17. XYZ LIMITED

Other relevant information:

Risk-free rate of return                   2%

Average return on the market        8%

Taxation rate                                 30%

XYZ Ltd.’s shares are currently being traded at £3.75 and it has an equity beta of 1.3.

XYZ Ltd.'s bank loan costs 8% per annum pre-tax, it is secured by a fixed charge on XYZ Ltd's Head Office. It is due to be repaid in five years' time.

The 7% bonds of the company are trading on an ex interest basis at £92.60 per £100 bond. It is secured by a general floating charge on XYZ Ltd's assets.

1. Using the market values as weights, calculate the weighted average cost of capital of XYZ Limited.

2. Discuss the differences in the cost of the different long-term finance used by XYZ Limited.

3.Discuss why using market value weighted average cost of capital is preferred to book value cost of capital when making investment decisions

Go to finance.yahoo

1.  and Type in Search Finance box: General Motors… and see that while you do the typing Yahoo provides you with a list of suggested companies with similar names… Please note that the same company may be listed in different stock exchanges and countries with the same or similar names. Please select from the list General Motors Company listed in NYSE with the ticker symbol of GM.

3.    Once you have the information on GM, please make a note of GM’s beta coefficient.

4.    Do the same for Boeing, Amazon, Exxon-Mobil Corporation, Expedia, and GE.

5.    For all 6 companies, you looked at above, make a table showing the name, ticker symbol, beta coefficient, where is it traded, stock price, and the EPS. Date your table as the information you obtained is time-specific.

6.    Explain each company's risk position using their beta coefficients with one line. Which one is the riskiest and which one is the least risky?

7.    How is it possible that we can talk about the risk without standard deviation information for the companies?

8.    Make a portfolio assuming you have $80,000 and decided to invest $20,000 on General Motors, $30,000 on Amazon, $10,000 on Boeing, $7,500 on Exxon Mobil, $2,500 on Expedia, and the rest on GE. Compute the portfolio beta.

9.    Assume that, one month later, you sold your GM stocks with a 10% gain. Assume also that you allocated the proceeds from the sale on GE and Expedia equally. What is the new portfolio beta?

On January 1,20X6 ,the company sold for 1,800 a piece of equipment costing 3,900. At the date of sale of the equipment had accumulated depreciaition of 2,400. The company recorded the cash received as other revenue in 20X6. Also, the company continued to record depreciation for this equipment in both 20X6 and 20X7 at the rate of 10% of cost.

Recording correcting entries on Dec31,20X7

Case 1: When the company has not yet closed the 20X7 books.

Case 2: When the company has closed the 20X7 books.

Consider the example below, how would you account for the revenue from a contract for HMM11 products? How would you account for the revenue from a contract for HMM12 products?

Early in the redesign of HMM12, Bills recognized that the decision for HBP to host the software would affect how revenues were recognized from sales of the new product. For HMM11, the client hosted the software on its servers and was responsible for all maintenance and operating costs. Although HBP offered to fix any software bugs, there was no contractual obligation to provide updates/point releases. As a result, the full value of any multi-year licensing contracts was recognized as revenue when the software was delivered.

If the client chose to have HMM11 software hosted on HBP’s server, the contract specified that the client would pay HBP an upfront licensing fee and a separate hosting fee (equivalent to about 10% of the licensing fee) at the time the contract was signed. In the majority of contracts, the client paid a nonrefundable licensing fee. Some clients negotiated a Termination for Convenience (TFC) clause. Since the underlying product was not updated and clients had the option of hosting the software on their systems or on HBP systems (incurring a separate hosting fee), HBP recorded the full value of the licensing fees as revenue at the beginning of the contract period. In contrast, hosting fees were recorded as deferred revenues and recognized as revenue ratably over the life of the contract (terms were 1, 2, or 3 years).

The new business model for HMM12 eliminated the option for clients to host HMM software and introduced an ongoing obligation for HBP. Clients would continue to pay an upfront licensing fee, but since only HBP could host the software there was no separate hosting fee. The license fee gave the client access to the software, the hosting, and any future improvement releases over the contract period. Accordingly, the contract was analogous to a subscription, rather than an outright sale.

For accounting purposes, HBP was required to record the upfront license fee as deferred revenue on its balance sheet. At the end of each accounting period, it would recognize a portion of the deferred revenue as earned revenue in the income statement. For example, if a client paid $360,000 for a 3-year (i.e., 36-month) license period, at the time of the contract HBP would record the $360,000 as deferred revenue (a liability) and cash (an asset) on the balance sheet. At the end of the first quarter (i.e., 3- months), HBP would recognize $30,000 (i.e., $360,000 divided by 36 months times 3 months) as earned revenue with a corresponding $30,000 subtracted from the deferred revenue liability.

Problem 3-8 (Algo) Balance sheet; errors; missing amounts [LO3-2, 3-3]

The following incomplete balance sheet for the Sanderson Manufacturing Company was prepared by the company’s controller. As accounting manager for Sanderson, you are attempting to reconstruct and revise the balance sheet.

Additional information ($ in 000s):

1. Certain records that included the account balances for the patent and shareholders’ equity items were lost. However, the controller told you that a complete, preliminary balance sheet prepared before the records were lost showed a debt to equity ratio of 1.2. That is, total liabilities are 120% of total shareholders’ equity. Retained earnings at the beginning of the year was $4,600. Net income for 2021 was $1,600 and $800 in cash dividends were declared and paid to shareholders.
2. Management intends to sell the investments in the next six months.
3. Interest on both the notes and the bonds is payable annually.
4. The notes payable are due in annual installments of $1,150 each.
5. Deferred revenue will be recognized as revenue equally over the next two fiscal years.
6. The common stock represents 300,000 shares of no par stock authorized, 280,000 shares issued and outstanding.
   

Required:
Prepare a complete, corrected, classified balance sheet. (Amounts to be deducted should be indicated by a minus sign.)

Bloomington Publishers is considering publishing five different textbooks. The maximum number of copies of each textbook that can be sold, the variable cost of producing each textbook, the sales price of each textbook, and the fixed cost of a production run for each textbook are given in the file Prob3. For example, producing and selling 2000 copies of book 1 yields a revenue of $80(2000) = $160,000 but costs $80,000 + $44(2000) = $168,000. This company can produce at most 20,000 copies in total. Furthermore, it can publish no more than three different types of textbooks. Also, it knows that it cannot publish book 1 if it chooses to publish book 2. Finally, if this company publishes book 4 it must also publish book 5. Bloomington Publishers wants to find a production plan that maximizes total profit. Formulate and solve an integer programming model in Prob3 to help this publisher identify the best production plan.

Problem 3-8 (Algo) Balance sheet; errors; missing amounts [LO3-2, 3-3]

The following incomplete balance sheet for the Sanderson Manufacturing Company was prepared by the company’s controller. As accounting manager for Sanderson, you are attempting to reconstruct and revise the balance sheet.

Additional information ($ in 000s):

1. Certain records that included the account balances for the patent and shareholders’ equity items were lost. However, the controller told you that a complete, preliminary balance sheet prepared before the records were lost showed a debt to equity ratio of 1.1. That is, total liabilities are 110% of total shareholders’ equity. Retained earnings at the beginning of the year was $7,400. Net income for 2021 was $2,400 and $800 in cash dividends were declared and paid to shareholders.
2. Management intends to sell the investments in the next six months.
3. Interest on both the notes and the bonds is payable annually.
4. The notes payable are due in annual installments of $1,850 each.
5. Deferred revenue will be recognized as revenue equally over the next two fiscal years.
6. The common stock represents 600,000 shares of no par stock authorized, 420,000 shares issued and outstanding.
   

Required:
Prepare a complete, corrected, classified balance sheet. (Amounts to be deducted should be indicated by a minus sign.)

rev: 01_30_2020_QC_CS-195439, 02_13_2020_QC_CS-200385

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Problem 3-8 (Algo) Balance sheet; errors; missing amounts [LO3-2, 3-3]

The following incomplete balance sheet for the Sanderson Manufacturing Company was prepared by the company’s controller. As accounting manager for Sanderson, you are attempting to reconstruct and revise the balance sheet.

Additional information ($ in 000s):

1. Certain records that included the account balances for the patent and shareholders’ equity items were lost. However, the controller told you that a complete, preliminary balance sheet prepared before the records were lost showed a debt to equity ratio of 1.1. That is, total liabilities are 110% of total shareholders’ equity. Retained earnings at the beginning of the year was $7,400. Net income for 2021 was $2,400 and $800 in cash dividends were declared and paid to shareholders.
2. Management intends to sell the investments in the next six months.
3. Interest on both the notes and the bonds is payable annually.
4. The notes payable are due in annual installments of $1,850 each.
5. Deferred revenue will be recognized as revenue equally over the next two fiscal years.
6. The common stock represents 600,000 shares of no par stock authorized, 420,000 shares issued and outstanding.
   

Required:
Prepare a complete, corrected, classified balance sheet. (Amounts to be deducted should be indicated by a minus sign.)

rev: 01_30_2020_QC_CS-195439, 02_13_2020_QC_CS-200385

Problem 3-8 Balance sheet; errors; missing amounts [LO3-2, 3-3]

The following incomplete balance sheet for the Sanderson Manufacturing Company was prepared by the company’s controller. As accounting manager for Sanderson, you are attempting to reconstruct and revise the balance sheet.

Additional information ($ in 000s):

Certain records that included the account balances for the patent and shareholders’ equity items were lost. However, the controller told you that a complete, preliminary balance sheet prepared before the records were lost showed a debt to equity ratio of 1.2. That is, total liabilities are 120% of total shareholders’ equity. Retained earnings at the beginning of the year was $8,000. Net income for 2018 was $2,550 and $600 in cash dividends were declared and paid to shareholders.

Management intends to sell the investments in the next six months.

Interest on both the note and the bonds is payable annually.

The note payable is due in annual installments of $2,000 each.

Deferred revenue will be recognized as revenue equally over the next two fiscal years.

The common stock represents 700,000 shares of no par stock authorized, 450,000 shares issued and outstanding.

Required:
Prepare a complete, corrected, classified balance sheet. (Amounts to be deducted should be indicated by a minus sign.)
  

A goal of financial literacy for children is to learn how to manage money wisely. One question is: How much money do children have to manage? A recent study by Schnur Educational Research Associates randomly sampled 15 children between 8 and 10 years old and 18 children between 11 and 14 years old and recorded their monthly allowance. Is it reasonable to conclude that the mean allowance received by children between 11 and 14 years is more than the allowance received by children between 8 and 10 years? Use the 0.01 significance level. What is the p-value?

Click here for the Excel Data File

1. State the decision rule: H₀: μ_{8-10 Year olds} ≥ μ_{11-14 Year olds}H₁: μ_{8-10 Year olds <}μ_{11-14 Year olds}. (Negative value should be indicated by a minus sign. Round your answer to 3 decimal places.)

2. Compute the value of the test statistic. (Negative value should be indicated by a minus sign. Round your answer to 3 decimal places.)