In 2020, John and Emma, married filing joint taxpayers, have adjusted gross income of $430,000. Their AGI includes $10,000 of interest income. They have no dependents and have $50,000 of itemize deductions. What is their 2020 federal income tax?

A) $83,631 B) $83,829 C) $89,212 D) $89,404

In December 2019, Emily, a cash basis taxpayer, received a $2,500 cash scholarship for the spring semester of 2020. However, she did not use the funds to pay the tuition until January 2020. Emily can exclude the $2,500 from her gross income in 2019.

a. True

b. False  

Using the Black-Scholes option pricing model, what is the price of a $1,310 2020-04-24 European call option for Alphabet Inc. (GOOG) stock purchased on 2020-03-16, assuming that the option implied volatility is 53%, the stock price is $1,084, and the risk-free rate is 1.5%?

Step 1 – Analyze Business Transactions (Accounting Cycle) Assume that you are the Financial Accountant of a newly started business from your chosen in August 2020: You are requested to assume the chosen business transactions during the month of August 2020 and analyze it by shown the impact of these transactions on the accounting equation!

1. Review   and discuss the collapse of the Futures Oil Market, which   fell into the negative realm in May 2020.

What were the main reasons for this fall into the negative realm? Critically discuss.

2. After May 2020, what are the prospects of futures contracts as a significant risk management tool for firms? Discuss critically.

You are the CEO of a major US equipment manufacturer that sells its industrial construction equipment worldwide. You have seen shrinking profits in the past 5 years due to competition from Chinese equipment manufacturers and your Board of Directors and shareholders are looking to you for profit improvement. You have been approached by the Mexican government to open a factory in Juarez (just across the border from El Paso, Texas) and the Mexican government will subsidize the facility construction if you can create 200 new jobs. Opening this facility in Mexico will mean a reduction of union workers in the US plant, but will save the company $20 million a year in labor costs. On the other hand, the US government is considering a Border Adjustment Tax on parts you produce in Mexico and bring back to the US plant for final assembly. The total costs of this Tax is unknown but it could be up to 40% of the value of items produced in the new Mexican facility.

On top of this, you are looking to expand your global sales presence into third world regions such as Central Africa, South East Asia, Central America and other regions that need construction equipment to expand their infrastructure and improve their local economies. Your Global Sales and Marketing teams have advised that Chinese manufacturers are also targeting these same regions. This same team also advises that the market potential in these regions could expand sales by 50% and profits by 15% over the next 3 years.

Keeping in mind that it is the fiduciary responsibility of all leaders of for-profit corporations to maximize shareholder value, start a thread that begins with your decision to open, or not to open, a facility in Mexico and explain, in detail, your reasoning.

You are the CEO of United Airlines and you have had a pretty difficult month. First, you kicked young women off of a plane because they were wearing yoga pants, then you forcefully dragged a doctor off a plane against his will. While your stock price has mostly rebounded, you a loss of value of $1 billion the day after the incident with the doctor. You know your organization needs a culture change. Apply Kotter’s 8-step model of change,to the United organization – what would be your strategy for remaking the organization? Be as specific as you can.

Pleasanton Studios Kersten Brown, the CEO of Pleasanton Studios, is having a tough week – all three of her top management level employees have dropped in with problems. One executive is making questionable decisions, another is threatening to quit, and the third is reporting losses (again). Kersten is hoping to find simple answers to all her difficulties. She is asking you (her accountant) for some advice on how to proceed. Pleasanton Studios owns and operates three decentralized divisions: Entertainment, Streaming, and Parks. Pleasanton Studios has a decentralized organizational structure, where each division is run as an investment center. Division managers meet with the CEO at least once annually to review their performance, where each division manager’s performance is measured by their division’s return on investment (ROI). The division manager then receives a bonus equal to 10% of their base salary for every ROI percentage point above the cost of capital. The Entertainment division manager, John Freeman, was the first to knock on Kersten’s door this morning. Entertainment, Pleasanton Studios’ first endeavor, produces movies for the big screen. Entertainment has been in operation since 1965. Last month, John had mentioned a proposal to build a new animation studio. The build would cost $4,910,000 with an estimated life of 20 years and no salvage value and would allow Entertainment to start producing animated movies. Animated movies were projected to bring in an additional $1,210,000 in revenues each year, but would increase annual production costs by $574,000. John had dropped in to let Kersten know he had decided not to move forward with the animation studio. This surprised Kersten – her quick mental calculation indicated that the studio would have a payback period of 8 years, much shorter than the expected life of the studio. Not entirely sure that her quick assessment was valid, Kersten needed to check with her accountant on the matter. Next to Kersten’s door was the manager of Streaming, which produces short-form (30 minute to one hour) episodes in addition to streaming the movies developed by Entertainment. Customers then buy subscriptions to the service. Run by division manager Reyna Imanah, Streaming was introduced in 2016 and has increased subscriptions by 20% every year since. Reyna’s complaint was that, based on the current bonus payout schedule, John Freeman’s bonus last year was significantly higher than hers. She points to the increasing subscription rates at Streaming, and says that her division is being punished for having opened so recently (her division’s facilities are much more recent than those in Entertainment). She currently has an employment offer from another company at the same base pay rate, and stated that she will accept this offer unless she feels her performance is being appropriately acknowledged and compensated. Kersten needs to look at the relative performance across divisions to determine how to proceed with Reyna. Pleasanton Parks is a theme park based on the movies from Entertainment and the series from Streaming. For many years, it was a popular year-round destination, with characters, rides, and a hotel. This park has lost popularity in recent years, and has been ‘in the red’ for the past two years. If the park is not profitable this year, you will need to decide whether to permanently close that division. Included in the ‘Fixed COGS’ for Parks is an annual $1,650,000 mortgage payment on the land and buildings for the park, which would still need to be paid (as a corporate level cost) if the park is closed and that segment is removed from the financial statements. Incidentally, you recently had a conversation with a Marriott Hotels executive, who would like to expand into the area. If you decided to close Parks, you are fairly certain that you could lease the hotel facilities to Marriott for $650,000 annually. A partial report of this year’s financial results for Pleasanton Studios can be found in Table 1 below. The ‘Selling and admin costs’ listed in Table 1 are directly incurred by each division, and are determined at the beginning of each year (that is, they do not change with increased/decreased production). In addition to the divisional information above, there are $2,000,000 in corporate costs that are currently allocated evenly between the three divisions. These costs are primarily due to employee benefits costs, which are billed at the corporate level. If the Parks division is closed, the decreased employee base would reduce allocated corporate costs by $500,000. Pleasanton Studios has a cost of capital of 12 percent (and Kersten uses the cost of capital as their required rate of return) and are subject to 32% income taxes. Before she can make any decisions, Kersten needs to evaluate this year’s performance results. She sets off to see you, the company’s accountant, for answers.

Required: Write your response in the form of a 1-2 page memo to Kersten Brown, from the perspective of the company accountant. Be sure to include all the financial analyses to support your conclusions, clearly showing your calculations, at the end of the memo or attached in a separate document. Be sure to address the following points in your memo.

a. Evaluate this year’s performance results for the three divisions. Your financial analysis should include a segmented income statement for Pleasanton Studios, as well as the current annual ROI, residual income and EVA for the three divisions.

b. Evaluate Entertainment’s decision not to invest in the new animation studio (i.e., was the decision appropriate and in the best interests of Pleasanton Studios), including the appropriate financial analyses to support your evaluation.

c. Evaluate the validity of Reyna Imanah’s complaint regarding her evaluated performance. Explain why it is (or is not valid), and what further information would be necessary.

d. Provide a recommendation on whether to close the Parks division, including all necessary financial analyses.

Typhoon Foods, Inc. is considering expansion into Latin America. The CEO of Typhoon has come to you for a recommendation on the best market expansion approach.

Choose one of the market expansion approaches we discussed in class (E-Commerce, Licensing, Franchising, FDI, or Joint Venture). Explain what that expansion approach is in your own words and make a strong argument for why it is the best approach. Do a comparison / contrast with at least one other expansion approach.

You are the newly appointed CEO of a 300-bed community hospital in the Midwest. During your first week on duty, your board president and your chief of medical staff both express the same concern to you about the hospital staff: They just don’t seem to be very motivated in performing their duties these days. Quality of care and patient satisfaction are suffering as a result.

What will you do to set about improving motivation within your healthcare professional team? Explain at least three specific motivational strategies that you will try, and also explain how you will know if your strategies have worked.