Questions 17–20 are based on the following information:

As part of a hostile takeover attempt, Carl Icahn, Inc. purchased 15% of TWA’s outstanding

common stock amounting to 200,000 shares. In response to Icahn’s actions, TWA restructured

and became profitable once again. Consequently, Icahn decided not to purchase any

additional shares and to continue to keep its ownership in TWA at 15% for the long term.

Icahn purchased the shares on the open market at an average price of $55/share. In addition

to this, brokerage fees amounting to $400,000 were incurred in the purchase. For the

first year after the purchase, TWA reported net income of $30,000 in the wake of fierce

price competition. Dividends were paid according to TWA’s policy—70% of the net income

reported for the year will be paid to the stockholders as dividends.

17. Assuming Icahn’s purchase entitles its president to sit on the board of directors (and

exert significant influence), an invitation that will certainly be accepted, what will be

the balance of the account Investment in Long-Term Stock TWA at the end of the first

year?

A. $11,000,000 C. $11,401,350

B. $11,400,000 D. $11,404,500

18. If instead of paying out 70% of net income as dividends TWA’s top management

decided to retain all net income (and therefore pay no dividends), what would be the

balance in the Investment account at the end of the first year?

A. $11,000,000 C. $11,401,350

B. $11,400,000 D. $11,404,500

19. If Icahn accounted for the 15% investment in TWA under the cost method, what would

be the general ledger entry to record the stock purchase?

A. Long-Term Investment — TWA $11,400,000

Cash $11,400,000

B. Long-Term Investment — TWA $11,000,000

Cash $11,000,000

C. Long-Term Investment — TWA $ 1,650,000

Cash $ 1,650,000

D. Long-Term Investment — TWA $11,000,000

Brokerage Fee Expense $ 400,000

Cash $11,400,000

20. At the end of the first year, what would be the balance of the Long-Term Investment —

TWA account if the cost method were applied?

A. $11,401,350 C. $11,000,000

B. $11,400,000 D. $0

Haas Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:

During its first year of operations, Haas produced 60,000 units and sold 60,000 units. During its second year of operations, it produced 75,000 units and sold 50,000 units. In its third year, Haas produced 40,000 units and sold 65,000 units. The selling price of the company’s product is $57 per unit.

Required:

1. Compute the company’s break-even point in unit sales.

2. Assume the company uses variable costing:

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3.

3. Assume the company uses absorption costing:

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3.

.

Zola Company manufactures and sells one product. The following information pertains to the company’s first year of operations:

The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Zola produced 18,500 units and sold 14,800 units. The selling price of the company’s product is $51.30 per unit.

Required:

1. Assume the company uses super-variable costing:

a. Compute the unit product cost for the year.

b. Prepare an income statement for the year.

Question text

Michelle and Tracy are sales representatives for ABC Flooring. Michelle is on maternity leave and Tracy has been assigned to take her business calls while she is out. On the first day, one of Michelle's customers calls the office and asks a secretary for a price on some high end tile. The secretary, Flo wrote down the wrong customer phone number and she only took the customer's first name, John.
What is the problem?

Select one:

a. Michelle is going to miss out on a big sale.

b. The company is going to miss out on a big sale.

c. Michelle may lose a customer.

d. Tracy needs to call the customer back.

e. A and B

Question text

Michelle and Tracy are sales representatives for ABC Flooring. Michelle is on maternity leave and Tracy has been assigned to take her business calls while she is out. On the first day, one of Michelle's customers calls the office and asks a secretary for a price on some high end tile. The secretary, Flo wrote down the wrong customer phone number and she only took the customer's first name, John.
Who does the problem involve?

Select one:

a. Michelle, John, and Tracy

b. Michelle and Tracy

c. Tracy, Flo and John

d. Tracy, John, Michelle, and Flo

Question text

Nicky is the assistant to the HR manager. His best friend Jack is applying for a job with the company and Nicky agreed to be a reference for him. Jack asks for advice on preparing for the interview. Nicky has access to the interview questions that will be asked of all applicants. It would be great for his best friend to work at the same company. Nicky stops to think, what would be the consequences of his decision to share the questions? Choose all that apply.

Select one or more:

a. Nicky could lose his job.

b. If hired, Jack could lose his jobs.

c. Jack could get hired on and not be a good fit for the job.

d. Jack could get hired on and not be as capable of performing tasks as he implied in his interview.

Suppose the housing market is characterized by supply constraints, such that the supply is fixed in the short-run: X _S=100. The market demand function for housing is D(X)=1000-4X, where X is the number of houses in the market.

1. Which side, demand or supply, is less price elastic in the housing market? {Enter D for demand, or enter S for supply, or enter E if you think that they are equally price elastic}

2) What is equilibrium number of houses in this market? X ₀=

3) What is the equilibrium price in the housing market? p ₀=

The government is thinking of introducing a home-buyers' grant of $150. The grant would be given to buyers once they purchase a property. As an economist working at the Treasury you are asked to determine the effects of this grant.

4) What would be the new equilibrium quantity according to the model? X ₁=

5) What is the new equilibrium price in the housing market? p ₁=

6) What fraction of the grant is shifted from the buyers to the sellers? {Enter a number between 0 and 1}

7) What fraction of the grant would be shifted from the buyers to the sellers if the $150 grant was replaced by a grant equal to 25\% of the value of the house sold? {Enter a number between 0 and 1}

8) If we write the housing supply as S(X)=γ X, for what value of γ would we reach the conclusion that the economic incidence of the $150 grant is equally split between the buyer and seller? γ=

1.       A study showed that in a certain month, the mean time spent per visit to Facebook was 19.5 minutes. Assumes the standard deviation of the population is 8 minutes. Suppose that a simple random sample of 100 visits in that month has a sample mean of 21.52 minutes. A social scientist is interested in knowing whether the mean time of Facebook visits has increased. Perform the hypothesis test and compute the P-value.

Based on the P value, what is the conclusion we test at 0.05 level significance?

2.       A random sample of 64 second graders in a certain school district are given a standardized mathematics skills test. The sample mean score is 51.58. Assume the standard deviation for the population of test scores is 15. The nationwide average score on this test us 50. The school superintendent wants to know whether the second graders in her school district have greater math skills than the nationwide average. Perform the hypothesis test and compute the P value.

Based on your P value, what is the conclusion if we test at 0.05 level of significance?

3.       Suppose that the mean price of a home in Denver, Colorado in 2008 was 225.3 thousand dollars. A random sample of 49 homes sold in 2010 had a mean price of 200.1 thousand dollars. A real estate firm wants to test to see if the mean price of 2010 differs from the mean price in 2008. Assume that the population standard deviation is 140. Perform the hypothesis test and compute the P value.

Based on your P value, what is the conclusion if we test at the 0.05 level of significance?

Consider the following information about a firm’s long-run total costs (assuming that other firms could produce at the same cost values):

(a) (12 points) For each value of qA (except when qA = 0), provide the numerical value of the firm’s average total cost AC. Then, compare these AC values with the firm’s AVC (average variable cost) values at each value of qA. For any given level of qA, how are AC and AVC related? Why? (b) (12 points) Suppose that the market price is P = 20. What is the firm’s profit-maximizing level of output qA*? [P is the per-unit price at which A can sell its output.] (c) (10 points) Will the firm operate or shut down if P = 20? Why? (d) (8 points) Suppose that when P = 20 there are initially 1000 firms producing output. Compared to 1000, how many firms (i.e., 1000, more than 1000, less than 1000) will there be at long-run equilibrium? In answering this, provide the definition of long-run equilibrium. (e) (10 points) What is the specific value, here, of the long-run equilibrium price? (f) (8 points) Briefly explain (as precisely as possible) what the long-run market supply curve looks like, and why. What happens to the market price in the long-run if market demand rises?

Suppose there is a market and its competitive equilibrium.

Demand P= 100-QD

Supply P = 20 + QS/3. The government introduces the a subsidy of s = $4 per unit of good sold and bought.

(a) Draw the graph for the demand and supply before subsidy, carefully determining all intercepts and relevant intersection points.

(b) What is the equilibrium price and quantity before the subsidy and after the subsidy? (in the subsidy case, what price the buyers pay and what price the sellers receive?)

(c) Looking at the prices buyers pay and sellers receive after the subsidy compared to the no subsidy case, do buyers or sellers receive more of the subsidy? How much of the $4/unit subsidy is received by the buyers and how much by the sellers? (d) Calculate the price elasticities of demand and supply at the equilibrium before the subsidy. Confirm that the elasticities are inversely proportional to the shares of the subsidy each side (buyers and sellers) receive?

(e) What is the consumer surplus CS and producer surplus PS before and after the subsidy? What is the cost to the government of this subsidy program? What is the DWL (deadweight loss) that comes with the subsidy policy?

(f) Suppose the government is trying to determine the amount of subsidy (they think they can do better than s=$4), to maximize the equilibrium quantity transacted (bought and sold) in the market, yet it has a budget of $1500 to spend on the subsidy provision. What is the maximum quantity the government subsidy can induce, and what is the amount of subsidy per unit to achieve this?

MONETARY POLICY

This question explores the role of expansionary and contractionary monetary policy in the aggregate demand and aggregate supply model. You will use schedules for an aggregate demand line and an aggregate supply line to identify the equilibrium price level and real GDP in a macroeconomy. Additionally, you will compare the short-run equilibrium level of real GDP to the full employment level of real GDP to identify desirable monetary policies.

Below, you are provided the schedules for aggregate demand and supply lines.

Task 1: Identify the macroeconomic equilibrium price level in this economy.

Task 2: Identify the macroeconomic equilibrium level of real GDP in this economy.

Task 3: If the full employment level of real GDP is $9 billion, can you discern whether this economy is experiencing an inflationary gap or a recessionary gap?

Task 4: Suppose that the Federal Reserve wants to promote full employment. Should it enact contractionary or expansionary monetary policy?

Task 5: Suppose that the Federal Reserve wants to promote full employment through the money supply. Should it increase or decrease the amount of bank reserves? Explain your answer carefully.

Task 6: Suppose that the Federal Reserve wants to promote full employment through the reserve requirement. Should it increase or decrease the reserve requirement? Explain your answer carefully.

GEM Limited has a single product Flicks. The company normally produces and sells 80,000 units of Flicks each year at a price of $240 per unit. The company’s unit costs at this level of activity are as follow:

Direct material $57.00

Direct labour 60.00

Variable manufacturing overhead 16.80

Fixed manufacturing overhead 30.00

Variable selling and administrative costs 10.20

Fixed selling and administrative costs 27.00

Total unit cost $201.00

GEM has sufficient capacity to produce 100 000 units of Flicks a year without any increase in fixed manufacturing overhead.

Required:

(a) GEM has an opportunity to sell 10 000 units to an overseas customer. Import duties and other special costs associated with this order would total $42 000. The only selling costs that would be associated with the order would be a shipping cost of $9.00 per unit. What would be the minimum acceptable unit price for GEM to consider this order? (hint: GEM would not accept the order if it would reduce the company’s profit)

(b) The company has 200 units of Flicks on hand that were produced two months ago. Due to blemishes on the units, it will be impossible to sell these units at the normal price. If the company wishes to sell them through regular sales channels, what would be the relevant cost for setting the minimum price? Explain.

(c) “All future costs are relevant in decision making.” Do you agree? Explain.

SHOW YOUR WORKING

Consider the following data on price ($) and the overall score for six stereo headphones tested by a certain magazine. The overall score is based on sound quality and effectiveness of ambient noise reduction. Scores range from 0 (lowest) to 100 (highest).

(a) The estimated regression equation for this data is  ŷ = 24.799 + 0.302x, where x = price ($) and y = overall score. Does the t test indicate a significant relationship between price and the overall score? Use α = 0.05.

State the null and alternative hypotheses.

H₀: β₁ = 0
H_a: β₁ ≠ 0

H₀: β₀ ≠ 0
H_a: β₀ = 0

H₀: β₁ ≠ 0
H_a: β₁ = 0

H₀: β₁ ≥ 0
H_a: β₁ < 0

H₀: β₀ = 0
H_a: β₀ ≠ 0

Find the value of the test statistic. (Round your answer to three decimal places.)

Find the p-value. (Round your answer to four decimal places.)

p-value =

Find the value of the test statistic. (Round your answer to two decimal places.)

Find the p-value. (Round your answer to three decimal places.)

p-value =  

(c) Show the ANOVA table for these data. (Round your p-value to three decimal places and all other values to two decimal places.)