The total price of purchasing a basket of goods in the United Kingdom over four years is: year 1=£840, year 2=£870, year 3=£900, and year 4=£970. Calculate two price indices, one using year 1 as the base year (set equal to 100) and the other using year 4 as the base year (set equal to 100). Round to the nearest 100th. Then, calculate the inflation rate between year1 and year 4 based on the first price index series. If you had used the other price index series, would you get a different inflation rate? If you are unsure, do the calculation and find out.

Case study 2

Reebok is a sporting goods manufacturing company in the United Kingdom. It is one of the best-sellers among the top other finest sporting brands. The company‟s footwear, clothing, accessories, and sports equipment are in wide demand in many counties across the globe, and they are challengers for core branded companies for a quite span of time. For a long time, no competitor could compete with their products, and then came the Adidas Company of Germany as more challenging with more satisfactory and reasonably priced products to the customers. Though all the products are sporting products, there will be always various tastes and preferences in the minds of the customers. Reebok consumers like the way company‟s products are featured under various categories for different ages, ladies, men and children. Adidas carter the customers according to their income level and status.

Adidas has larger product line product than Reebok. Adidas Company is also very clear that they connect and engage with its customers as per their need and demand. Adidas sells a range of clothing items, varying from men's and women's t-shirts, jackets, hoodies, pants, and leggings. Adidas has many other business locations around the world such as Oman, India, Hong Kong, Toronto, US, England, Japan, Australia, and Spain. One of the main focuses of Adidas has always been football kits, and the associated equipment. Adidas remains a major company in the global supply of team kits for international association football teams and clubs. Adidas Performance was designed to maintain their devotion to the athlete; in comparison the Reebok Company has relatively less products than the giant Adidas Company. Thus the customers of Adidas were overwhelmed with the services and products of the second-largest best sporting manufacturing companies in the globe.

Question 2

1. Evaluate the factors influencing the buyer behaviour of Adidas customer.

(4 Marks–100 /125 words)

ii. Design a promotional mix for Rebook to increase their sales. (4 Marks–100 /125 words) iii. Suggest a pricing strategy for Reebok Company to attract the customers.

(2 Marks– 50 /75 words)

The following information pertains to United Ways, a private voluntary health and welfare organization, for the year ended December 31, 20X3.

Balances in net assets at January 1, 20X3: Without Donor Restrictions$3,020,000

With Donor Restrictions 11,025,000

The following transactions occurred during the year ended December 31, 20X3:

1. Received cash donations of $508,000 from donors who did not place any time or purpose restrictions on them.
2. Received $1,019,000 of pledges from donors to be received in 20X4; it was estimated that 6 percent of the pledges would not be collected. Donors did not place any restrictions on the use of their pledges.
3. Earned investment income of $212,000 on endowment investments that donors permanently restricted for research activities.
4. Designated $227,000 of the $510,000 of cash donations received in 20X3 for computer acquisitions.
5. Spent $158,000 of the $212,000 of investment income earned on endowment investments on research during the year ended December 31, 20X3. (This amount is included in the $251,000 for research expenses shown in the following table.)
6. Acquired $117,000 of equipment from donations made in 20X2 that donors had restricted for that purchase. The governing board of United Ways reports acquisitions of capital assets as unrestricted.
7. Received donated audit services from the organization’s accounting firm that would have cost $16,400.
8. Learned that the fair value of endowment investments was $619,000 higher at the end of 20X3 than at the beginning. United Ways did not acquire or sell any endowment investments during 20X3 and treats gains and losses on endowment investments as permanently restricted.
9. Incurred program and supporting services expenses during 20X3 as follows (depreciation expense for 20X3 has been properly allocated to the functional expenses
10. Research$251,000 Public health education 101,400
11. Community services 149,700
12. Management and general (does not include the audit that was donated) 124,800
13. Fund-Raising 114,500

A company based in the United Kingdom has an Italian subsidiary. The subsidiary generates €30,000,000 a year, received in equivalent semiannual installments of €15,000,000. The British company wishes to convert the euro cash flows to pounds twice a year. It plans to engage in a currency swap in order to lock in the exchange rate at which it can convert the euros to pounds. The current exchange rate is €1.1227/£. The fixed rate on a plain vanilla currency swap in pounds is 5.0 percent per year, and the fixed rate on a plain vanilla currency swap in euros is 6.0 percent per year.

a. Determine the notional principals in euros and pounds for a swap with semiannual payments that will help achieve the objective.

b. Determine the semiannual cash flows from this swap.

You are currently employed as partner in United & Party LLC, an accounting firm. The following three different audits were performed by your team for the year ended December 31, 2018:

Peoples Shelter, a non-profit organization. Except for salaries and allowances, the company has not kept vouchers or receipts for more than 60 per cent of its expenses.

Jack Holdings, Inc. Jack Holdings is a major construction company. Jack Holdings also purchases large vacant blocks of land that it later subdivides for the construction of houses and units to compensate for the irregularity of its contracted building projects. These are then sold on its own account. Your evidence strongly shows that the apportionment of costs to houses and units sold has been kept low in order to boost profits. In your opinion, this has resulted in the overvaluation of the unsold properties. The directors of the company do not agree and maintain that the stock of properties is correctly valued.

Vacation Dreamland Ltd. Vacation Dreamland booked a major German group to perform in selected cities in the U.S.A. The contract required that Vacation Dreamland should pay the group in US dollars but, to reduce costs, it did not hedge the amounts. Subsequent to year end, the German Mark fell against the US dollar and a substantial loss relating to the group’s tour was expected. The management of Vacation Dreamland tried unsuccessfully to renegotiate the band’s contract and was not able to obtain finance to cover the expected shortfall. Vacation Dreamland cancelled the tour and expects a substantial claim from the German group. Your analysis indicate that Vacation Dreamland does not have the income, cash or other assets to sustain such a loss.

Required:

Assuming that all amounts involved are material, identify:

The most likely auditor’s opinion that you would issue on each financial report for the year ending December 31, 2018 and

Discuss the justifications for each of the opinions.

The World Bank and United Nations often use the Human Development Index as a measure of economic performance. This is a number constructed using the Gross Domestic Product Per Capita, the literacy rate (as a measure of education in society) and the life expectancy (as a measure of the health of people in a society).

This is a better measure of country performance, especially in countries with high levels of income inequality. Explain how this is a construct and likely to better reflection of economic performance.

Sainsbury's is the second largest chain of supermarkets in the United Kingdom. The have expanded internationally and have recently also opened stores in Egypt. However, Sainsbury has since experienced a variety of issues with the Egyptian market. As business development analyst you only see the three follow- ing options for Sainsbury’s business in Egypt:

Today is December 31, 2000. Suppose you have the following information about the financial implications of Sainsbury’s three strategic options.

Option 1: Scale down operations
Sainsbury’s immediately starts to scale down its operations and plans to eventually leave the Egyptian market effective as of Jan. 01, 2006 (i.e. after 5 more years). At the end of 2001, Sainsbury’s operations in Egypt are projected to generate a loss of £6 million. However, due to the effects of scaling down operations and a number of efficiency increases, Sains- bury’s estimates a profit of £7,2 million at the end of 2002, which is then expected to decrease by 3% on a yearly basis until Dec. 31, 2005. All fore- casts for this option are based on assumptions and considered as risky.

Option 2: New local partners
The NPV of acquiring new local partners has already been calculated for you: £12 million

Option 3: Sell business entirely
Sainsbury’s immediately sells its Egyptian operations to a local investor. The local investor is willing to pay a total £15 million, in three parts of £10 million (today) and £4 million (on Dec. 31, 2001) and £1 million (on Dec. 31, 2002). Since the local investor has also presented a bank guarantee for the whole acquisition price (issued by a well-known British bank), op- tion 3 is considered to be risk-free.

The risk-free interest rate is 1% EAR. Sainsbury’s continuing operations in Egypt are seen as risky and the appropriate risk premium is 8%.

1. Calculate the net present values (NPVs) of options 1 and 3 indicated above. (4 pts)

2. Clearlyindicatewhichoption(Option1,Option2orOption3)shouldbe chosen by Sainsbury’s management, and explain the reasons for your choice in two or three sentences – use technical terminology as needed. (1 pts)

The United Kingdom decided not to join other European Union countries in using the euro as its currency. One opponent of adopting the euro argued, "It comes down to economics. We just don't believe that it's possible to manage the entire economy of Europe with just one interest rate policy. How do you alleviate recession in Germany and curb inflation in Ireland?"

a. What interest rate policy would be used to alleviate recession in Germany?

b. What interest rate policy would be used to curb inflation in Ireland?

c. What does adopting the euro have to do with interest rate policy?

Along with GDP growth, the unemployment rate is the most recognized economic statistic in the United States. It’s too bad it is so misleading.

“The unemployment rate declined to 4.6 percent in November…” are the very first words of the Bureau of Labor Statistics’ news release about the November 2016 survey data. That must seem incredibly wrong to many Americans. And that is because it is, in fact, not true that 4.6% of Americans who want a full-time job don’t have one. The unemployment rate is something more specific and less meaningful.

As measured by the BLS, the unemployment rate is defined as the percentage of unemployed people who are currently in the labor force. In order to be in the labor force, a person either must have a job or have looked for work in the last four weeks. A person only needed one hour in the prior week to be considered employed.

This leaves out a ton of relevant people. According to the November 2016 data, over 5.5 million Americans said they want a job, but don’t have one, and are not considered a part of the labor force. If these people were included in the unemployment rate, it would jump to 8.2%. The BLS is not attempting to be deceptive. These folks are left out of the calculation because more than half of them have not done anything to find work in more than a year. Another 10% of this group say they are not available for work at the moment.

Yet to leave this group out significantly underestimates employment issues in the US. For example, the unemployment rate completely ignores the nearly 600,000 “discouraged workers” who say they are no longer looking because they don’t think they can find a job. It disregards the many students who would like a part-time job but have given up looking, and caretakers who would take a job if the compensation was high enough.

Among the group of people that the BLS considers out of the labor force, there is too much variety in their “labor force attachment” (the economic term for the likelihood a person will return to the labor market) to simply disregard them. This is not a new argument. More than three decades ago, the Nobel prize winner James Heckman and his coauthor Christopher Flinn pointed out that labor force participation is a matter of degree, not binary.

The research of the economists Andreas Hornstein of the Federal Reserve Bank of Richmond, Marianna Kudlyak of the Federal Reserve Bank of San Francisco, and Fabian Lange of McGill University demonstrates this fluidity. The researchers calculated the likelihood of different groups of nonemployed people getting a job in the next month (pdf) using data from 2010. They found that the “unemployed” had a 16.8% of getting a job the next month, while those who are considered out of the labor force but say they want a job, found work 11.6% of the time. A better indicator of whether someone is unemployed or not is the amount of time since they last worked. As every person without a job knows, it’s a lot easier to find one the less time you’ve been out of work. When Hornstein, Kudlyak, and Yang looked at subgroups within these employment types, they found that the “unemployed” who had not had a job in over six months were no more likely to find a job in the next month than those who said they wanted a job but are not counted in the labor force. Does it really make sense that BLS considers one group in the unemployment rate calculation, but leaves the other out? Hornstein, Kudlyak, and Yang don’t think so. They developed a new statistic: the nonemployment index. Instead of ignoring those that BLS considers out of the labor force, the nonemployment index includes them. The index is calculated by weighting each type of nonemployed group by their likelihood of transitioning to the labor market in the next month. In other words, instead of not counting people out of the labor force, they are counted as one-third or one-tenth of a person depending on their subgroup. The following chart shows the nonemployment index versus the unemployment rate over the last 20 years. The nonemployment rate is consistently higher and has not fallen quite as quickly since the Great Recession. If part-time workers who were interested in full-time work were included, the nonemployment index would rise by about 1%. Hornstein, Kudlyak, and Lange are not the only researchers to have taken issue with the unemployment rate. The left-leaning Economic Policy Institute (EPI) publishes an alternative unemployment rate that includes “missing workers.” EPI contends that demographic trends suggest that two million more people would be participating in the job market if it were significantly stronger, but that these people are instead counted as out of the labor force. Even the BLS grants that there may be an issue. “Some have argued, however, that the [unemployment rate inclusion] measures are too restricted, and that they do not adequately capture the breadth of labor market problems,” the BLS explains in an FAQ. In response to this concern, the BLS now publishes some crude alternative measures of unemployment. Still, the unemployment rate remains the top-line finding of the monthly labor market report. Critics of the unemployment rate don’t think it is completely useless. The researchers behind the nonemployment index write that the conventional unemployment rate provides a “valid signal” of the labor market cycle. The unemployment rate and alternative measures like the nonemployment index are highly correlated. So for understanding directional trends in the job market, there is not a huge difference. But unemployment is too important a measure for us to be okay with just directional accuracy. The unemployment number the US uses should give a real sense of how many people are out of work but don’t want to be. As currently defined, it doesn’t do that. The government has the tools to do better and it should.

the questions are:

1) Why do you think so many Americans are not included in the unemployment rate?

2) What can be done to encourage these 'discouraged workers?'

3) How would our economy operate if the BLS reported a more accurate unemployment rate of 15%?