2. The early Milesians (Thales, Anaximander, Anaximenes) each sought an arche as the foundation for existence. Beginning with an explanation of how Thales derived his solution to the question “What is real?” detail the arche of each. This should include an examination of why each found his predecessors solution problematic.

PLEASE USE CHARTS I PROVIDED

The following items were selected from among the transactions completed by Sherwood Co. during the current year:

1. Journalize the transactions. Refer to the Chart of Accounts for exact wording of account titles. Assume a 360-day year. Scroll down to access page 12 of the journal. Round your answers to the nearest dollar.

PAGE 11

JOURNAL

ACCOUNTING EQUATION

PAGE 12

JOURNAL

ACCOUNTING EQUATION

Question one

SC Co is evaluating the purchase of a new machine to produce product P , Which has a short product life-cycle due to rapidly changing technology .The machine is expected to cost $1 million . Production and sales of product P are forecast to be as follows :

The selling price 0f product P (in current price terms )will be $20 per unit, while the variable cost of the product (in current price terms )will be $12 per unit .Selling price inflation is expected to be 5% per year. No increase in existing fixed costs is expected since SC co has spare capacity in both spare and labourterms .

Production and selling product P will call for increased investment in working capital . Analysis of historical levels of working capital within SC Co indicates that at the start of each year , investment in working capital for product P will be need to be 7% of sales revenue for that year .

SC Co pays tax of 30% per year in the year in which the taxable profit occurs ,liability to tax is reduced by capital allowances on machinery (tax –allowable depreciation ) , which SC Co can claim on a straight –line basis over the four-year period .SC Co uses a nominal (money terms ) after-tax cost of capital of 12% for investment appraisal purposes.

Required :

1. Determine the after –tax cash-flows associated with the purchase of a new machine to purchase product P .(12) marks
2. Calculate the net present value of the proposed investment in product P.(6) marks
3. Compute the internal rate of return of the proposed investment in product P.(6)marks
4. Advise on the acceptability of the proposed investment in product P and discuss the limitations of the evaluations you have carried out.(8)marks
5. Discuss hoe the net present value method of investment appraisal contributes towards the objective of maximizing the wealth of shareholders .(8)marks

Part II: The following selected transactions are from Ohio Company. Prepare journal

entries to record these transactions and events. (Round amounts to the nearest dollar.)

2017:

Dec. 16: Accepted a $10,800, 60-day, 8% note dated this day in granting Danny Todd a time extension on his past-due account receivable.

Dec. 31: Made an adjusting entry to record the accrued interest on the Todd note.

2018:

Feb. 14: Received Todd’s payment of principal and interest on the note dated December 16.

Mar. 1

: Accepted a $6,100, 8%, 90-day not dated this day in granting a time extension on the past-due account receivable from Midnight Co.

Mar. 17: Accepted a $2,400, 30-day, 7% note dated this day in granting Ava Privet a time extension on her past-due account receivable.

Apr. 16: Privet dishonored her note when presented for payment.

May 31: Midnight Co. refused to pay the note that was due to Ohio Co. on May 31. Prepare the journal entry to charge the dishonored note plus accrued interest to Midnight Co.’s account receivable.

Jul. 16: Received payment from Midnight Co. for the maturity value of its dishonored note plus interest for 46 days beyond maturity at 8%.

Aug. 7: Accepted a $7,450, 90-day, 10% note dated this day in granting a time extension on the past-due account receivable of Mulan Co.

Sep. 3: Accepted a $2,100, 60-day, 10% note dated this day in granting Noah Carson a time extension on his past-due account receivable.

Nov. 2: Received payment of principal plus interest from Carson on the September 3 note.

Nov. 5: Received payment of principal plus interest from Mulan for the August 7 note.

Dec. 1: Wrote off the Privet account against the Allowance for Doubtful Accounts.

Bank Reconciliation and Entries

The cash account for Pala Medical Co. at June 30, 20Y1, indicated a balance of $9,595. The bank statement indicated a balance of $11,240 on June 30, 20Y1. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items:

1. Checks outstanding totaled $4,050.
2. A deposit of $4,220, representing receipts of June 30, had been made too late to appear on the bank statement.
3. The bank collected $2,190 on a $2,080 note, including interest of $110.
4. A check for $660 returned with the statement had been incorrectly recorded by Pala Medical Co. as $600. The check was for the payment of an obligation to Skyline Supply Co. for a purchase on account.
5. A check drawn for $30 had been erroneously charged by the bank as $300.
6. Bank service charges for June amounted to $45.

Required:

1. Prepare a bank reconciliation.

Feedback

2. Journalize the necessary entries (a.) that increase cash and (b.) that decrease cash. The accounts have not been closed. For a compound transaction, if an amount box does not require an entry, leave it blank.

Feedback

3. If a balance sheet were prepared for Pala Medical Co. on June 30, 20Y1, what amount should be reported as cash?
$

                                                                                              Revenue from U.S. Business

                           Exchange Rate of A$                                 (in millions)

                                   A$ = $.48                                              $100

                                   A$ =      .50                                                105

                                   A$ =      .54                                                110

Premier’s sales revenues from Australia are expected to be A $600 million.

                    The forecasted Net Cash Flows for Premier Company are below.

                    The figures are in millions.

                                    A$ = $.48                   A$ = $.50                   A$ = $.54

Sales

      U.S.                                            $100                            $105                            $110       

      Australia A$600 =     288           A$600 =     300           A$600 =     324

      Total                                           $388                            $405                            $434

Cost of materials

      U.S.                                            $200                            $200                            $200

      Australia                  A$100 =         48           A$100 =         50           A$100 =         54

      Total                                           $248                            $250                            $254

Operating expenses

      U.S.: Fixed                                  $ 30                             $ 30                             $ 30

      U.S.: Variable (20%

          of total sales)                               78                                 81                                 87

      Total                                           $108                             $111                             $117

Interest expense

      U.S.                                            $ 20                             $ 20                             $ 20

      Australia                 A$0 =               0           A$0 =               0           A$0 =               0

      Total $ 20                             $ 20                             $ 20

Net Cash Flows                                 $ 12                             $ 24                             $ 43

1. Is the cash flow of Grand Tour Co. sensitive to movements in the exchange rate of the Australia dollar? Why?
2. Does Grand Tour Co. suffer from economic exposure, or translation exposure?
3. If Grand Tour Co. shifts some of its expenses from U.S. to Australia, will this reduce its exposure?

Companies that use debt in their capital structure are said to be using financial leverage. Using leverage can increase shareholder returns, but leverage also increases the risk that shareholders bear.

Consider the following case:

Wizard Co. is a small company and is considering a project that will require $500,000 in assets. The project will be financed with 100% equity. The company faces a tax rate of 25%. What will be the ROE (return on equity) for this project if it produces an EBIT (earnings before interest and taxes) of $150,000?

23.63%

15.75%

22.50%

24.75%

Determine what the project’s ROE will be if its EBIT is –$50,000. When calculating the tax effects, assume that Wizard Co. as a whole will have a large, positive income this year.

-9.00%

-6.75%

-8.62%

-7.5%

Wizard Co. is also considering financing the project with 50% equity and 50% debt. The interest rate on the company’s debt will be 12%. What will be the project’s ROE if it produces an EBIT of $150,000?

37.80%

36.00%

28.80%

39.60%

What will be the project’s ROE if it produces an EBIT of –$50,000 and it finances 50% of the project with equity and 50% with debt? When calculating the tax effects, assume that Wizard Co. as a whole will have a large, positive income this year.

-30.00%

-24.00%

-25.20%

-31.20%

Smith and T Co. currently is financed with 10% debt and 90% equity. However, its CFO has proposed that the firm issue new long-term debt and repurchase some of the firm’s common stock. Its advisers believe that the long-term debt would require a before-tax yield of 10%, while the firm’s basic earning power is 14%. The firm’s operating income and total assets will not be affected. The CFO has told the rest of the management team that he believes this move will increase the firm’s stock price. If Smith and T Co. proceeds with the recapitalization, which of the following items are also likely to increase? Check all that apply.

Cost of equity (rsrs)

Return on assets (ROA)

Basic earning power (BEP)

Cost of debt (rdrd)

Net income

ACME Incorporated has built a factory 1 kilometer upwind of your home. It is a coal power plant that emits carbon monoxide (CO) at a rate of 500 kilograms per second.

Discussion Question 1

What will the concentration of CO be outside your home be if the factory emits CO at the rate given above, your home is 1 km downwind of the factory, the wind speed is 3 meters per second, and the atmospheric stability is slightly stable? Report in units of kg/ m³. To calculate this concentration, use the simplified Gaussian Plume Equation:

C= QU    ×   12πσyσz

Where:

• C is concentration (mg/m³)
• Q is emission rate (kg/second)
• U is wind speed (m/s)
• p is a constant = 3.14159
• s_y is the horizontal dispersion coefficient (m)
• s_z is the vertical dispersion coefficient (m)

We can estimate s_y and s_z as:

s_y = ax^0.893                     s_z = cx^d – f

Where:

• x is the distance downwind (m)
• a, c, d, and f are dependent on atmospheric stability and are given in the table below

Discussion Question 2

Does this concentration violate the 8-hour NAAQS standard for CO (9 ppm)? Note that you need to convert units from kg/m³ to ppm to answer this.

***Hints***

1 kg = 1000 g

The molar mass of CO is 22.01 g/mol

Avogadro’s number is 6.02*10²³ molecules/mol

Assuming standard conditions of T=298 Kelvins and P = 1 atm, there are 2.46 *10²² molecules/L of air

1000L = 1 m³

To get units in ppm, do: (# of molecules of CO)/(# of molecules of air) *10⁶

The following selected transactions are from Garcia Company.

• Requirement
• General Journal
• General Ledger
• Trial Balance
• Schedule of Receivables
• Calculation of Interest