The Table below provides quotes from three Banks A,B, and C for the British Pound in U.S. dollars (A), the US dollar in Euros (B) and the British Pound in Euros (C).

Bid price Ask price

A - USD/POUND 1.4871 1.4900

B - EURO/USD 0.8794 0.8852

C - EUR/POUND 1.3050 1.3062

(a) Calculate the appropriate EUR/POUND bid and -ask cross exchange rates.

(b) Give your answers to (a), which currency is overvalued? Explain your answer.

(c) Assuming no other trading costs, explain if there are arbitrage opportunities for a US dealer with US$800,000. If there are no arbitrage opportunities explain why.

Trophies R Us manufactures medals for winners of athletic events and other contests. Its manufacturing plant has the capacity to produce 10,000 medals each month; current monthly production is 7,500 medals. The company normally charges $225 per medal. Variable costs and fixed costs for the current activity level of 75% follow:

Trophies R Us has just received a special one-time order for 2,500 medals at $115 per medal. For this particular order, no variable marketing costs will be incurred. As a management accountant with Trophies R Us, you have been assigned the task of analyzing this order and recommending whether the company should accept or reject it..

1) Calculate both the old (i.e., prior to the special order) average cost per unit and the recalculated average cost per unit, including the effect of the special sales order. Are either of these two figures relevant for evaluating whether to accept or reject the special order? Explain.

2) Based on a short-term financial analysis, determine if Trophies R Us Co. should accept the special order and why.

3) What is the breakeven selling price per unit for the special sales order?

4) Discuss at least three other considerations that you should include in your analysis of the special order.

Homes for Sale

The dataset HomesForSale has data on houses available for sale in three Mid-Atlantic states (NY, NJ, and PA). Table 1 shows the mean and standard deviation from the three Mid-Atlantic states, in thousands of dollars. Use this table, the knowledge that within the US the average house sells for about 265 thousand dollars¹, and a 5% significance level to answer the following questions.

Table 1 Mean housing prices for New York, New Jersey, and Pennsylvania


Click here for the dataset associated with this question.


¹According to the US Census in April 2011.

(a) Test whether the average cost of a house in New York is significantly greater than the US average.

Give the test statistic and the p-value.

Round your answer for the test statistic to two decimal places and your answer for the p-value to three decimal places.

test statistic = Enter your answer in accordance to item (a) of the question statement

p-value = Enter your answer in accordance to item (a) of the question statement

Is the average cost of a house in New York significantly greater than the US average?

(b) Test whether the average cost of a house in New Jersey is significantly greater than the US average.

Give the test statistic and the p-value.

Round your answer for the test statistic to two decimal places and your answer for the p-value to three decimal places.

test statistic = Enter your answer in accordance to item (b) of the question statement

p-value = Enter your answer in accordance to item (b) of the question statement

Is the average cost of a house in New Jersey significantly greater than the US average?

Choose the answer from the menu in accordance to item (b) of the question statement                                                                      YesNo

(c) Test whether the average cost of a house in Pennsylvania is significantly greater than the US average.

Give the test statistic and the p-value.

Round your answer for the test statistic to two decimal places and your answer for the p-value to three decimal places.

test statistic = Enter your answer in accordance to item (c) of the question statement

p-value = Enter your answer in accordance to item (c) of the question statement

Is the average cost of a house in Pennsylvania significantly greater than the US average?

Choose the answer from the menu in accordance to item (c) of the question statement                                                                      YesNo

(d) Which state shows the most evidence that the state average is greater than the US average?

New York

New Jersey

Pennsylvania

George Young Industries (GYI) acquired industrial robots at the beginning of 2018 and added them to the company’s assembly process. During 2021, management became aware that the $2.8 million cost of the equipment was inadvertently recorded as repair expense on GYI’s books and on its income tax return. The industrial robots have 10-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method for financial reporting purposes and for tax purposes it is considered to be MACRS 7-year property. Cost deducted over 7 years by the modified accelerated recovery system as follows:

The tax rate is 25% for all years involved.

Required:
1. & 3. Prepare any journal entry necessary as a direct result of the error described and the adjusting entry for 2021 depreciation.
2. Will GYI account for the change (a) retrospectively or (b) prospectively?

n July 2007, Apple released the iPhone at a price of $599. Only two months later, the company dropped the price by 33% to $399. The early iPhone customers were angry about the sudden drop in price and felt they had overpaid for the product. See the letter below that Steve Jobs wrote to these customers. not surprisingly, members of the news media received the message and shared it with the general public.

INSTRUCTIONS: Write a clear and concise assessment of whether or not you think this is an effective business communication. Provide support for your answer. Organize your response into a clear introduction, body, and conclusion. Use the appropriate format for business writing.

***

Letter from Steve Jobs

To All iPhone Customers:

I have received hundreds of emails from iPhone customers who are upset about Apple dropping the price of the iPhone by $200 two months after it went on sale. After reading every one of these emails, I have some observations and conclusions.

First, I am sure that we are making the correct decision to lower the price of the 8GB iPhone from $599 to $399, and that now is the right time to do it. iPhone is a breakthrough product, and we have the chance to "go for it" this holiday season. iPhone is so far ahead of the competition, and now it will be affordable by even more customers. It benefits both Apple and every iPhone user to get as many new customers as possible in the iPhone "tent." We strongly believe the $399 price will help us do just that this holiday season.

Second, being in technology for 30+ years I can attest to the fact that the technology road is bumpy. There is always change and improvement, and there is always someone who bought a product before a particular cutoff date and misses the new price or the new operating system or the new whatever. This is life in the technology lane. If you always wait for the next price cut or to buy the new improved model, you'll never buy any technology product because there is always something better and less expensive on the horizon. The good news is that if you buy products from companies that support them well, like Apple tries to do, you will receive years of useful and satisfying service from them even as newer models are introduced.

Third, even though we are making the right decision to lower the price of iPhone, and even though the technology road is bumpy, we need to do a better job taking care of our early iPhone customers as we aggressively go after new ones with a lower price. Our early customers trusted us, and we must live up to that trust with our actions in moments like these.

Therefore, we have decided to offer every iPhone customer who purchased an iPhone from either Apple or AT&T, and who is not receiving a rebate or any other consideration, a $100 store credit towards the purchase of any product at an Apple Retail Store or the Apple Online Store. Details are still being worked out and will be posted on Apple's website next week. Stay tuned. We want to do the right thing for our valued iPhone customers.

We apologize for disappointing some of you, and we are doing our best to live up to your high expectations of Apple.

Steve Jobs

Apple CEO

Louise Wuitton (LW) is a New Zealand-based fashion label which specialises in creating luxury garments for both men and women. LW sources fabrics and other items for their garments locally, and the garments are made in a workroom in Auckland by a team of tailors and seamstresses who are paid at least the standard living wage of $22.10 per hour, depending on their experience. LW commenced operations in 2015, and since then, the company has gained a strong reputation in the marketplace for producing high-quality, fashion-forward clothing at a reasonable price. They have also been recognised as one of New Zealand’s top employers, based on their policies around safe working conditions, employee well-being, and above average hourly wages. Their strong reputation has contributed to growing revenue since 2015, and in the last financial year, the company reported its best ever earnings performance. In the last 18 months, a number of overseas competitors have entered the New Zealand marketplace. These competitors are able to produce similar clothing designs to LW at a much lower cost, given the differences in the cost of labour and materials in the overseas factories. Additionally, the impact of COVID-19 has resulted in lower than anticipated revenue for LW for the first half of the 2020 financial year, and the senior management team anticipates that the situation is likely to deteriorate further unless the company can find a way to cut their costs of production in order to remain competitive. If cost savings cannot be found, the company risks becoming insolvent in the next two years. The company’s CEO believes that the best option for LW is to outsource the manufacturing of their garments to a third-party company located in Bangladesh. This would drastically reduce the costs associated with production, as the standard wages paid in the garment industry in Bangladesh are much lower than those paid by LW in New Zealand. Additionally, the thirdparty manufacturer would be able to source cheaper fabrics from which to make the garments. There are differing views among the other members of the senior management team – some agree that this proposal seems like the best course of action for LW. However, other members of the senior management team are concerned that outsourcing production to Bangladesh would harm the company’s brand image and reputation, resulting in further deterioration of the company’s bottom line in the long-term. Among their concerns, they cite the well-known poor working conditions associated with the garment manufacturing industry in Bangladesh, the low wages paid to the workers in the factories there (who tend to be poorer women and girls with no skills or training that would enable them to obtain better employment elsewhere), and the possible negative environmental consequences of producing clothing using cheaper fabrics.

Required: Use the ethical decision-making framework discussed in lectures to evaluate the ethical dilemma in the above scenario, AND issue a recommendation to the senior management team of Louise Wuitton (LW) based on your evaluation.

Problem 14-5 Issuer and investor; effective interest; amortization schedule; adjusting entries [LO14-2]

On February 1, 2018, Cromley Motor Products issued 10% bonds, dated February 1, with a face amount of $60 million. The bonds mature on January 31, 2022 (4 years). The market yield for bonds of similar risk and maturity was 12%. Interest is paid semiannually on July 31 and January 31. Barnwell Industries acquired $60,000 of the bonds as a long-term investment. The fiscal years of both firms end December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
1. Determine the price of the bonds issued on February 1, 2018.
2-a. Prepare amortization schedules that indicate Cromley’s effective interest expense for each interest period during the term to maturity.
2-b. Prepare amortization schedules that indicate Barnwell’s effective interest revenue for each interest period during the term to maturity.
3. Prepare the journal entries to record the issuance of the bonds by Cromley and Barnwell’s investment on February 1, 2018.
4. Prepare the journal entries by both firms to record all subsequent events related to the bonds through January 31, 2020.

Case-1

In 1920, there was considerable debate regarding how much the US government should intervene in the economy. US citizens, for example, were concerned about the future of an American car brand, Chevrolet, which was included in the failing General Motors. While some people wanted the government to ensure that their jobs were safe, others were concerned that the government was intervening too much. It should be noted that from World War I, the US government has considered itself a mediator regarding problems in the market while avoiding controlling aspects of the economy. For example, the US government regulated anti-competitive behaviour while avoiding running several industries. On the other hand, when the 1925 recession took place and the economy began to shrink, the government had to stimulate demand for which it started spending more and intervened significantly so that the banking sector could be saved from collapsing. Moreover, the US government had to provide businesses with aid to sustain them.

Questions: [ Student has to write answer at least 125 words for each sub-question]


i) Analyse the possible benefits of a government intervention in an economy? .






ii) Which economic system ensures complete freedom for individuals in economic activities? What are the benefits of freedom of individuals in an economy?









iii) Compare the economic system of Oman with that of USA in terms of social welfare and competitiveness.

Myth of income inequality in US

Although US is the largest economy in the world, some says it is one of the worst income inequal countries among the industrialized countries and Income inequality in US is not improving.

Q1) Does this claim have any truth in it? If so, discuss it with specific economic data. Do you think Trump tax cut actually contributed to more income inequality? Do you agree or not?(0.5 point)

Q2) Some says “ In US, the upper class is doing better, the middle class is disappearing and more people are living under poverty.”

If so, what is the social, economic and psychological consequence from growing income inequality? (0.5 point)

Q3) Some says US government should do something to reduce the gap between the poor and the rich? Do you agree or not? (0.5 point)

Q4)If so, is it a good idea to raise more tax from the wealthy and provide more welfare safety nets to the poor, or increase of minimum wage , or free higher education with Government subsidy, or universal basic income? (0.5 point)

Q5) Is any better idea of government policy over this matter? since middle class struggles with heavier consumer debt due rising rent cost, medical cost, and education cost, and job insecurity due to automation. (0.5 point)

Mexico tends to have much higher inflation rate than the United States and also much higher interest rate than the United States. Inflation and interest rates are much more volatile in Mexico than in industrialized countries. The value of the Mexican peso is typically more volatile than the currencies of industrialized countries from a US perspective; it has typically depreciated from one year to the next, but the degree of depreciation has varied substantially. The bid/ask spread tends to be wider for the peso than for currencies of industrialized countries.

1. Identify the most obvious economic reason for the persistent depreciation of the peso.

2. High interest rates are commonly expected to strengthen a country’s currency because they can encourage foreign investment in securities in that country, which results in the exchange of other currencies for that currency. Yet, the peso’s value has declined against the dollar over most years though Mexican interest rates are typically much higher than US interest rates. Thus, it appears that the high Mexican interest rates do not attract substantial US investment in Mexico’s securities. Why do you think US investors do not capitalize on the high interest rates in Mexico?

3. Why do think the bid/ask spread is higher for pesos than for currencies of industrialized countries? How does this affect a US firm that does substantial business in Mexico?