Twenty-one years later, the firm has 20 stores throughout 7 east coast states, of which 10 are operated by the company and 10 by franchisees. Each store was built to the same specifications for both interior and exterior design. Locations were chosen in heavily African-American populated areas since their success depended greatly upon serving a target market of customers with the resources to purchase the firm’s art products. Inventory items were standardized into the three categories, and advertising focused on one of the three product themes. Prospective franchisees signed a document that was designed to keep sales of items, locations and other details standard irrespective to their geographical location, and each new location required an initial payment of $10,000. In addition, franchisees were obligated to a royalty of 5% of gross sales, and each franchisee had to spend at least 2% of gross receipts on local advertising. The firm believed that properly trained employees were the key to success; therefore, managers and company trainees were required to attend a two-week program covering all aspects of the company’s operations. This case begins in June, 2010 when Mr. Smith started preparing to complete his analysis for the construction of five new company-owned stores where the sizes have not yet been determined. Mr. Smith and his management team believe that a larger capacity store with capacity to handle $100,000 in product inventory would be more profitable than the present stores where inventory capacity is $70,000. The company faces two choices that Mr. Smith must evaluate with your assistance: continue with the current smaller sized stores, or select larger stores for the firm’s strategic growth or construction plan. The initial cost will be $2,100,000 for each of the smaller sized stores and $3,700,000 for each of the five larger ones. Projected present value of cash flows for the smaller units projected for the firm’s five-year strategic plans are $450,000 for each year while the projected cash flows for the larger units are projected to be $740,000 per year. Because the projects must be financed from different sources, unfortunately, financing costs will be different. Mr. Smith’s data indicates that the current and projected 120-day treasury bill rate is 9.75% and the firm’s expected market return is 12.5% for the plan period. The beta for the African art industry and the planned new stores is 1.15. However, the bond rates for the projects are 10% for the smaller stores and 12.7% for the larger store funds. Thus, the details have been provided for the analysts, namely you, to:

1. Determine the capital asset pricing model rate for the firm.

2. Combine that rate with the specific debt rates for each store model, using a tax rate of 34%.

3. Determine the weighted average cost of capital (WACC) for each project.

4. Find the net present value (NPV) for each alternative purchase.

5. Use the NPV and profitability index analyses (because each project will have a different WACC rate) to advise/convince Mr. Smith of your selection of the most desired, profitable project for the company.

Question: In terms of comparative advantage, explain how does the Iowa Car Crop works.

(IOWA CAR CROP STORY)

There are two technologies for producing automobiles in America. One is to manufacture them in Detroit, and the other is to grow them in Iowa. Everybody knows about the first technology; let me tell you about the second. First you plant seeds, which are the raw material from which automobiles are constructed. You wait a few months until wheat appears. Then you harvest the wheat, load it onto ships, and sail the ships eastward into the Pacific Ocean. After a few months, the ships reappear with Toyotas on them.

International trade is nothing but a form of technology. The fact that there is a place called Japan, with people and factories, is quite irrelevant to Americans’ well-being. To analyze trade policies, we might as well assume that Japan is a giant machine with mysterious inner workings that convert wheat into cars. Any policy designed to favor the first American technology over the second is a policy designed to favor American auto producers in Detroit over American auto producers in Iowa. A tax or a ban on “imported” automobiles is a tax or a ban on Iowa-grown automobiles. If you protect Detroit carmakers from competition, then you must damage Iowa farmers, because Iowa farmers are the competition.

The task of producing a given fleet of cars can be allocated between Detroit and Iowa in a variety of ways. A competitive price system selects that allocation that minimizes the total production cost. It would be unnecessarily expensive to manufacture all cars in Detroit, unnecessarily expensive to grow all cars in Iowa, and unnecessarily expensive to use the two production processes in anything other than the natural ratio that emerges as a result of competition.

That means that protection for Detroit does more than just transfer income from farmers to autoworkers. It also raises the total cost of providing Americans with a given number of automobiles. The efficiency loss comes with no offsetting gain; it impoverishes the nation as a whole.

There is much talk about improving the efficiency of American car manufacturing. When you have two ways to make a car, the road to efficiency is to use both in optimal proportions. The last thing you should want to do is to artificially hobble one of your production technologies. It is sheer superstition to think that an Iowa-grown Camry is any less “American” than a Detroit-built Taurus. Policies rooted in superstition do not frequently bear efficient fruit.

In 1817, David Ricardo—the first economist to think with the precision, though not the language, of pure mathematics—laid the foundation for all future thought about international trade. In the intervening 150 years his theory has been much elaborated but its foundations remain as firmly established as anything in economics.

Trade theory predicts first that if you protect American producers in one industry from foreign competition, then you must damage American producers in other industries. It predicts second that if you protect American producers in one industry from foreign competition, there must be a net loss in economic efficiency.

Conduct a financial analysis of water system operation for the City of Smallville over the next ten years. Use the data below.   If you lack data, make assumptions or ask for it. Analyze O&M, capital costs and cash flows. The water system currently serves 100,000 people and is to be expanded to handle a population influx of 5% per year for the next ten years. Land use is mixed residential and commercial, but no industry. Base your estimates on residential demands and assume that commercial water use adds 15% to the residential use. You expand the system to accommodate growth and simultaneously maintain and renew the existing system during the period. The system is currently 15 years old and has depreciated on a 30-year depreciation cycle at 3.33% per year on a straight-line basis.

Your system expansion will be staged so that half is built now and half in five years. When you also invest in system renewal to overcome depreciation, the investments would be added to the costs of system expansion. System renewal is governed by the rule that current system value must not fall below 50% of replacement value.

You will take a loan for the first part of the construction and issue bonds for the next increment (in five years). You may vary from this if you choose different capital financing vehicles.   Loans are “revolving loans” and come from an infrastructure bank. Annual loan payments begin in one year and continue for ten years. Recommend how to finance the expansion and renewal with funding from plant investment fees, water use fees, sales tax revenues, and property tax revenues. Commercial property has 25% of the assessed valuation of the residential property.

1. Set up a spreadsheet and forecast cash flows for the next fifteen years.

2. Schedule for capital improvements (the capital improvement program)

Reusable Passwords The most common authentication credential is the reusable password, which is a string of characters that a user types to gain access to the resources associated with a certain username (account) on a computer. These are called reusable passwords because the user types the password each time he or she needs access to the resource. Unfortunately, the reusable password is the weakest form of authentication, and it is appropriate only for the least sensitive assets.Ease of Use and Low Cost: The popularity of password authentication is hardly surprising. For users, passwords are familiar and relatively easy to use. For corporate IT departments, passwords add no cost because operating systems and many applications have built-in password authentication.Dictionary Attacks The main problem with passwords is that most users pick very weak passwords. To break into a host by guessing and trying passwords, hackers often use password dictionaries. These are lists of passwords likely to succeed. Running through a password dictionary to see if a password is accepted for a username is called a dictionary attack. Password dictionaries typically have three types of entries: a list of common password, the words in standard dictionaries, and hybrid versions of words such as capitalizing the first letter and adding a digit at the end. If a password is in one of these dictionaries, the attacker may have to try a fewthousand passwords, but this will only take seconds. No password that is in a cracker dictionary is adequately strong, no matter how long it is. Fortunately, good passwords cannot be broken by dictionary attacks. Good passwords have two characteristics. First, they are complex. It is essential to have a mix of upper and lower case letters that does not have a regular pattern such as alternating uppercase letters lowercase letters. It is also good—and some would say necessary—to include non-letter keyboard characters such as the digits (0 through 9) and other special characters (&, #./,?, etc.). If a password is complex, it can only be cracked by a brute-force attack, in which the cracker first tries all combinations of one character passwords, all combinations of two-character passwords, andso forth, until the attacker finds one that works. Complexity is not enough, however. Complex passwords must also be long. For short complex passwords, brute force attacks will still succeed. Beyond about 10 or 12 characters, however, there are too many combinations to try in a reasonable period of time.Overall, while long complex passwords can defeat determined attacks, most users select passwords that can be cracked with dictionary attacks. Reusable passwords are no longer appropriate in an era when password cracking programs can reveal most passwords in seconds or minutes. Passwords are only useful for non-sensitive assets.

1.Discuss and explain the types of passwords are susceptible to dictionary attacks?[5marks]

2.Can a password that can be broken by a dictionary attack be adequately strong if it is very long?Justify your answer. [5marks]

3.Explain the types of passwords can be broken only by brute-force attacks.[5marks]

4.What are the characteristics of passwords that are safe from even brute-force attacks?[5marks]

5.Discuss why is it undesirable to use reusable passwords for anything but the least sensitive assets

Mary Milken is the CFO of the Rbeck Company in Miami, Florida. The company is a closely held custom yacht builder with about 200 technical workers (engineers, marine architects, mechanics, boat workers, and so on), and 12 employees in its main office staff. Her primary job is to prepare the financial statements with the assistance of two full-time accountants. She normally follows generally accepted accounting principles, but she sometimes ignores them when she thinks they do not lead to what she considers best practices for the small number of her company’s shareholders.

In the previous decade, the company was owned by three sisters, each of whom served on the board of directors. One of the three, Vanessa Rbeck, served as the CEO during that period. The other two have always deferred to her with respect to her operational management decisions.

Only a month ago, however, Vanessa’s sisters were killed when their private plane crashed enroute to the Bahamas, which they frequently visited on weekends for relaxation. Upon their death, all of their shares in the Rbeck company transferred to a single trustee in one of the large South Florida banks. Each sister had held her shares in revo- cable living trusts with the same bank named as successor trustee.

As soon as the funerals were over, Mary and Vanessa met with the trustee, Annie Crusher. The meeting did not go well. Annie had grown up working in a family-owned retail boat business, and she thought her knowledge of the industry transferred to the yacht-building business. She began asking Vanessa a rapid succession of unfriendly questions in an adversarial tone of voice. Her questions strongly implied that a yacht- building business did not belong in South Florida but offshore where labor is cheaper. After the meeting, both Mary and Vanessa became afraid that Annie would do some- thing crazy like fire them both or liquidate the business.

For the previous five years, Rbeck’s stock had sold for a steady $12 per share, with $8 per share in dividends. Vanessa received a good salary, but she depended on the dividends to send her children to private schools and to pay the large mortgage on her waterfront home in South Beach. She immediately realized that she was now at Annie’s mercy; she could easily cut off Vanessa’s dividends, lower her salary, or put her out of work.

To make things worse, Mary was almost finished with the most recent annual report, and it appeared that earnings were down for the first time ever. Her preliminary calculations showed earnings per share somewhere near $8.

The problem with earnings had been caused by large bad debts from three clients who had been arrested for drug trafficking. Rbeck had entirely financed luxury yachts for the three clients because of their excellent credit history and prominence in the business community. However, the federal government seized all of the clients’ assets, leaving nothing for Rbeck but the three half-built yachts.

After thinking things over, Vanessa asked Mary to find a way to avoid having to report lower earnings because of her concern as to how Annie might respond to the decline in earnings. Mary considered various options:

•             Increase the estimated percentage of completion on all yachts in work-in-process inventory by 15 percent. This would wipe out most of the loss. Work in process estimates have always been very conservative anyway.

•             Recognize revenue on the three yachts in default. It would be very difficult to sell them at a good price, but she could always argue that they could be sold if she could keep a straight face. The best strategy would be to find new buyers for them, but that could take a couple of years.

•             Switch to mark-to-market accounting for some of the yachts in progress so the company could recognize all of the profit when contracts with other clients are signed.

a. Is any option that Mary is considering acceptable under generally accepted accounting principles? Why or why not?

b. DoanyoftheoptionsbeingconsideredbyMaryconstitutefinancialstatementsfraud?

c. How would you handle the entire situation if you were in Mary’s shoes?

1. Demand: P=120-Q    Total Cost: TC=Q²

Marginal Revenue:  MR=120-2Q           Marginal Cost: MC=2Q

What is the amount of profit for this monopolist?

2. Demand: P=120-Q                                 Total Cost: TC=Q²

Marginal Revenue:  MR=120-2Q           Marginal Cost: MC=2Q

For this monopolist, the profit-maximizing price is ________ and the profit-maximizing quantity is _________.

3. Demand: P=120-Q                                 Total Cost: TC=Q²

Marginal Revenue:  MR=120-2Q           Marginal Cost: MC=2Q

Compared to perfect competition where P=MC, what is the amount of deadweight loss caused by this monopolist _________.

Q1 (Investor, capital gains)

Karl Kruger is a 38 year-old single Australian resident taxpayer. During the 2017/18 tax year, Karl received and retained the following records:

Other Information:

• Karl’s rental property was built in 1999 when total construction costs of $200,000 were incurred. Karl has owned and leased the property since 2009.
• Karl made mortgage repayments on his rental property of $20,000, of which $12,100 was principal.
• Karl also sold the following assets during the year:

required :Prepare a statement calculating Karl’s tax payable/refundable.

(Tax losses, partner in partnership)

The following data relates to Stephanie Garner, a resident taxpayer. Stephanie derives income from a public relations business and is also a partner in a marketing business.

General business deductions are separate from personal superannuation, gifts, partnership losses and losses of previous years.

Please assume that the necessary tests have been satisfied such that any partnership losses from Stephanie's share in the marketing business may be deducted from other income as appropriate.

Required: For 2016/2017 and 2017/2018 , determine Stephanie’s Taxable Income and any losses that may be carried forward