Going back to the Savary case (TC Summary 2010-150) where Savary , a US citizen, was a flight attendant that lived and worked in Paris. The Tax Court reviewing Art 24 (Relief from Double Taxation) in the US-France DTC, concluded that France should give a credit for the US taxes on Savary's wages. Since France had already declined to provide a credit for the US tax, Savary was subject to double taxation by both contracting states on USD 23,321 (the Tax Court allowed Savary to exclude under sec 911 as foreign earned income USD 14,415).

Is this a correct reading of the Art 24? Art 24 has a 3-bite rule similar to the 3-bite rule in the US MC. The first bite is Art 24(2)(a)(iii). The second bite is Art 24(2)(a). The third bite is Art 24(1)(b)(i). The Treasury Department Technical Explanation to the US-France DTC provides a clear roadmap to the 3-bite rule so you may want to read it.

In 2010, the Top-slice Golf Company decided to augment their very successful line of golf clubs with a new line of professional caliber golf balls. The executives at Top-Slice were aware of the difficulty of penetrating the golf ball market but feel, with their name recognition and the possibility of receiving endorsements from tour professionals that were playing Top-Slice clubs, chances for success were substantial. The company purchased $175 million of equipment and buildings in 2011 to begin production. The Top-Slice golf ball has not performed up to expectations. The tour professionals did not care for the ball and did not endorse it. Significant improvements in golf balls by Callaway and Nike and the continued dominance of the Titleist ProV1 series made entering the market very difficult.

On July 1, 2017, the Board of Directors voted to sell off the golf ball manufacturing division. The company continued to operate the facility at current levels of production until the sale of the division was completed on June 1, 2018. Top-Slice has a April 30 year end and the controller and CEO are concerned about the proper reporting for the disposal of the golf ball manufacturing division in the year-end April 30, 2018 financials. The company wants to issue the financial statements to the public by the end of June 2018.   You are to draft a report to the controller and CEO identifying the issues and accounting choices associated with reporting the disposal and the authoritative guidance that exists to determine the proper manner of reporting the assets, liabilities, and results of operation for the division.

write a c++ program using micro soft visual studio 2010 to write a program and store 36 in variable x and 8 in variable y. add them and store the result in the variable sum. then display the sum on screen with descriptive text. calculate the square root of integer 36 in x. store the result in a variable. calculate the cube root of integer 8 in y. store result in a variable. display the results of square root and cube root on the screen.

World production of crude oil in 2010 was about 3.5 billion tonnes. Assume that we wish to replace 10% of this supply with a transportation fuel derived from biomass. Assume that the energy content of biomass is about 1% of incident solar energy during the growing season. How many hectares of arable land worldwide would be needed to supply this quantity of biomass fuel? What fraction of arable land area worldwide does this represent?

n October 2010, Tom Chong was on his way to his office and thinking about several issues he would have to deal with in the coming weeks. Chong was Jextra Stores (Jextra) country manager for the Neighbourhood Markets Division in Malaysia. One issue involved a conversation with the mayor of Klang, a town near Malaysia’s capital city of Kuala Lumpur. Chong had been seeking to expand to Klang for some time. The mayor surprised Chong with an offer to help with land zoning if Jextra would help finance a new primary school (or at least Chong thought that was what he had been asked for).

The second issue involved the job performance of Arif Alam, Jextra’s top-performing buyer. Alam, a buyer of fresh fruit and vegetables, consistently negotiated better contracts than Jextra’s fifteen other buyers and, Chong believed, better than Jextra’s competitors. The contracts negotiated by Alam certainly contributed to the excellent financial performance of Jextra Malaysia. Nevertheless, Chong could not help wondering if there was more to the picture than he was aware of. The retail industry in Malaysia was notorious for buyers accepting money and gifts from suppliers. A few days ago, Chong had accidentally overheard two of his accounting employees speculating that Alam must be accepting gifts, or even taking bribes—how else could he get such good contracts?

Chong was not sure what to do. Should he con- front Alam? Or, to use one of his English colleague’s

favorite expressions, should he let sleeping dogs lie? Chong knew that his boss expected him to aggres- sively grow the business, so perhaps it would be best to accept the mayor’s offer and deal with Alam later.

Jextra Malaysia

Jextra Stores, a large Asian retailer, was based in Hong Kong and was owned by Sim Lim Holdings, a large publicly traded industrial group. Sim Lim Hold- ings was traded on the Hong Kong and London stock exchanges. Jextra operated retail stores in Hong Kong, China, Philippines, Viet Nam, Malaysia, Thailand, and Singapore. The company operated supermarkets, hypermarkets, and convenience stores.

Jextra entered Malaysia, a stable and prosperous nation of 28 million multi-ethnic people, in 2005 and was very successful. The company operated super- markets in Malaysia using the name Neighbourhood Markets. There were now ten Neighbourhood Mar- kets, and breakeven had been reached quickly. Jextra was planning to enter the Malaysian convenience store sector in a few years. Although other Asian and European retailers were entering Malaysia, Tom Chong saw plenty of growth opportunities for super- markets, and his boss in Hong Kong had approved an aggressive five-year investment strategy.

Tom Chong

Tom Chong, a Hong Kong native, had been in his posi- tion for eight months, and expected to remain there for another two to three years. Malaysia was Chong’s first assignment as country manager. Prior to moving to Malaysia, Chong held various positions in corporate headquarters in Hong Kong, and then moved to Malay- sia as finance director. After two years in finance, he moved into his current role as country manager for Neighbourhood Markets. His new assignment in Malay- sia was his first experience with real operational issues and proft and loss responsibilities.

Chong reported to a Regional Operating Officer responsible for Singapore, Malaysia, and Thailand, and was in constant contact with the CEO and the CFO of the Supermarket and Hypermarket Divisions of Jextra in Hong Kong. Chong was evaluated based on various financial measures, including Economic Value Added. As a country manager in a young market, the number of new stores opened was an important element in his overall evaluation, and a factor in deter- mining his career prospects. In a fast-growing market like Malaysia, a failure to open new stores would be viewed negatively at corporate headquarters. The number of new stores opened would also be a factor in determining his discretionary bonus. In recent years, Chong’s performance had been among the best for Jextra managers of his age and experience.

A New Store in Klang

Jextra was doing well in Malaysia and actively seeking to expand. Chong and his team had identified a poten- tial site in Klang for a new Neighbourhood Market. Klang, a town located about 30 km west of Malaysia’s capital, Kuala Lumpur, was growing and was viewed as an attractive location for a new store. Although the potential site was not zoned for retail and commercial purposes, it had good road access and plenty of space for parking. Chong knew that several other retailers were also interested in expansion in Klang, especially with the opening of a new highway connect- ing Klang to the southeastern edge of Kuala Lumpur.

At a recent meeting between Chong and the mayor of Klang:

Chong: As you know, we have identified Klang as one of the most attractive cities in Malaysia for Jextra investment. We are interested in opening a Jextra Neighbourhood Market there.

Mayor: We are pleased that you are considering our city for your next investment. Klang is a growing community, and the new highway makes our city much more attractive as a place for families to live and commute to the capital. Where does your investment analysis stand?

Chong: We have done some preliminary work. We have identified some potential sites. There is one site of interest near the new sports arena, and we have had some conversations with your offcials since the land is currently not zoned for commer- cial use. Unfortunately, our previous investments in Malaysia have all encountered diffculty with land development. Our newest store was delayed by more than eight months because of zoning issues. We hope that will not be a problem in Klang.

Mayor: We have a unique community in Klang, and want to protect our cultural heritage. We scrutinize

all proposed real estate developments very carefully. With your store, perhaps we can help each other.

Chong: Can you be more specific?

Mayor: Our community is growing quite rapidly, and we have a lot of young families moving in. We des- perately need a new primary school. Without it, families may choose to live elsewhere. People do not want to live in a city with inadequate school facilities. Unfortunately, our school budget is quite tight, and we may not be able to build the school for at least two years. If Jextra were willing to consider supporting a primary school development fund, I am sure I could speed up the land zoning process.

Chong: Interesting....Can you tell me a bit more about the primary school project? Do you have any preliminary estimates of the cost?

Mayor: My Director of Schools has told me that we need about 350,000 ringgit to make up a budget shortfall for a new primary school. Jextra’s support would greatly help the community. Also, if you were to build your store on the proposed site, road and electricity developments would be necessary. A fly- over at the intersection of Jalan Mantin and Jalan Subang on the east side of the site would be nec- essary to ensure smooth traffic flow. We would, of course, expect Jextra to help pay for the flyover. I understand one of your competitors in Shah Alam [a community close to Klang] helped pay for a new fire truck when they entered the market. This is quite normal for new investment in Malaysia.

Chong: Well, Mr. Mayor, thank you for your time. We will continue with our analysis, and certainly hope that we can do something that is good for Klang and good for Jextra.

With that, Chong left the meeting. The conversa- tion with the mayor had caught him by surprise. The mayor’s zoning proposal was unexpected, but could certainly speed up development. However, Chong was not sure what he asked for. Was he being asked to pay the entire 5 million ringgit or just a part of the cost? Would he pay for it before the pri- mary school was built, or after? Would he pay the city or a contractor? If he said no, would that mean a denial of the zoning change?

Chong made a few calls, and learned that the mayor’s sister was on the school board and was one of the major supporters of a new primary school. Chong also learned that planning for the flyover had started several months before Jextra had ever expressed an interest in the nearby site. In addition, Jextra had already determined that traffic to and from the store parking lot would be routed through the west side of the lot, using a lightly used commercial street and not on either of the roads close to the planned flyover. Chong wondered about the mayor’s motives in asking Jextra to pay for the flyover.

Jextra Business Conduct Code

Jextra’s Business Conduct Code was very clear: employees could not offer benefits to third parties in connection with business matters (see the Appendix for excerpts from the Code). If Jextra were to contrib- ute to a primary school, the benefit would be a contri- bution to a school development fund, and the benefit would go to the school and the community, not indi- viduals. Chong had discussed a hypothetical situation with a Malaysian friend who was also a lawyer (he did not reveal the specifics of the mayor’s request). He was told that Malaysian law was unclear in the area of business payments for social purposes made spe- cifically for regulatory approval. He was also told that although not widespread in Malaysia, the practice of businesses contributing to city projects was common in Klang and other areas around Kuala Lumpur, and the local mayor prided himself on being able to obtain these payments for schools and roads in particular.

Jextra’s corporate office in Hong Kong had a small group of employees that managed the Jextra Social Fund. The Jextra Social Fund provided funding for various social and educational programs, mainly in Hong Kong. One of the fund’s specific initiatives was providing university scholarships in Hong Kong for children of lower-income families. As Jextra expanded in Asia, the fund was slowly looking at ways to contribute to more local programs.

However, Chong knew that recently there had been some concerns in the Philippines involving the Jextra Social Fund and some funds for a community center in a city in which Jextra planned to build a store. Chong did not know the details, but the rumors were that much of the money went to local politicians instead of the community center. Not long after the incident, Jextra’s country manager in the Philippines was transferred back to Hong Kong to a position that looked like a demotion.

Legal in Malaysia?

Chong thought that the primary school contribution could be illegal in Hong Kong if it circumvented the

Jextra Social Fund. But, perhaps this was normal practice in Malaysia. Chong’s friend said that some local lawyers would probably advise him to make the payments, but to keep the school and flyover pay- ments independent, which would blur the line as to whether the behavior was indeed illegal. Complicating the issue was the question of the expected outcome from the primary school payment. If the school pay- ment speeded up the development process, it could be legal; if it was necessary to make the payment solely as a prerequisite to obtaining the permit, it could be considered a bribe. If the payment was made after the store was built and went directly to a school board budget for future operating expenses, would that be illegal? Chong did not know the answer to these questions.

Various scandals involving alleged bribes and cor- porate contributions had contributed to the recent“retirement” of various elected officials in Malaysia. Both state and federal politicians were using “clean government” as part of their political platforms. The State Investment, Trade and Industry Committee Chairman said that his government would separate itself from the historically tight ties between business, government, and political campaign contributions. At the federal level, the government had promised that foreign direct investment in Malaysia would become transparent, and that giveaways to foreign investors would stop (exactly what giveaways he meant were never specifically identified).

Chong knew that, in the last year, there had been several foreign investors who were rumored to have helped fund different government programs in exchange for favorable treatment. So far, there was no evidence that any of these efforts were illegal or even of much interest to voters and legislators. When a European electronics company opened a new plant in Malaysia, there were many rumors that the company paid a substantial amount of money to a government“education fund.” Chong’s teammate from his football club told him confdentially that the company had paid 2.5 million ringgit to the fund, and that the fund was controlled personally by the Industry and Development Minister, a well-known businessman turned politician, whose wife was dean of the Communications School at the Malaysian Institute of Technology.

Jextra’s Competitors and the

Mayor’s Offer

Chong was aware that Super-Value, one of Jextra’s competitors, was also actively looking at Klang for a new store. Would the mayor make the same offer to Super-Value as he had made to Jextra? If so, when would the offer be made, and would Super-Value be willing to accept it? Perhaps Super-Value was inter- ested in the same site as Jextra. Before Chong could even consider agreeing to the mayor’s primary school request, he needed to think through the details. How would he get the money for the school? Would he identify it in the investment proposal, or try to hide it with other items? Should he get legal advice on his possible criminal liability in Hong Kong? What if he went ahead with the payment, and the money ended up not going to the school? If the press found out, Jextra and Chong could be in big trouble.

Perhaps the best approach would be to decline the mayor’s offer and work through regular channels to get the zoning approval. If that was successful, he would worry about the fyover request later. On the other hand, he did not want to lose access to a prime retail site, and his boss, who was aware of the Klang site, wanted an update on the project next week.

Category Management

A very simplified view of Jextra’s category manage- ment and buying process is as follows. Category managers (CMs) were responsible for driving cate- gory direction and leading an operationally efficient category team to deliver the budget within the frame- work of the corporate goals. A key area of responsi- bility for category managers was working with suppliers to determine the products to order, together with their negotiating prices. For a new supplier, establishing a relationship with a category manager was crucial in getting its products listed by Neigh- bourhood Markets. Category managers negotiated contracts, rebates, equipment, placement, incentives, and other financial and logistical arrangement for their category. Neighbourhood Markets in Malaysia had category managers for product lines such as fruits and vegetables, meat, frozen foods, and beverages. Product buyers managed the bundling of orders and actual buying from suppliers at the negotiated prices. Over and above this organizational setup, there were few defined processes, leaving a fair amount of lee- way to the category managers because they decided what to order and what not to order.

Arif Alam

Arif Alam was 32 years old, and had been with Jextra in Malaysia since the company entered the market. He had worked his way up from a sales apprentice position to category manager for fruits and vegeta- bles. His responsibilities included building and man- aging contacts with suppliers, listing suppliers and products, negotiating prices, and working closely with buyers to ensure that the supplier relationship was smoothly managed.

As Alam’s boss, Chong had a reasonable under- standing of how the Malaysian buying process worked, but he did not know all the details, and cer- tainly was not involved in day-to-day activities. What Chong had learned over the past few months was that there were ample opportunities for CMs to exploit the system for personal gain. One typical scheme involved company samples and rewards. Most suppli- ers provided CMs with a large supply of product sam- ples that could be sold on the grey market. CMs and their spouses often traveled extensively to product presentations of certain suppliers. These events usu- ally took place at luxury hotels, and often in resort set- tings. Since Alam was a CM for fruits and vegetables, he might be provided with other products, such as small appliances like toasters or coffeemakers. Another typical scheme was for suppliers to provide rewards tied to performance and sales. These could range from household appliances to expensive jewelry and watches. These rewards could be kept or sold. There were even cases where companies owned by relatives of CMs had to be paid by suppliers in order for the suppliers to get their products sold by Jextra.

Besides his suspicions that Alam was accepting gifts, or even taking bribes, Chong had heard rumors about a scheme between Alam and his father-in-law. Alam referred suppliers willing to be listed for a new product to his father-in-law who, as a side job, ran a trading agency that “established contact to Jextra Stores.” The agency received a commission of 0.5 percent for all goods covered by the agency agree- ment. It was rumored that Alam rarely listed suppliers and products not covered by the agency.

Bribery

The bribery issue was particularly troubling. Bribery of retail buyers was as old as the retail industry itself. The bribery process works as shown in the following exam- ple. A buyer who paid 50 ringgit for a pair of blue jeans the previous year negotiates a 45 ringgit price based on a larger order. Another clothesmaker offers the same pants for 42 ringgit each. In order to retain the big order, the first vendor matches the 42 ringgit price and gives the buyer 2 ringgit for each pair of blue jeans. The bribe is undetectable, because the buyer sets up a phony company that serves as a middleman in the transaction. The vendor bills the retailer for 42 ringgit a pair and funnels the 2 ringgit to the buyer through the dummy corporation, calling it “an agency commission.” After the deal is done, the vendor keeps the order and the retailer pays less for the pants than a year ago. The buyer looks good because the price paid was lower than a year ago. The buyer believes,“I deserve the money because I am helping the com- pany.” For a few years, the retailer may benefit by hav- ing lower costs. Longer term, the retailer’s costs may increase because the buyer has an obligation to the vendor and may end up paying less-competitive prices. The retailer may also end up with merchandise that is inferior in quality and difficult to sell because it was purchased by a corrupt buyer.

Chong’s Decision

Chong had a dilemma. Although he suspected that Alam was involved in “dirty” buying, how could he find out? His colleagues might know, but they could be involved in the same activities. Jextra was doing well and, as far as Chong knew, except for bribery, most of the behaviors were not criminal in Malaysia. What if he set up an investigation? If he found noth- ing, he could alienate his people and lose personal credibility. He might find that large parts of his prod- uct category management were engaged in similar actions. What should he do then? The whole busi- ness might be at risk if he were to shut it down. He could lose his top CMs and disrupt supplier relation- ships. Plus, how would he actually investigate the CMs—hire an outside investigator? Talk with suppli- ers? Find a disgruntled employee? Spy on his employees? This was all new to him.

Proving any of his suspicions would be difficult. Alam was a respected member of the team. Aside from rumors and hearsay, Chong had no real evi- dence of bribery or kickbacks. Alam’s lifestyle did not seem out of the ordinary. Chong would need clear evidence, and an outside investigator would mean added cost. The investigation could take months, or even years, and Chong might be gone from Malaysia by the time the process was com- pleted. In addition, this would take a lot of his time, and he was already working almost 60 hours a week.

Chong needed to keep growing the business and meet his financial targets. It was critical for him to deal with the mayor’s proposal appropriately and ensure that Jextra’s chosen site did not end up with one of his competitors. Maybe he should wait before doing anything about Alam.

Appendix: Excerpts from Jextra’s Business Conduct Code

Summary

Jextra is an international company with a strong rep- utation for providing quality products. We continually seek to deliver the best results for the Company the highest return to our shareholders, and the most beneficial service to our customers.

Ethical conduct is defined as conduct that is mor- ally correct and honourable. To maintain our valuable reputation and to build on our success, we must conduct our business in a manner that is ethical as well as legal. This Business Conduct Code estab- lishes Jextra’s commitment to following ethical busi- ness practices. It details the fundamental principles of ethical business behaviour, and defines the responsibilities of all directors, officers, associates, and Company representatives.

Jextra is committed to conducting business lawfully and ethically. Every associate is obligated to act at all times with honesty and integrity. We expect you to bring good judgment and a sense of integrity to all your business decisions. While it is not possible to list all policies and laws to be observed, or all conflicts of interest or prohibited business practices to be avoided, this Business Conduct Code details the company’s expectations for associate conduct, and helps associ- ates make the right decisions. Associates are expected to know the company’s policies and comply with them.

Applicability

Associates who supervise others have an important responsibility to lead by example and maintain the high- est standards of behaviour. If you supervise others, you should create an environment where employees under- stand their responsibilities and feel comfortable raising issues and concerns without fear of retaliation. If an issue is raised, you must take prompt action to address the concerns and correct problems that arise.

You must also make sure that each associate under your supervision understands our Code and the policies, laws, and regulations that affect our workplace. Most importantly, you must ensure that employees understand that business performance is never more important than ethical business conduct.

As a Jextra employee, you are expected to comply with both the letter and the spirit of our Code. This means you must understand and comply with all of the company policies, laws, and regulations that apply to your job, even if you feel pressured to do otherwise. Our Code also requires you to seek guidance if you have questions or concerns, and to cooperate fully in any investigation of suspected violations of the Code that may arise in the course of your employment.

Bribery

It is illegal to pay or receive a bribe intended to influ- ence business conduct or behaviour. Our guideline goes beyond the standard set by the law, and prohi- bits any activity that creates the appearance of any- thing improper, anything that may embarrass the company or anything that may harm our corporate reputation. No assets of the company or other funds may be used to bribe or influence any decision by an officer, director, employee, or agent of another company, or any governmental employee or official.

It may be acceptable to entertain or provide minor gifts to guests or suppliers, as long as the expenses are reasonable, consistent with good business prac- tices, and do not appear improper. Any gift, enter- tainment, or benefit provided must be modest in scope and value. You should consult with your super- visor if you have any questions about whether any gift-giving activity is appropriate. Never provide a gift, entertainment, or benefit that contravenes any applicable law or contract term or that is large enough to influence, or appear to influence, the reci- pient’s business decisions.

Associates should not accept money, gifts, or excessive entertainment from any guest, contractor, or supplier at any time. For more information on gifts, entertainment, and related issues, see the Conflicts of Interest guidelines.

International laws strictly prohibit giving, promis- ing, or offering money, or anything else of value, directly or indirectly, to officials of foreign govern- ments or foreign political candidates in order to obtain or retain business or any improper business advantage. Never give, promise, offer or authorize, directly or indirectly, any payments to government officials of any country.

Conflicts of Interest

Associates must avoid any situation in which their personal interests conflict with the interests of Jextra. If a circumstance arises in which your interests could potentially conflict with the interests of Jextra, it must be disclosed immediately to both your supervisor and Human Resources for review. Associates should be vigilant about recognizing potential conflicts. You must always consider whether your activities and associations with other individuals could negatively affect your ability to make business decisions in the best interest of the company or result in disclosing

nonpublic company information. If so, you may have a real or perceived conflict of interest. Below is a list of potential conflicts of interest.

l Owning a substantial amount of stock in any com- peting business or in any organization that does business with us.

l Serving as a director, manager, consultant, employee, or independent contractor for any organisation that does business with us, or is a competitor—except with our company’s specific prior knowledge and consent.

l Accepting or receiving gifts of any value or favours, compensation, loans, excessive entertain- ment, or similar activities from any individual or organization that does business or wants to do business with us, or is a competitor.

l Taking personal advantage of a business opportunity that is within the scope of Jextra’s business—such as by purchasing property that Jextra is interested in acquiring.

Related Party Transactions

Employees and immediate family or household mem- bers may not serve as a supplier or customer of the Company, or otherwise engage in business dealings with the Company, without the written consent of a member of the Executive Management Team. You or a member of your immediate family or household may not accept business opportunities, commissions, or advantageous financial arrangements from a cus- tomer, supplier, or business partner of the Company. You may not purchase for personal use the goods or services of the Company’s suppliers on terms other than those available to the general public or estab- lished by Company policy. You may not take advan- tage of any business opportunity that you learn about in the course of your employment.

Questions:

1.What cross-cultural differences may be at play in the Jextra case? What factors are motivating the key players in this case?

2. Regarding the requests for roads and schools, does Chong understand exactly what the Mayor has asked of him? Is he correct to assume that this may be a request for a bribe? What are Chong’s options as to how to proceed? What are your concerns for Chong going ahead with a contribution to the school? What are your concerns for Chong refusing to contribute?

3. Considering the need to be a manager with a global mindset, what should Chong do with his suspicions regarding Alam?

On March 1, 2010, Packard Company purchased land for an office site by paying $600,000 cash. Packard began construction on the office building one year later on March 1, 2011. The following expenditures were incurred for construction on each of the respective dates: Date Amount March 1, 2011 $680,000 April 1, 2011 $352,000 May 1, 2011 $450,000 June 1, 2011 $520,000 The office was completed and ready for occupancy on July 1. To help pay for construction, $400,000 of common stock was issued on March 1, 2011. The only debts outstanding during 2011 was a $150,000, 11%, 6-year note payable dated January 1, 2011 and a $300,000, 13%, 10-year note payable dated July 1, 2009. Neither of these notes were paid off prior to their respective maturity dates. The amount of interest cost to be capitalized by Packard during 2011 is

regular gasoline averaged $2.75 per gallon in the United States in March 2010. Assume the standard deviation for gasoline prices is $0.08 per gallon. A random sample of 30 service stations was selected.

a) What is the probability that the sample mean will be less than $2.77?

b) What is the probability that the sample mean will be more than $2.76?

c) What is the probability that the sample mean will be between $2.72 and $2.78?

d) Suppose the sample mean is $2.79. Does this result support the findings of AAA? Explain your answer.

Megatronics Corporation, a massive retailer of electronic products, is organized in four separate divisions. The four divisional managers are evaluated at year-end, and bonuses are awarded based on ROI. Last year, the company as a whole produced a 15 percent return on its investment.

During the past week, management of the company’s Northeast Division was approached about the possibility of buying a competitor that had decided to redirect its retail activities. (If the competitor is acquired, it will be acquired at its book value.) The data that follow relate to recent performance of the Northeast Division and the competitor:

Management has determined that in order to upgrade the competitor to Megatronics’ standards, an additional $125,000 of invested capital would be needed.

Required:

1. Compute the current ROI of the Northeast Division and the division’s ROI if the competitor is acquired.

2. If divisional management is being evaluated on the basis of ROI, will the Northeast Division likely pursue acquisition of the competitor?

3-a. Compute the ROI of the competitor as it is now and after the intended upgrade.

3-b. If ROI is used as the basis for evaluation, would Megatronics Corporation likely be in favor of the acquisition of the competitor?

4. Calculate the Northeast Division's ROI after acquisition of competitor but before upgrading.

5-a. Assume that Megatronics uses residual income to evaluate performance and desires a 12 percent minimum return on invested capital. Compute the current residual income of the Northeast Division and the division’s residual income if the competitor is acquired.

5-b. If divisional management is being evaluated on the basis of residual income, will the Northeast Division likely pursue acquisition of the competitor?

Compute the current ROI of the Northeast Division and the division’s ROI if the competitor is acquired. (Round your answers to 2 decimal places (i.e., .1234 should be entered as 12.34).)

Compute the ROI of the competitor as it is now and after the intended upgrade.

Calculate the Northeast Division's ROI after acquisition of competitor but before upgrading. (Round your answer to 2 decimal place. (i.e., .1234 should be entered as 12.34).)

Assume that Megatronics uses residual income to evaluate performance and desires a 12 percent minimum return on invested capital. Compute the current residual income of the Northeast Division and the division’s residual income if the competitor is acquired.

Morrissey Technologies Inc.'s 2019 financial statements are shown here.

Suppose that in 2020, sales increase by 15% over 2019 sales. The firm currently has 100,000 shares outstanding. It expects to maintain its 2019 dividend payout ratio and believes that its assets should grow at the same rate as sales. The firm has no excess capacity. However, the firm would like to reduce its operating costs/sales ratio to 89.5% and increase its total liabilities-to-assets ratio to 30%. (It believes its liabilities-to-assets ratio currently is too low relative to the industry average.) The firm will raise 30% of the 2020 forecasted interest-bearing debt as notes payable, and it will issue long-term bonds for the remainder. The firm forecasts that its before-tax cost of debt (which includes both short- and long-term debt) is 12%. Assume that any common stock issuances or repurchases can be made at the firm's current stock price of $45.

1. Construct the forecasted financial statements assuming that these changes are made. What are the firm's forecasted notes payable and long-term debt balances? What is the forecasted addition to retained earnings? Do not round intermediate calculations. Round your answers to the nearest cent.
   

   Morrissey Technologies Inc. Pro Forma Income Statement December 31, 2020
   	2019		2020
   Sales	$3,600,000		$
   Operating costs (includes depreciation)	3,279,720
   EBIT	$320,280		$
   Interest expense	20,280
   EBT	$300,000		$
   Taxes (25%)	75,000
   Net Income	$225,000		$
   Dividends (60%)	$		$
   Addition to retained earnings	$		$

   Morrissey Technologies Inc. Pro Forma Balance Statement December 31, 2020
   	2019		2020
   Assets
   Cash	$180,000		$
   Accounts receivable	360,000
   Inventories	720,000
   Fixed assets	1,440,000
   Total assets	$2,700,000		$
   Liabilities and Equity
   Payables + accruals	$540,000		$
   Short-term bank loans	56,000
   Total current liabilities	$596,000		$
   Long-term bonds	100,000
   Total liabilities	$696,000		$
   Common stock	1,800,000
   Retained earnings	204,000
   Total common equity	$2,004,000		$
   Total liabilities and equity	$2,700,000		$

2. 
   
3. If the profit margin remains at 6.25% and the dividend payout ratio remains at 60%, at what growth rate in sales will the additional financing requirements be exactly zero? In other words, what is the firm's sustainable growth rate? (Hint: Set AFN equal to zero and solve for g.) Do not round intermediate calculations. Round your answer to two decimal places.