Joe operates a business that locates and purchases specialized assets for clients, among other activities. Joe uses the accrual method of accounting but he doesn’t keep any significant inventories of the specialized assets that he sells. Joe reported the following financial information for his business activities during year 0.

Determine the effect of each of the following transactions on the taxable business income. (Select "No Effect" from the dropdown if no change in the taxable business income.)

Required:

Joe has signed a contract to sell gadgets to the city. The contract provides that sales of gadgets are dependent upon a test sample of gadgets operating successfully. In December, Joe delivers $13,350 worth of gadgets to the city that will be tested in March. Joe purchased the gadgets especially for this contract and paid $9,450.

Joe paid $275 for entertaining a visiting out-of-town client. The client didn’t discuss business with Joe during this visit, but Joe wants to maintain good relations to encourage additional business next year.

On November 1, Joe paid $590 for premiums providing for $59,000 of “key man” insurance on the life of Joe’s accountant over the next 12 months.

At the end of year 0, Joe’s business reports $11,850 of accounts receivable. Based upon past experience, Joe believes that at least $2,570 of his new receivables will be uncollectible.

In December of year 0, Joe rented equipment to complete a large job. Joe paid $5,850 in December because the rental agency required a minimum rental of three months ($1,950 per month). Joe completed the job before year-end, but he returned the equipment at the end of the lease.

Joe hired a new sales representative as an employee and sent her to Dallas for a week to contact prospective out-of-state clients. Joe ended up reimbursing his employee $490 for airfare, $540 for lodging, $440 for meals, and $340 for entertainment (Joe provided adequate documentation to substantiate the business purpose for the meals and entertainment). Joe requires the employee to account for all expenditures in order to be reimbursed.

Joe uses his BMW (a personal auto) to travel to and from his residence to his factory. However, he switches to a business vehicle if he needs to travel after he reaches the factory. Last month, the business vehicle broke down and he was forced to use the BMW both to travel to and from the factory and to visit work sites. He drove 215 miles visiting work sites and 84 miles driving to and from the factory from his home. Joe uses the standard mileage rate to determine his auto-related business expenses. (Round your answer to whole number. Use standard mileage rate.)

Joe paid a visit to his parents in Dallas over the Christmas holidays. While he was in the city, Joe spent $145 to attend a half-day business symposium. Joe paid $390 for airfare, $126 for meals during the symposium, and $77 on cab fare to the symposium.

Using the Vehicle Ratings Excel file, create formulas using nested IF, AND, and OR functions to implement the three rating schemes described on the spreadsheet.

(1) C&A's potato chip filling process has a lower specification limit of 9.5 oz and an upper specification limit of 10.5 oz. The standard deviation is 0.3 oz. and the mean is 10 oz. What is the process capability index (Cp) for the chip filling process?

(a) 0.56
(b) 1.11
(c) 0.33
(d) 3.33

(2) Which of the following represents customer requirement from a process?

(a) Sample size in control charts
(b) USL and LSL
(c) Process standard deviation
(d) UCL and LCL

(3) The mean of a process is 50, and the standard deviation is 2. The company uses statistical control process (SPC) to monitor the process. It uses sample size on 4, and 3 sigma (z=3) control limits. What are the Upper Control Limit (UCL) and Lower Control Limit (LCL)?

(a) LCL=48 and UCL=52
(b) LCL=44 and UCL=56
(c) LCL=47 and UCL=53
(d) LCL=49 and UCL=51

(4) If a company narrows the control limits for a process without making any other changes, which of the following will happen?

(a) The process will generate more products not acceptable by customers
(b) The process will not be stopped even when assignable cause is present
(c) The capability index for the process will reduce to a lower value
(d) The process will be stopped more often suspecting assignable cause

Meega Airlines decided to offer direct service from Akron to Clearwater Beach, Florida. Management must decide between full-price service using a company’s new fleet of jet aircraft and a discount-service using smaller capacity commuter planes. Management developed estimates of the contribution to profit for each type of service based upon two possible levels of demand for service on Clearwater Beach: high, moderate, and low. The following table shows the estimated quarterly profits (in thousands of dollars):

The prior distribution for the demand is P(High) = 0.3, P(Medium) = 0.5, and P (Low) = 0.2, respectively.

(a) Calculate the expected value of each decision alternative and recommend the best strategy based on the expected value.

(b) Meega Airlines considers market research before making a decision. Market research produces the following posterior distribution of the states of nature. Calculate the expected value of each decision under each market research outcome.

(c) Create a decision tree with the expected value of each decision as a payoff, including branches for each market research outcome and a branch for no market research.

Suppose you are the manager of a mutual fund and hold a RM10 million stock portfolio. The
required market risk premium is 6.5% and the risk fee rate is 3%. Stock A & B are 20% each
of its total portfolio, Stock C and D are 25% and 18% and the remainder goes to Stock E.
Beta for Stock A, B, C, D and E are 0.75, 1.30, 1.6, 0.5 and 1.2. The return for stock A and B
are 25% and 18% while Stock C and D are 12% and 30%. Return for Stock E less 10% than
Stock A.
Randomly you pick two stocks, Stock A & C to look either both of these are positively or
negatively correlated. Before make any decisions either to remain holding in the portfolio or
to sell in the market. You are prefer to maintain those stocks that able to give higher return
and try to minimise the risk.

Required:
a. Compute the expected return of your portfolio.

b. Compute the portfolio beta.


c. Compute the expected return and standard deviation for Stock A & Stock C.


d. Compute the covariance and correlation of Stock A & C.


e. What you find out about your portfolio and from (d). Any suggestion(s)?

Problem Set 2: Linear Regression Analysis

Research Scenario: A social psychologist is interested in whether the number of days spent in a refugee camp predicts trauma levels in recently resettled refugees. He interviews 17 refugees to determine how many days they spent in a refugee camp before being resettled, then administers the Harvard Trauma Questionnaire Part IV (HTQ Part 4), where a higher score indicates higher levels of trauma (Mollica et al., 1992). He compiles the information in the table below.

Using this table, enter the data into a new SPSS data file and run a linear regression analysis to test whether days in a refugee camp predict HTQ-4 scores. Create a scatterplot with a regression line to show the relationship between the variables.

1. Paste SPSS output. (7 pts)

2. Write an APA-style Results section based on your analysis. Include your scatterplot as an APA-style figure as demonstrated in the APA writing presentation. (Results = 8 pts; Graph = 5 pts)

Problem Set 2: Linear Regression Analysis

Research Scenario: A social psychologist is interested in whether the number of days spent in a refugee camp predicts trauma levels in recently resettled refugees. He interviews 17 refugees to determine how many days they spent in a refugee camp before being resettled, then administers the Harvard Trauma Questionnaire Part IV (HTQ Part 4), where a higher score indicates higher levels of trauma (Mollica et al., 1992). He compiles the information in the table below.

Using this table, enter the data into a new SPSS data file and run a linear regression analysis to test whether days in a refugee camp predict HTQ-4 scores. Create a scatterplot with a regression line to show the relationship between the variables.

1. Paste SPSS output. (7 pts)

2. Write an APA-style Results section based on your analysis. Include your scatterplot as an APA-style figure as demonstrated in the APA writing presentation. (Results = 8 pts; Graph = 5 pts)

Suppose 1% of the population of Toronto has been infected with SARS-CoV-2 at some point (call the corresponding proportion, 0.01, the prevalence of the virus). There are now antibody tests available for SARS-CoV-2 to detect whether someone has ever been infected. However, like any test, these tests are not perfect and are subject to error at some rate.

Also suppose that, when someone has been infected, the test correctly comes up positive 98% of the time, comes up negative 1.7% of the time, and comes up inconclusive in the remaining 0.3% of cases. Also suppose that when someone has not been infected, the test correctly comes up negative 99% of the time, positive 0.8% of the time, and inconclusive 0.2% of the time.

Let ?D be the event that a randomly selected person in Toronto has truly been infected (?D for disease). Thus, ??Dc is the event that the person has never been infected. Let ++ be the event that a test comes up positive, and – the event it comes up negative. Use ?O for inconclusive.

Draw a probability tree to depict the relationship between these events (see Lecture 7). Use the tree to compute ?(?|+)P(D|+), the probability that someone has been infected conditional on getting a positive test result. What does this result mean in words and why might it be surprising (1-2 sentences)?

The sales and finance team of a car company is evaluating a new proposed luxury model of its
brand that will require an investment of $1Billion in a new machine for car interior decoration.
Demand for the company’s car is expected to begin at 100,000 units in year 1, with 10% annual
growth thereafter. Production cost will be $35,000 per unit in the first year, and increase by a rate
of either 3% or 5% per year as a result of wage increase. Selling price will start at $37,000 and
increase by 4% of the production cost. The model will be phased out at the end of year 10. In
addition, 0.3%, 2% and 1.5% of before tax profit per year will be spent on social corporate
responsibility, commercial (including promotions) and recalls respectively. Assume taxes will be
30% of yearly profit and that inflation will remain at 0% per year throughout the 10 year of
production. Also assume interest rate is expected to be 3% per year in the first 5 years and 5% in
the last 5 years.
a. Based on present worth analysis, is the proposed investment profitable if production cost
increases by a rate of 3% per year as a result of wage increase? Justify your answer.
b. Based on present worth analysis, is the proposed investment profitable if production cost
increases by a rate of 5% per year as a result of wage increase? Justify your answer.

RS p.1.c. manufactures domestic food mixers. It is investigating whether or not to accept a three-year contract to make a new model for sale through a supermarket chain. The contract uses skilled labour which cannot be increased above that currently available and RS p.1.c. will receive a fixed price of £42 per mixer for all the mixers it can produce in the three-year period. The following estimates have been made:

Capital investment £50000 payable now, with nil scrap value.

Additional overhead £25000 per annum.

Materials £30 per mixer Labour £6 per hour.

The factory manager knows from experience of similar machines that there will be a learning effect for labour. He estimates that this will take the form:

y = ax^-0.3

where y = average labour hours per unit

a = labour hours for first unit

x = cumulative production

He estimates that the first mixer will take 10 hours to produce and that the fixed amount of labour available will enable 5000 mixers to be produced in the first year. Apart from the capital investment, all cash flows can be assumed to arise at year ends. The company has a cost of capital of 15%. You are required

(a) to calculate the NPV of the proposed contract

(b) to state what other factors need to be considered before a final decision is made.