewing the existing agreement with Entertainment Products.

Recently, a Thai roller blade manufacturer called Skates’n’Stuff contacted Holt regarding the potential sale of the company to Blades. Skates’n’Stuff entered the Thai roller blade market a decade ago and has generated a profit in every year of operation. Furthermore, Skates’n’Stuff has established distribution channels in Thailand. Consequently, if Blades acquires the company, it could begin sales immediately and would not require an additional year to build the plant in Thailand. Initial forecasts indicate that Blades would be able to sell 280,000 pairs of roller blades annually. These sales are incremental to the acquisition of Skates’n’Stuff. Furthermore, all sales resulting from the acquisition would be made to retailers in Thailand. Blades’ fixed expenses would be 20 million baht annually. Although Holt has not previously considered the acquisition of an existing business, he is now wondering whether acquiring Skates’n’Stuff may be a better course of action than building a subsidiary in Thailand.

Holt is also aware of some disadvantages associated with such an acquisition. Skates’n’Stuff’s CFO has indicated that he would be willing to accept a price of 1 billion baht in payment for the company, which is clearly more expensive than the 550 million baht outlay that would be required to establish a subsidiary in Thailand. However, Skates’n’Stuff’s CFO has indicated that it is willing to negotiate. Furthermore, Blades employs a high-quality production process, which enables it to charge relatively high prices for roller blades produced in its plants. If Blades acquires Skates’n’Stuff, which uses an inferior production process (resulting in lower quality roller blades), it would have to charge a lower price for the roller blades it produces there. Initial forecasts indicate that Blades will be able to charge a price of 4,500 Thai baht per pair of roller blades without affecting demand. However, because Skates’n’Stuff uses a production process that results in lower quality roller blades than Blades’ Speedos, operating costs incurred would be similar to the amount incurred if Blades establishes a subsidiary in Thailand. Thus Blades estimates that it would incur operating costs of about 3,500 baht per pair of roller blades.

Holt has asked you, a financial analyst for Blades, Inc., to determine whether the acquisition of Skates’n’Stuff is a better course of action for Blades than the establishment of a subsidiary in Thailand. Acquiring Skates’n’Stuff will be more favorable than establishing a subsidiary if the present value of the cash flows generated by the company exceeds the purchase price by more than $8,746,688, the NPV of establishing a new subsidiary. Thus Holt has asked you to construct a spreadsheet that determines the NPV of the acquisition. To aid you in your analysis, Holt has provided the following additional information, which he gathered from various sources, including unaudited financial statements of Skates’n’Stuff for the last three years:

Blades, Inc., requires a return on the Thai acquisition of 25 percent, the same rate of return it would require if it established a subsidiary in Thailand.

If Skates’n’Stuff is acquired, Blades, Inc., will operate the company for 10 years, at which time Skates’n’Stuff will be sold for an estimated 1.1 million baht.

Of the 1 billion baht purchase price, 600 million baht constitutes the cost of the plant and equipment. These items are depreciated using straight-line depreciation. Thus 60 million baht will be depreciated annually for 10 years.

Sales of 280,000 pairs of roller blades annually will begin immediately at a price of 4,500 baht per pair.

Variable costs per pair of roller blades will be 3,500 per pair.

Fixed operating costs, including salaries and administrative expenses, will be 20 million baht annually.

The current spot rate of the Thai baht is $.023. Blades expects the baht to depreciate by an average of 2 percent per year for the next 10 years.

The Thai government will impose a 25 percent tax on income and a 10 percent withholding tax on any funds remitted by Skates’n’Stuff to Blades, Inc. Any earnings remitted to the United States will not be taxed again in the United States. All earnings generated by Skates’n’Stuff will be remitted to Blades, Inc.

The average inflation rate in Thailand is expected to be 12 percent annually. Revenues, variable costs, and fixed costs are subject to inflation and are expected to change by the same annual rate as the inflation rate.

In addition to the information outlined above, Holt has informed you that Blades, Inc., will need to manufacture all of the 180,000 pairs to be delivered to Entertainment Products this year and next year in Thailand. Because Blades previously only used components from Thailand (which are of a lower quality but cheaper than U.S. components) sufficient to manufacture 72,000 pairs annually, it will incur cost savings of 32.4 million baht this year and next year. However, because Blades will sell 180,000 pairs of Speedos annually to Entertainment Products this year and next year whether it acquires Skates’n’Stuff or not, Holt has urged you not to include these sales in your analysis. The agreement with Entertainment Products will not be renewed at the end of next year.

Holt would like you to answer the following questions:

Using a spreadsheet, determine the NPV of the acquisition of Skates’n’Stuff. Based on your numerical analysis, should Blades establish a subsidiary in Thailand or acquire Skates’n’Stuff?

If Blades negotiates with Skates’n’Stuff, what is the maximum amount (in Thai baht) Blades should be willing to pay?

Are there any other factors Blades should consider in making its decision? In your answer, you should consider the price Skates’n’Stuff is asking relative to your analysis in question 1, other potential businesses for sale in Thailand, the source of the information your analysis is based on, the production process that will be employed by the target in the future, and the future management of Skates’n’Stuff.

1. Using a spreadsheet, determine the NPV of the acquisition of Skates'n'stuff. Based on your numerical analysis, should Blades establish a subsidiary in THailand or acquire Skates'n Stuff?

2. If Blades negotiates with Skates's N stuff what is the maximum amount (in Thai Baht) Blades should be willing to pay?

3. Are there any other factors Blades should consider in making its decision? In your answer, you should consider the price Skates'n Stuff is asking relative to your analysis in question 1, other potential businesses for sale in Thailand, the source of the information your analysis is based on, the production process that will be employed by the target in the future and the future management of Skates'N Stuff.

(1) What do we mean by revenue recognition? What does GAAP say about proper revenue recognition?

(2) Why is the audit of revenue recognition riskier for a new company?

(3) What are some justifications for not using confirmations of accounts receivable on a particular audit?