Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelly Couts, who inherited the company. The company originally repaired radios and other household appliances when it was founded more than 70 years ago. Over the years, the company expanded, and it is now a reputable manufacturer of various specialty electronic items. Jay McCanless, a recent MBA graduate, has been hired by the company in its finance department. One of the major revenue-producing items manufactured by Conch Republic is a smartphone. Conch republic currently has one smartphone model on the market and sales have been excellent. The smartphone is a unique item in that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as with any electronic item, technology changes rapidly, and the current smartphone has limited features in comparison with new models. Conch Republic spent $1.2 million to develop a prototype for a new smartphone that has all the features of the existing one but adds new features such as Wifi tethering. The company has spent a further $250,000 for a marketing study to determine the expected sales figures for the new smartphone. Conch Republic can manufacture the new smartphone for $210 each in variable costs. Fixed costs for the operation are estimated to run $5.3 million per year. The estimated sales volumes are 64,000, 106,000, 87,000, 78,000, and 54,000 per year for each of the next five years, respectively. The unit price of the new smartphone will be $515. The necessary equipment can be purchased for $38.5 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $5.8 million. Net working capital for the smartphones will be 20 percent of sales and will occur with the timing of the cash flows for the year (i.e., there is no initial outlay for NWC). Changes in NWC thus will occur first in year 1 with the first year’s sales. Conch Republic has a 22 percent corporate tax rate and a required return of 12 percent. Shelly has asked Jay to prepare a report that answers the following questions:

10) How sensitive is the NPV to changes in the price of the new smartphone?

11) How sensitive is the NPV to changes in the quantity sold?

12) Should Conch Republic produce the new smartphone?

When answering the provided questions, you must ensure that your answers address the questions, that your answers have an Australian accounting/financial reporting focus, that your answers are internally consistent, and that the individual components of your answers provide a well-rounded argument that is easy to follow.

The Chief Financial Officer (CFO) of Large Mart has been unable to find answers for two accounting problems. He has asked you to investigate the following questions and to write a report (including relevant references to source materials and accounting standards) that will provide him with a sufficient understanding of these issues to allow a well-supported decision to be made. To achieve this, the CFO seeks you to answer specific questions, but also to outline the development of your answers sufficiently to allow a reader to understand why you have developed your answers.

Question:

The Chief Executive Officer (CEO) of Large Mart has asked the CFO if it is possible to change the cost flow assumption that is used to value Large Mart’s inventory. At the moment, Large Mart is using the First-In-First-Out (FIFO) cost flow assumption (in a perpetual inventory accounting system) and although the CEO would like to retain a perpetual inventory accounting system, she would prefer the application of a different cost flow assumption. The CEO would like to make this change because she believes that this could potentially improve Large Mart’s financial position in the balance sheet.

The CFO asks you to investigate, and write a report about, the following questions:

a)     What are the legal requirements in relation to changes in inventory cost flow assumptions for reporting entities in Australia? In your answer, you should discuss (1) whether or not changes to cost flow assumptions are permissible in principle and why, and (2) what valuation options (other than FIFO) may be available to Large Mart. (500 Words)

b)     What are the legal limitations to changes in cost flow assumptions for reporting entities in Australia? In your answer, you should discuss (1) what legal restrictions would limit Large Mart’s ability to make changes to their inventory cost flow assumptions, and (2) whether or not the reason why the CEO would like to make this change may have any impact on Large Mart’s ability to make such a change. (500 Words)

To investigate the fluid mechanics of swimming, twenty swimmers each swam a specified distance in a water-filled pool and in a pool where the water was thickened with food grade guar gum to create a syrup-like consistency. Velocity, in meters per second, was recorded and the results are given in the table below.

The researchers concluded that swimming in guar syrup does not change mean swimming speed. Are the given data consistent with this conclusion? Carry out a hypothesis test using a 0.01 significance level. (Use

μ_d = μ_water − μ_{guar syrup}.)

State the appropriate null and alternative hypotheses.

H₀: μ_d = 0

H_a: μ_d > 0

H₀: μ_d ≠ 0

H_a: μ_d = 0

H₀: μ_d = 0

H_a: μ_d < 0

H₀: μ_d < 0

H_a: μ_d = 0

H₀: μ_d = 0

H_a: μ_d ≠ 0

Find the test statistic and P-value. (Round your test statistic to one decimal place and your P-value to three decimal places.)

t=

P-value=

State the conclusion in the problem context.

We reject H₀. The data do not provide convincing evidence that swimming in guar syrup changes mean swimming speed.

We fail to reject H₀. The data do not provide convincing evidence that swimming in guar syrup changes mean swimming speed.   

We fail to reject H₀. The data provide convincing evidence that swimming in guar syrup changes mean swimming speed.

We reject H₀. The data provide convincing evidence that swimming in guar syrup changes mean swimming speed.

1.

An increased interest rate will cause residential and business investment spending to______, leading to______in the quantity of output demanded in the economy.

1. decrease; increase

2. decrease; decrease

3. increase; decrease

4. increase; increase

2.

Which of the following statements about aggregate supply is correct?

1. All of the above

2. Shifts in aggregate supply can cause stagflation

3. Shifts in aggregate supply can cause a recession

4. Shifts in aggregate supply can cause a fall in output and a rise in prices

3.

The new classical misperceptions theory states that:

1. changes in the overall price can temporarily mislead consumers, and lead to an upward-sloping aggregate-supply curve

2. changes in the relative price can temporarily mislead suppliers, and lead to an upward-sloping aggregate-supply curve

3. changes in the overall price can temporarily mislead suppliers, and lead to an upward-sloping aggregate-supply curve

4. changes in the relative price can temporarily mislead consumers, and lead to an upward-sloping aggregate-supply curve

4.

Out of the following list, choose the item that would be included in the expenditure approach to calculating GDP

1. the purchase of 30 litres of petrol for your car

2. a $200 cheque from your Uncle Arthur

3. an unemployment cheque from the Government to R. Smith

4. the cost of the second-hand mountain bike you bought from your flatmate

5.

If a minimum wage law is passed imposing a price floor above the equilibrium price of unskilled labor and employers increasingly used efficiency wages, it would ___ structural unemployment and ____ the natural rate of unemployment:

1. Increase; not change

2. Do none of the above

3. Increase; increase

4. Not change, increase

6.

Fill up the blanks by typing in your answer. Do not type in the quotation mark "".

Applying the aggregate demand/aggregate supply model, describe the impact of the following event on GDP and prices in the short run:

Suppose firms become very optimistic about future business conditions and invest heavily in new capital equipment, in teh short run,

Blank 1 (type in "AD" or "AS") will shift to the Blank 2 (type in "right" or "left").

Output will Blank 3 (type in "increase" or "decrease") and price will Blank 4 (type in "increase" or "decrease").

On January 1, 2021, Labtech Circuits borrowed $300,000 from First Bank by issuing a three-year, 6% note, payable on December 31, 2023. Labtech wanted to hedge the risk that general interest rates will decline, causing the fair value of its debt to increase. Therefore, Labtech entered into a three-year interest rate swap agreement on January 1, 2021, and designated the swap as a fair value hedge. The agreement called for the company to receive payment based on an 8% fixed interest rate on a notional amount of $300,000 and to pay interest based on a floating interest rate tied to LIBOR. The contract called for cash settlement of the net interest amount on December 31 of each year.

Floating (LIBOR) settlement rates were 8% at inception and 9%, 7%, and 7% at the end of 2021, 2022, and 2023, respectively. The fair values of the swap are quotes obtained from a derivatives dealer. These quotes and the fair values of the note are as follows:

Required:
1. Calculate the net cash settlement at the end of 2021, 2022, and 2023.
2. Prepare the journal entries during 2021 to record the issuance of the note, interest, and necessary adjustments for changes in fair value.
3. Prepare the journal entries during 2022 to record interest, net cash interest settlement for the interest rate swap, and necessary adjustments for changes in fair value.
4. Prepare the journal entries during 2023 to record interest, net cash interest settlement for the interest rate swap, necessary adjustments for changes in fair value, and repayment of the debt.
5. Calculate the book values of both the swap account and the note in each of the three years.
6. Calculate the net effect on earnings of the hedging arrangement in each of the three years. (Ignore income taxes.)
7. Suppose the fair value of the note at December 31, 2021, had been $287,000 rather than $296,241 with the additional decline in fair value due to investors’ perceptions that the creditworthiness of Labtech was worsening. How would that affect your entries to record changes in the fair values?

·         What were the companies’ cash flows from operations? Were they positive?

·         Were operating cash flows smaller or larger than net income?

·         What are the major differences between operating cash and net income?

·         Did the company purchase new property and equipment (‘Capital expenditures’) during the years?

·         Did the company issue new debt during the year or was the debt repaid? (Hint: We must sometimes sum one or more-line items on this statement to determine total net debt activity.)

·         Did the company issue new stock?

·         Did the company pay dividends?

Ghost, Inc., has no debt outstanding and a total market value of $369,600. Earnings before interest and taxes, EBIT, are projected to be $51,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 15 percent higher. If there is a recession, then EBIT will be 24 percent lower. The company is considering a $185,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,400 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant.

On January 1, 2018, Labtech Circuits borrowed $190,000 from First Bank by issuing a three-year, 8% note, payable on December 31, 2020. Labtech wanted to hedge the risk that general interest rates will decline, causing the fair value of its debt to increase. Therefore, Labtech entered into a three-year interest rate swap agreement on January 1, 2018, and designated the swap as a fair value hedge. The agreement called for the company to receive payment based on an 8% fixed interest rate on a notional amount of $190,000 and to pay interest based on a floating interest rate tied to LIBOR. The contract called for cash settlement of the net interest amount on December 31 of each year. Floating (LIBOR) settlement rates were 8% at inception and 9%, 7%, and 7% at the end of 2018, 2019, and 2020, respectively. The fair values of the swap are quotes obtained from a derivatives dealer. These quotes and the fair values of the note are as follows: January 1 December 31 2018 2018 2019 2020 Fair value of interest rate swap 0 $ (2,659 ) $ 1,835 $ 0 Fair value of note payable $ 190,000 $ 187,341 $ 191,835 $ 190,000 Required: 1. Calculate the net cash settlement at the end of 2018, 2019, and 2020. 2. Prepare the journal entries during 2018 to record the issuance of the note, interest, and necessary adjustments for changes in fair value. 3. Prepare the journal entries during 2019 to record interest, net cash interest settlement for the interest rate swap, and necessary adjustments for changes in fair value. 4. Prepare the journal entries during 2020 to record interest, net cash interest settlement for the interest rate swap, necessary adjustments for changes in fair value, and repayment of the debt. 5. Calculate the book values of both the swap account and the note in each of the three years. 6. Calculate the net effect on earnings of the hedging arrangement in each of the three years. (Ignore income taxes.) 7. Suppose the fair value of the note at December 31, 2018, had been $187,000 rather than $187,341 with the additional decline in fair value due to investors’ perceptions that the credit worthiness of Labtech was worsening. How would that affect your entries to record changes in the fair values?

Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelley Couts, who inherited the company. Over the years, the company expanded into manufacturing and is now a reputable manufacturer of various electronic items. One of the major revenue-producing items manufactured by Conch Republic is a Personal Digital Assistant (PDA). Conch Republic currently has PDA model on the market and sales have been excellent. The PDA is a unique item in that it comes in a variety of tropical colors ad is preprogrammed to play Jimmy Buffett music. However as with any electronic item, technology changes rapidly, and the current PDA has limited features in comparison with newer models. Conch republic spent $750,000 to develop a prototype for a new PDA that has all the features of the existing one, but adds new features such as cell phone capability. The company has spent a further $200,000 for a marketing study to determine the expected sales figures for the new PDA. Conch republic can manufacture the new PDA for $220 each in variable costs. Fixed costs for the operation are estimated to run $6.4 million per year. The estimated sales volume is 155,000, 165,000, 125,000, 95,000, and 75,000 per year for the next five years, respectively. The unit price of the new PDA will be $535. The necessary equipment can be purchased for $43.5 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $4.3 million. Net working capital for the PDAs will be 20% of sales and will occur with the timing of the cash flows for the year (i.e., there is no initial outlay for NWC). Changes in NWC will thus first occur in Year 1 with the first year's sales. Conch Republic has a 21% corporate tax rate and a 12% required return. Shelly has asked Jay to prepare a report that answers the following questions. Answer the questions below and make sure to show all work that led up to your answer. Include Excel Spreadsheet. 1. What is the payback period of the project? 2. What is the profitability index of the project? 3. What is the IRR of the project? 4. What is the NPV of the project 5. How sensitive is the NPV to changes in the price of the new smartphone? 6.How sensitive is the NPV to changes in the quantity sold of the new phone?