Tutorial: Partnerships
1, Alpha Ltd is incorporated in Singapore and its shares are listed on the Singapore Stock Exchange. Alpha Ltd’s board, by which the company is managed, is comprised of Australian citizens resident in Singapore. Board meetings are held in Singapore. The company manufactures plastic toys and has factories in both Singapore and Malaysia. 30 million shares have been issued of which 51% are held by Bravo Pty. Ltd., a company incorporated in New Guinea and carrying on business as a wholesaler in Port Moresby and in Townsville. Bravo Pty. Ltd. is a wholly owned subsidiary of Charlie Ltd., a company incorporated in Australia and controlled by Australian residents.
(a) Is Alpha Ltd an Australian resident company?
(b) What difference would it make if:
(i) Alpha Ltd. carried on trading activities in Australia; or
(ii) the Board of Alpha Ltd. was accustomed to voting as suggested by Echo, an Australian resident who is the managing director of Charlie Ltd. and who has power of appointment and dismissal of Charlie Ltd’s board?
2. NFS Pty Ltd, a resident company, had a taxable income of $10,000 last tax year on which it paid tax at the applicable company tax rate. In the current tax year it distributed the balance of that income to its shareholders franking the dividends to the greatest extent possible. Its shareholders include:
(1) David - a resident individual;
(2) Bravo Ltd - a resident company; and
(3) Ethel - a non-resident individual.
Each owned 10% of NFS’s issued shares and each was entitled to 10% of any dividend NFS paid.
Required:
(a) Calculate the amount of company tax paid by NFS Pty Ltd last tax year. (You may assume that there were no tax offsets not mentioned in the fact situation above).
(b) Calculate the tax payable by each of Bravo Ltd, David and Ethel on the dividends they received from NFS. (Assume that David and Ethel pay tax at the top marginal tax rate. Ignore the Medicare levy.))
(c) Explain how Bravo Ltd would have treated the franking credits that were attached to the dividend it received from NFS.
3. A family company XYZ Pty Ltd acquired an asset (with an effective life of 10 years) on 1 July tax year 1 for $100,000 (assume after 2006). It was depreciated using the diminishing value method.
On 1 July tax year 3 it was disposed of for $120,000. That was the company’s only income generating transaction for that year.
On 30 June tax year 3 the company paid a fully franked $10,000 cash dividend to Alex, a shareholder. Alex’s other income in that year was $180,000.
Calculate:
a, the depreciation deductions for the tax years 1 and 2;
b, the company’s taxable income and income tax for tax year 3;
c, the amount of fully franked dividend the company could pay;
d, what tax Alex will have to pay on the $10,000 cash dividend he receives.
You may assume that:
the company has no carry forward franking account balance
the company’s tax rate was 30%
the marginal rate of tax applicable to individuals with income over $180,000 is 47% (inclusive of levies)
e. If Alex’s wife Joan held a different class of shares in the company and her other income was only $10,000, what might be your advice, to the Board of Directors on 30 June and why? Would this advice differ if she was a non-resident?
In: Accounting
– ABC Company is considering two projects. The company has funding of $230 million availble to expand its sales distribution. Project A would allow the company to expand into some new but unproven products. Project B would allow the company to expand its existing product line-up although some of the product is aging quickly. The company president wants to minmize risk since the company is running just above break-even and is, therefore, marginally profitable right now. New products have potential as the company has a good reputation for innovation, quality and service. Existing products have expereinced fierce competition of late but customers have been loyal. The required project payback period is maximum 3 years and the required return is 10%.
Project B has the following capital budgeting statistics:
Net present value (NPV) $42.4 Million
Internal rate of return (IRR) 17.1%
Payback period 3 years (Target maximum 3 years)
Profitability index 1.18
Average EBIT $51.2 Million average over 5 years
A. Calculate the same statistics for Project A given the assumptions below :
Assumptions:
Project life 5 years
Tax rate 50%
Discount rate (WACC) 10% required return
Interest expense $20 Million a year
Internal rate of return (IRR) 19.6% (given)
Investment $200.0 Million
Depreciation $40.0 Million a year for 5 years
Working capital $30.0 Million but reverses in Year 5
Salvage value Zero (investment assets are worthless in 5 years)
Operating profit (EBIT):
Year 1 $50.0 Million
Year 2 $70.0 Million
Year 3 $70.0 Million
Year 4 $70.0 Million
Year 5 $70.0 Million
B. Explain, which project, is best for the company to select and discuss why
In: Accounting
ABC Company is considering two projects. The company has funding of $230 million availble to expand its sales distribution. Project A would allow the company to expand into some new but unproven products. Project B would allow the company to expand its existing product line-up although some of the product is aging quickly. The company president wants to minmize risk since the company is running just above break-even and is, therefore, marginally profitable right now. New products have potential as the company has a good reputation for innovation, quality and service. Existing products have expereinced fierce competition of late but customers have been loyal. The required project payback period is maximum 3 years and the required return is 10%.
Project B has the following capital budgeting statistics:
Net present
value (NPV) $42.4 Million
Internal rate of
return (IRR) 17.1%
Payback
period 3 years
(Target maximum 3
years)
Profitability
index 1.18
Average
EBIT $51.2
Million average over 5 years
Calculate the same statistics for Project A given the
assumptions below:
Assumptions:
Project life
5 years
Tax rate
50%
Discount rate (WACC) 10% required
return
Interest expense
$20 Million a year
Internal rate of return (IRR) 19.6% (given)
Investment
$200.0 Million
Depreciation
$40.0 Million a year for 5 years
Working capital
$30.0 Million but reverses in Year 5
Salvage value Zero (investment
assets are worthless in 5 years)
Operating profit (EBIT):
Year 1
$50.0 Million
Year 2
$70.0 Million
Year 3
$70.0 Million
Year 4
$70.0 Million
Year 5
$70.0 Million
Explain, which project, is best for the company to select and
discuss why
In: Accounting
ABC Company is considering two projects. The company has funding of $230 million availble to expand its sales distribution. Project A would allow the company to expand into some new but unproven products. Project B would allow the company to expand its existing product line-up although some of the product is aging quickly. The company president wants to minmize risk since the company is running just above break-even and is, therefore, marginally profitable right now. New products have potential as the company has a good reputation for innovation, quality and service. Existing products have expereinced fierce competition of late but customers have been loyal. The required project payback period is maximum 3 years and the required return is 10%.
Project B has the following capital budgeting statistics:
Net present
value (NPV) $42.4 Million
Internal rate of
return (IRR) 17.1%
Payback
period 3 years
(Target maximum 3
years)
Profitability
index 1.18
Average
EBIT $51.2
Million average over 5 years
Calculate the same statistics for Project A given the
assumptions below:
Assumptions:
Project life
5 years
Tax rate
50%
Discount rate (WACC) 10% required
return
Interest expense
$20 Million a year
Internal rate of return (IRR) 19.6% (given)
Investment
$200.0 Million
Depreciation
$40.0 Million a year for 5 years
Working capital
$30.0 Million but reverses in Year 5
Salvage value Zero (investment
assets are worthless in 5 years)
Operating profit (EBIT):
Year 1
$50.0 Million
Year 2
$70.0 Million
Year 3
$70.0 Million
Year 4
$70.0 Million
Year 5
$70.0 Million
Explain, which project, is best for the company to select and
discuss why
In: Accounting
Question – ABC Company is considering two projects. The company has funding of $230 million availble to expand its sales distribution. Project A would allow the company to expand into some new but unproven products. Project B would allow the company to expand its existing product line-up although some of the product is aging quickly. The company president wants to minmize risk since the company is running just above break-even and is, therefore, marginally profitable right now. New products have potential as the company has a good reputation for innovation, quality and service. Existing products have expereinced fierce competition of late but customers have been loyal. The required project payback period is maximum 3 years and the required return is 10%.
Project B has the following capital budgeting statistics:
Net present value (NPV) $42.4 Million
Internal rate of return (IRR) 17.1%
Payback period 3 years (Target maximum 3 years)
Profitability index 1.18
Average EBIT $51.2 Million average over 5 years
A. Calculate the same statistics for Project A given the assumptions below :
Assumptions:
Project life 5 years
Tax rate 50%
Discount rate (WACC) 10% required return
Interest expense $20 Million a year
Internal rate of return (IRR) 19.6% (given)
Investment $200.0 Million
Depreciation $40.0 Million a year for 5 years
Working capital $30.0 Million but reverses in Year 5
Salvage value Zero (investment assets are worthless in 5 years)
Operating profit (EBIT):
Year 1 $50.0 Million
Year 2 $70.0 Million
Year 3 $70.0 Million
Year 4 $70.0 Million
Year 5 $70.0 Million
B. Explain, which project, is best for the company to select and discuss why
In: Finance
Use SAS to answer the question:
A drug company tested three formulations of a pain relief
medicine for migraine headache sufferers.
For the experiment 27 volunteers were selected and 9 were randomly
assigned to one of three drug
formulations. The subjects were instructed to take the drug during
their next migraine headache episode
and to report their pain on a scale of 1 to 10 (10 being most
pain)
Drug A: 4 5 4 3 2 4 3 4 4
Drug B: 6 8 4 5 4 6 5 8 6
Drug C: 6 7 6 5 7 5 6 6 5
a) Test if the means for all three drug groups are equal.
(b) If the means are not equal, perform a multiple comparison at
the 0.01 level.
(c) Create a contrast to compare group B against the mean of group
A and group C at the 0.01 level.
In: Statistics and Probability
2. The bid price of a Treasury bill is ________.
a. the price at which the dealer in Treasury bills is willing to sell the bill
b. the price at which the dealer in Treasury bills is willing to buy the bill
c. greater than the ask price of the Treasury bill expressed in dollar terms
d. the price at which the investor can buy the Treasury bill
3. Harold shorts Barnes Inc. at $84. A month later the company pays a $3 dividend. At what stock price will Harold make a 10% gain from his position?
a. $72.60
b. $75.60
c. $89.40
d. $92.40
4. An investor puts up $10,000 but borrows an equal amount of money from his broker to double the amount invested to $20,000. The broker charges 4% on the loan. The stock was originally purchased at $25 per share, and in 1 year the investor sells the stock for $27. The investor's rate of return was ____.
a. 6.00%
b. 10.00%
c. 12.00%
d. 4.00%
In: Finance
A company wants to approximate the 12% annual interest rate based on a 365-day year it pays on its working capital loan.
Which of the following terms should the company offer its customers?
A) 2.00%, 15, net 45
B) 1.00%, 15, net 45
C) 0.75%, 10, net 30
D) 0.50%, 10, net 30Attribute
In: Finance
A company needs to develop an objective for paying bills. Do they want to stretch their cash flow as far as they can? Do they want to have a good reputation of always paying bills on time? Do they want to be sure to get paid by their customers before they pay their vendors? Discuss what would be the best payment terms to use for each objective and its impact on the company?
In: Finance
Sue is a customer account representative for ABC Company. She
recently acquired several new accounts when a previous
representative, Dan, took an early retirement. Sue reviewed each of
Dan’s accounts to help familiarize herself with his clients and
under- stand how she can better serve each one’s individual needs.
As she was reviewing the client list, she found a major customer
she had never heard of before. Surprised that she had not yet done
business with the company, she called it to introduce herself as
the new representative. When Sue placed the call, she found that
the reported number had been disconnected. Thinking that the
customer may have done business with ABC in the past and have moved
on, she reviewed the account transactions and found that the most
recent transaction had taken place the week prior. During her
review, she also noticed the latest transaction was for an
unusually large amount for ABC. As Sue pursued her curiosity, she
went to other employees to find out more about the company. In her
questioning, she found that none of the employees had ever heard of
the customer. Once she had run out of other avenues, Sue decided to
contact the controller to find out if he could provide any
additional information. When Sue opened the company directory, she
was amazed when she recognized his home address: it was
the same address as the mystery customer!
1. What are some of the possible scenarios for why the addresses
match?
2. What other symptoms would be present in each of the scenarios
you identified in part (1)?
3. What are the implications of the address match if the company is
private? If the company was pub- licly traded?
4. Assuming the company was preparing for an IPO, who should Sue
contact, and what should she say? 5. If Sue believes these revenues
are fictitious, what
should her next course of action be?
In: Accounting