e) The latest US Tax code change placed special emphasis on lowering the corporate tax rate. If that were the only force to consider (such as agency and information for instance along with other tax concers) were relevant, what changes would you expect to see in corporate leverage in the country?

f) You are always worse off going after a privately held firm as opposed to a publicly traded firm since the small number of owners in the former case will be more powerful and able to extract a higher premium in the acquisition. True or False. Please Explain.      

Kyle, a single taxpayer, worked as a free-lance software engineer for the first three months of 2017. During that time, he earned $74,000 of self-employment income. On April 1, 2017, Kyle took a job as a full-time software engineer with one of his former clients, Hoogle Inc. From April through the end of the year, Kyle earned $168,000 in salary.

What amount of FICA taxes (self-employment and employment related) does Kyle owe for the year? (Round your intermediate calculations to the nearest whole dollar amount.)

Linda Larue has arthritis. Her chiropractor advised her that she needed to swim daily to alleviate her pain and other symptoms. Consequently, Linda and her husband, Philo, purchased for $400,000 a new home that had a swimming pool, after selling their old home for $325,000. If the Larues had constructed a pool at their former residence, it would have cost $75,000 to build, and it would have increased the value of their home by $50,000.

Answer the following

Facts:

Issues:

Conclusions:

Authorities( only use the IRS code/ Reg):

Analysis and Summary:

Action to be taken:

On July 1, Midway Distribution Company is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $149,600 of 5% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled:

Required:

a. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

b. If the proposal is accepted, what is the total estimated income from operations of the warehouse for the 16 years?
$

A company expects to make a payment of €1,000,000 to their vendor in Germany in six months.

The following information is available:

Spot rate today = $1.1800 $/€

Six-month Forward Rate = $1.22 $/€

Six-month Call Option premium, E=$1.18 $0.04

Six month Put option premium, E=$1.18 $0.03

Six-month Interest rate in U.S. 4% per annum

Amount € 1,000,000.00

a) Should the company be worried about the dollar depreciation or appreciating?

b) How should the company hedge the payment using options? Buy calls, sell calls, buy puts or sell puts?

c) Show the net payoffs after hedging with the recommended options. Assuming the spot price is

either $1.02/€, $1.18/€ or $1.25/€ at expiration?

d) Show the net payoffs using a forward hedge. Which hedge is better, forward or option?

3. What is a venture capitalist? What is an IPO? What does the term “underpricing “an IPO mean? Why are IPOs typically underpriced? When might this be fraudulent? What is a leveraged buyout (LBO)?

4. Explain how a company can be reporting accounting profits but financial analysts could conclude that management is not adding economic value—in fact is reducing the value of the company. What would that imply about the firm’s IRR and ROE?

5.   If 10-year U.S. Treasury notes yield 5% and German 10-year bunds yield only 1%, you as the CFO of a U. S. company propose to borrow lots of euros at 2.50%, sell the euros for dollars, earn 5% for six months and hedge your currency risk with a forward contract. That, you argue, will substantially increase profits. Should your boss approve this proposal? Why or why not?

Conch Republic Electronics

C

onch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelly Couts, who inherited the company. The company originally repaired radios and other household appliances when it was founded more than 70 years ago. Over the years, the company has expanded, and it is now a reputable manufacturer of various specialty electronic items. Jay McCanless, a recent MBA graduate, has been hired by the company in its finance department.

One of the major revenue-producing items manufactured by Conch Republic is a smartphone. Conch Republic currently has one smartphone model on the market and sales have been excellent. The smartphone is a unique item in that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as with any electronic item, technology changes rapidly, and the current smartphone has limited features in comparison with newer models. Conch Republic spent $750,000 to develop a prototype for a new smartphone that has all the features of the existing one but adds new features such as wifi tethering. The company has spent a further $200,000 for a marketing study to determine the expected sales figures for the new smartphone.

Conch Republic can manufacture the new smartphone for $205 each in variable costs. Fixed costs for the operation are estimated to run $5.1 million per year. The estimated sales volume is 64,000, 106,000, 87,000, 78,000, and 54,000 per year for the next five years, respectively. The unit price of the new smartphone will be $485. The necessary equipment can be purchased for $34.5 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $5.5 million.

Net working capital for the smartphones will be 20 percent of sales and will occur with the timing of the cash flows for the year (i.e., there is no initial outlay for NWC). Changes in NWC will thus first occur in Year 1 with the first year's sales. Conch Republic has a 35 percent corporate tax rate and a required return of 12 percent.

Shelly has asked Jay to prepare a report that answers the following questions:

QUESTIONS

1. What is the payback period of the project?

2. What is the profitability index of the project?

3. What is the IRR of the project?

4. What is the NPV of the project?

Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelly Couts, who inherited the company. The company originally repaired radios and other household appliances when it was founded more than 70 years ago. Over the years, the company expanded, and it is now a reputable manufacturer of various specialty electronic items. Jay McCanless, a recent MBA graduate, has been hired by the company in its finance department. One of the major revenue-producing items manufactured by Conch Republic is a smartphone. Conch republic currently has one smartphone model on the market and sales have been excellent. The smartphone is a unique item in that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as with any electronic item, technology changes rapidly, and the current smartphone has limited features in comparison with new models. Conch Republic spent $1.2 million to develop a prototype for a new smartphone that has all the features of the existing one but adds new features such as Wifi tethering. The company has spent a further $250,000 for a marketing study to determine the expected sales figures for the new smartphone. Conch Republic can manufacture the new smartphone for $210 each in variable costs. Fixed costs for the operation are estimated to run $5.3 million per year. The estimated sales volumes are 64,000, 106,000, 87,000, 78,000, and 54,000 per year for each of the next five years, respectively. The unit price of the new smartphone will be $515. The necessary equipment can be purchased for $38.5 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $5.8 million. Net working capital for the smartphones will be 20 percent of sales and will occur with the timing of the cash flows for the year (i.e., there is no initial outlay for NWC). Changes in NWC thus will occur first in year 1 with the first year’s sales. Conch Republic has a 22 percent corporate tax rate and a required return of 12 percent. Shelly has asked Jay to prepare a report that answers the following questions:

10) How sensitive is the NPV to changes in the price of the new smartphone?

11) How sensitive is the NPV to changes in the quantity sold?

12) Should Conch Republic produce the new smartphone?

CHAPTER CASE

Conch Republic Electronics

Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelly Couts, who inherited the company. The company originally repaired radios and other household appliances when it was founded more than 70 years ago. Over the years, the company has expanded, and it is now a reputable manufacturer of various specialty electronic items. Jay McCanless, a recent MBA graduate, has been hired by the company in its finance department.

One of the major revenue-producing items manufactured by Conch Republic is a smartphone. Conch Republic currently has one smartphone model on the market and sales have been excellent. The smartphone is a unique item in that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as with any electronic item, technology changes rapidly, and the current smartphone has limited features in comparison with newer models. Conch Republic spent $750,000 to develop a prototype for a new smartphone that has all the features of the existing one but adds new features such as wifi tethering. The company has spent a further $200,000 for a marketing study to determine the expected sales figures for the new smartphone.

Conch Republic can manufacture the new smartphone for $205 each in variable costs. Fixed costs for the operation are estimated to run $5.1 million per year. The estimated sales volume is 64,000, 106,000, 87,000, 78,000, and 54,000 per year for the next five years, respectively. The unit price of the new smartphone will be $485. The necessary equipment can be purchased for $34.5 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $5.5 million.

Net working capital for the smartphones will be 20 percent of sales and will occur with the timing of the cash flows for the year (i.e., there is no initial outlay for NWC). Changes in NWC will thus first occur in Year 1 with the first year's sales. Conch Republic has a 35 percent corporate tax rate and a required return of 12 percent.

Shelly has asked Jay to prepare a report that answers the following questions:

QUESTIONS

1. What is the payback period of the project?

2. What is the profitability index of the project?

3. What is the IRR of the project?

4. What is the NPV of the project?

*****PLEASE SHOW YOUR WORK

Discuss the different needs of two C-level (CIO, CEO, COO, CFO, CMO, or CSO) leadership roles regarding information systems and why each C-level leader would need different information systems and what systems they may be able to all utilize.