Brady Construction Company contracted to build an apartment complex for a price of $5,700,000. Construction began in 2018 and was completed in 2020. The following is a series of independent situations, numbered 1 through 6, involving differing costs for the project. All costs are stated in thousands of dollars.

Complete the following table. (Do not round intermediate calculations. Enter answers in dollars. Round your final answers to the nearest whole dollar. Negative amounts should be indicated by a minus sign.)

Question 1. Merino Plc 2019 and 2020 Balance Sheets included the following items:

Merino Plc Income Statement was as follows:

Required:

Prepare the STATEMENT OF CASH FLOWS for the year ended December 31, 2020. Additional information includes the following:

1. Equipment was purchased for $64,848 cash
2. Issued 3,360 common shares for cash at $28 per share
3. Declared and paid cash dividends during the year.

Guardian Inc. is trying to develop an asset-financing plan. The firm has $470,000 in temporary current assets and $370,000 in permanent current assets. Guardian also has $570,000 in fixed assets. Assume a tax rate of 30 percent.

a. Construct two alternative financing plans for Guardian. One of the plans should be conservative, with 90 percent of assets financed by long-term sources, and the other should be aggressive, with only 56.25 percent of assets financed by long-term sources. The current interest rate is 16 percent on long-term funds and 9 percent on short-term financing. Compute the annual interest payments under each plan.

   

b. Given that Guardian’s earnings before interest and taxes are $350,000, calculate earnings after taxes for each of your alternatives.
  

c. What would the annual interest and earnings after taxes for the conservative and aggressive strategies be if the short-term and long-term interest rates were reversed?
  

Andrea would like to organize SHO as either an LLC (taxed as a sole proprietorship) or a C corporation. In either form, the entity is expected to generate an 11 percent annual before-tax return on a $200,000 investment. Andrea's marginal income tax rate is 35 percent and her tax rate on dividends and capital gains is 15 percent. Andrea will also pay a 3.8 percent net investment income tax on dividends and capital gains she recognizes. If Andrea organizes SHO as an LLC, Andrea will be required to pay an additional 2.9 percent for self-employment tax and an addition 0.9 percent for the additional Medicare tax. Further, she is eligible to claim the full deduction for qualified business income. Assume that SHO will pay out all of its after-tax earnings every year as a dividend if it is formed as a C corporation.  

a). How much cash after taxes would Andrea receive from her investment in the first year if SHO is organized as either an LLC or a C corporation?

LLC---after tax cash flow?

C Corporation--after cash flow?

1. Libby Co. is an unlevered firm. Investors currently expect a 12.75% return on the company’s equity. The company is subject to a 24% corporate tax rate.

1. If earnings before taxes are expected to be $15.85m per year forever, calculate the total value of this company.

Now suppose this company wants to shift its capital structure to add debt. It wants to issue $31.5 million of perpetual debt at a cost of 5.5%.

2. Use the FTE method to calculate the value of the company’s equity after the recapitalization.
3. What is the total value of the company after the recapitalization?
4. Using MMII with taxes, what should be the total value of the company after issuing the debt?
5. What is the debt-equity ratio of this company after the recapitalization?

Suppose the levered company is looking to invest in a new project. The project costs $27 million and will be financed at the debt-equity ratio you calculated in d. The project generates EBIT of $5.9 million in perpetuity.

6. Would you advise Libby to invest in this project? (Hint: use the FTE method…be sure to show how much borrowing you will do and what annual interest costs will be).

Estimating and Recording Bad Debt Estimates and Write-offs; Reporting of Accounts Receivable

At December 31, 2020, its annual year-end, the accounts of Sun Systems Inc. show the following.

1. Sales revenue for 2020, $900,000, of which one-sixth was on account.
2. Allowance for doubtful accounts, balance December 31, 2019, $4,500 credit.
3. Accounts receivable, balance December 31, 2020 (prior to any write-offs of uncollectible accounts during 2020), $90,250.
4. Uncollectible accounts to be written off, December 31, 2020, $5,250.
5. Aging schedule at December 31, 2020, showing the following breakdown of total accounts receivable, excluding amounts to be written off.

Required

a. Prepare the 2020 entry to write off the uncollectible accounts.

b. Prepare the 2020 adjusting entry to record bad debt expense for each of the following separate assumptions concerning expected bad debt loss rates. Note: Treat each of the following scenarios separately, they are independent of one another.

1. Bad debt expense is based on credit sales, 1.5%. (Hint: See p. 8-19: Alternative to Estimating Net Realizable Value)

2. The Allowance for Doubtful accounts is based on total receivables at year-end, 2.5%.

3. The Allowance for Doubtful accounts is based on aging schedule: not past due, 0.5%; past due 1–60 days, 1%; and past due over 60 days, 8%.

4. Bad debt expense is based on direct write-off method (assume entry in part a has not been recorded).

c. Prepare the 2020 balance sheet disclosure relating to accounts receivable for each assumption 1 through 4 of part b.

a.

b. Note: Treat each scenario separately, they are independent of one another.

1.

2.

3.

4.

c.  

Note: Do not use negative signs with your answers.

Foxconn Technology Group is a subsidiary of Taiwan’s Hon Hai Precision Industry Co. (reputed to be the world’s largest “contract manufacturer”). Even as a subsidiary, Foxconn’s numbers are impressive—the company employs about 800,000 people, half of whom work in a huge industrial park in Shenzhen, China, called Foxconn City. With 15 separate multistory buildings, each dedicated to individual customers such as Apple, Dell, Nintendo, and Hewlett-Packard, Foxconn’s promotional material proudly states that the company pays minimum wage (900 yuan, or $130 a month), offers free food and lodging along with extensive recreational facilities to its employees—on the face of it, not your stereotypical “sweatshop” environment. However, in the first half of 2010, 12 Foxconn employees found the working conditions so oppressive that they elected to kill themselves by jumping from the roofs of those 15-story buildings. According to reports, two other employees were seriously injured in suicide attempts, and another 20 were saved before completing their planned attempt. The sudden spate of suicides drew unwelcome attention to the true state of the working conditions in factories that visitors have described as “grim.” Labor activists report annual turnover of 40 percent or more as employees leave rather than face dangerously fast assembly lines, “military-style drills, verbal abuse by superiors... as well as occasionally being pressured to work as many as 13 consecutive days to complete a big customer order—even when it means sleeping on the factory floor.” Consider the case of 19-year-old Ma Xiangqian, a former migrant worker who leapt to his death January 23, 2010. His family revealed that he hated his job at Foxconn: “11-hour overnight shifts, seven days a week, forging plastic and metal into electronic parts amid fumes and dust.” In the month before he died, Ma worked 286 hours, including 112 overtime hours, three times the legal limit. The negative publicity was swift and targeted. Apple’s international release of its iPad in Hong Kong was marred by the ritual burning of pictures of iPhones and calls for a global boycott of all Apple products. The negative press prompted an equally swift response from Foxconn customers seeking to distance themselves from the story. Apple, Dell, and HP all announced investigations of the working conditions at Foxconn’s plants, with the implied threat of contract termination. Foxconn’s response was to surround the buildings with nets to prevent any further suicide attempts, to hire counselors for employees experiencing stress from the working conditions, and to assign workers to 50-person groups so that they can keep an eye on each other for signs of emotional stress. The company also announced two separate pay increases more than doubling worker pay to 2,000 yuan a month (although workers must pass a three-month review to qualify for the second pay increase). In addition, a series of “motivational rallies,” entitled “Treasure Your Life, Love Your Family, Care for Each Other to Build a Wonderful Future,” were scheduled for all Foxconn facilities. While the immediate response was targeted directly at the media criticism, there are concerns about the longer-term consequences for Foxconn and its customers. Hon Hai’s reputation and dominance have been built on top quality with wafer-thin margins—margins that may prove to be too thin to absorb a 100 percent increase in labor costs. As for its customers, they may have given implied threats of contract termination, but with Hon Hai as the world leader, there are limited options for alternative suppliers. Apple asked the Fair Labor Association (FLA), a nongovernment organization, to conduct an extensive audit of Foxconn’s operations. The FLA teams visited Foxconn factories in Shenzhen and Chengdu, and surveyed some 35,000 workers at three facilities that assembled Apple products, including iPhones and iPads. The audit report was released March 29, 2012, and found that during the preceding 12 months, workers typically exceeded the 60 hours of work per week stipulated in Apple’s agreement with Foxconn. In addition, the report found that many workers also exceeded China’s legal limit of 36 hours of overtime per month. In conclusion, the FLA found that conditions were “no worse than any other factory in China.” Foxconn seems unconcerned by the criticism. In July 2015, the company announced that it would be building up to 12 new factories in India, employing as many as 1 million people by 2020. This was seen as a strategic response to rising wage costs and labor disputes in China. In March 2016, the company announced a $3.5 billion deal to acquire a 66 percent controlling interest in Japanese screen maker Sharp after weeks of negotiations and numerous setbacks. The deal is expected to give Foxconn more leverage with its dealings with Apple (Sharp provides an estimated 25 percent of Apple’s iPhone screens), but with around $3 billion in liabilities, Sharp will require some aggressive action to turn around.

1. Was Foxconn’s response sufficient to stop any future suicide attempts? Why or why not?

2. If the company has operated on “wafer-thin margins,” will the Indian and Japanese deals make it a more ethical company? Why or why not?

3. Would you describe Foxconn’s response as an example of proactive or reactive ethics? Why?

4. If Apple is committed to addressing working conditions at Foxconn factories, should “no worse than any other factory in China” be an acceptable benchmark? Why or why not?

In 2010, Canada had a trade deficit of $10.8 billion because:

A.Canadian consumers bought far more domestic goods and services than foreign goods and services.

B.Japan stopped exporting goods to Canada.

C.Canadian consumers stopped buying Japanese goods and services.

D.Canada imported more products than it exported.

E.Canadian companies sold more goods to other countries than foreign companies sold here.

In 1985, an assessment of a population of butterflies found that individuals appeared in a wide range of colors, from dark red to a light blue. In 2010, the same population of butterflies was assessed, and it was observed that only dark red and light blue butterflies remained. Identify the type of selection that occurred in this population and discuss how it supports the claim that a single environmental factor can yield a variety of phenotypic responses from different genotypes within a population.

Find both the arithmetic growth rate and the geometric growth rate of the dividends for Alexander's Markets.

What is the arithmetic growth rate of the dividends for Alexander's Markets?

​(Round to two decimal​ places.)

What is the geometric growth rate of the dividends for Alexander's Markets?