Johnson Real Estate Company was founded 25 years ago by the current CEO, David Johnson. The company purchases real estate, including land and buildings, and rents the property to tenants. The company has shown a profit every year for the past 18 years, and the shareholders are satisfied with the company’s management. Prior to founding Johnson Real Estate, David was the founder and CEO of a failed camel farming operation. The resulting bankruptcy made him extremely averse to debt financing. As a result, the company is entirely equity financed, with 8 million shares of common stock outstanding. The stock currently trades at $37.80 per share. Johnson is evaluating a plan to purchase a huge tract of land in the southeastern United States for $85 million. The land will subsequently be leased to tenant farmers. This purchase is expected to increase Johnson's annual pretax earnings by $14.125 million in perpetuity. Abigail Burton, the company’s new CFO, has been put in charge of the project. Abigail has determined that the company’s current cost of capital is 10.2 percent. She feels that the company would be more valuable if it included debt in its capital structure, so she is evaluating whether the company should issue debt to entirely finance the project. Based on some conversations with investment banks, she thinks that the company can issue bonds at par value with a 6 percent coupon rate. From her analysis, she also believes that a capital structure in the range of 70 percent equity/30 percent debt would be optimal. If the company goes beyond 30 percent debt, its bonds would carry a lower rating and a much higher coupon because the possibility of financial distress and the associated costs would rise sharply. Johnson has a 23 percent corporate tax rate (state and federal). If Johnson wishes to maximize its total market value, would you recommend that it issue debt or equity to finance the land purchase? Explain.

. What is the proposed replacement for NAFTA that is currently pending full approval and entry into force?

1. DR-CAFTA
2. KORUS
3. Drawback
4. USMCA

22. Which of the following is not an aspect of USMCA vehicle qualification?

1. Corporate steel & aluminum North American purchases of at least 70%
2. Regional value content requirement of 75%
3. Labor value content of 40% - high wage labor production of North American parts
4. The concept of core parts – main vehicle systems with a 75% RVC requirement
5. Annual conflict mineral content reporting

23. Free Trade Agreements encourage trade with partner countries and can lower the cost of goods for consumers.

1. True
2. False

24. Under the current NAFTA net cost method of calculating the regional value content (RVC) for the automotive industry, what % does the RVC result need to be to allow the producer or importer to certify the article for Autos as NAFTA eligible?

1. 50%
2. 52.5%
3. 62.5%
4. 65.5%

25. What are important characteristics of a good supply chain?

1. Transparency
2. Consistency
3. Efficiency
4. All of the above

26. Which of the following were not established by Customs strictly for security purposes?

1. Container Security Initiative (CSI)
2. Importer Self-Assessment (ISA)
3. Customs Trade Partnership Against Terrorism (CTPAT)
4. Integrated Border Enforcement Teams (IBET)

27. When an Importer of Record files their first entry with Customs, they are automatically enrolled as a CTPAT participant as long as they are a wholly owned US entity.

1. True
2. False

28. In order to use FAST, importers must ___________________________________ .

1. be located in a specific area of the United States
2. be in a specific revenue category
3. be CTPAT approved
4. be importing goods that originate under the terms of the NAFTA
5. post a bond

29. A strong Customs department is primarily concerned with the following:

1. Mitigation of risk
2. Minimization of duties paid
3. Compliance in all processes
4. All of the above

30. Participating in the following 2 programs, will grant you Trusted Trader status with CBP:

1. FAST and ISA
2. NAFTA and FAST
3. CTPAT and ISA
4. FAST and CTPAT

A former UCLA Health System employee became the first person in the nation to be sentenced to federal prison for violating HIPAA. Huping Zhou, 47, of Los Angeles, was sentenced to four months in prison on April 27 after pleading guilty in January to four misdemeanor counts of accessing and reading the confidential medical records of his supervisors and high-profile celebrities, according to the US Attorney’s Office (Links to an external site.) for the Central District of California. Zhou was also fined $2,000. In 2003, Zhou, who was a licensed cardiothoracic surgeon in China before immigrating to the United States, was employed as a researcher with the UCLA School of Medicine.

On October 29, 2003, Zhou received notice that UCLA intended to dismiss him for job performance reasons unrelated to the illegal access of medical records. That night, Zhou accessed and read his immediate supervisor’s medical records as well as those of other coworkers. Over the next three weeks, Zhou abused his access to the organization’s electronic health record system to view the medical records of celebrities and high-profile patients, including Drew Barrymore, Arnold Schwarzenegger, Tom Hanks, and Leonardo DiCaprio.

According to court documents, Zhou accessed the UCLA record system 323 times during the three-week period. In the plea agreement, Zhou admitted he obtained and read patient health information on four specific occasions—with no legitimate reason, medical or otherwise—after he was terminated from his job. Zhou did not improperly use or attempt to sell any of the information he illegally accessed, according to the press release. In January, Zhou’s attorney, Edward Robinson, was quoted in the UCLA student newspaper saying Zhou did not know that accessing the records was a federal crime.

1. As a member of the UCLA workforce, would Zhou have a legitimate right to view patient records in his normal course of employment?
2. In managing access and disclosure of PHI, determine how UCLA could have discovered Zhou’s infractions?

Triple J Movers Ltd. is owned by Jacques Tétreault. The company used to be profitable but several new small companies have started to compete with Triple J, off ering very low prices that Triple J cannot match. Jacques thinks he can make his company profi table again if he eliminates his competitors, which will allow him to raise prices. He therefore decided to purchase one of his competitors each year for the next four years. The first company he bought was a proprietorship called Jerry’s Trucking. Jacques has hired your audit firm to review the accounting system and controls at Jerry’s Trucking to see what changes are needed before he can integrate it into Triple J Movers. Jacques hopes there are not many problems. You interviewed the owner of Jerry’s Trucking and the company’s bank manager and learned the following information: The company has customers in both Canada and in the United States, and the owner was not very knowledgeable about customs fees that must be paid and regulations that have to be followed when transporting goods across the borders. Also, the owner, Jerry, often simply took any cash that the business earned and spent it on personal items, instead of taking a salary from the business. There is only one office staff member besides Jerry: Jerry’s cousin, who does all of the bookkeeping. His cousin is not an accountant but has taken some accounting courses. Jerry explained that controls at Jerry’s Trucking are strong because: ● He can trust his cousin completely. (Having honest employees is important for effective control.) ● Jerry personally checks all of the bookkeeping entries, making any corrections he feels are necessary. ● At the year end, Jerry takes the bookkeeping records to a tax preparer, who prepares his tax return. Discuss the inherent risk at Jerry’s Trucking based on the above information. Include six observations in your answer.

Your firm manufactures optic transistors (OT), which are a component of personal computers. U.S. firms control 60 percent of the U.S. market for OTs. The market has done well overall, but recently, Japanese manufacturers of computers have increased their market share. Over the past two years, the Japanese have been exporting OTs to the United States in larger quantities. You have noticed that in the past two years your firm's share of the U.S. market for OTs has dropped from more than 25 percent to less than 20 percent. In addition, your firm's total sales have declined, its inventories are at their highest levels, and you have had to postpone hiring new employees. You have been informed by one of your better customers that it can purchase imported OTs for $0.95 each, ex factory, or $1.00, CIF American port. Your U.S. price has been $1.20, FOB your factory, with your costs at $0.90. The same OTs are sold to Japanese computer firms at $1.15. Furthermore, you have learned that the Japanese government assists OT manufacturers by rebating the value-added tax normally assessed on all products manufactured in Japan. To complicate your problems, you have experienced difficulty cracking export markets. You have noticed that countries in which personal computers are now being assembled, such as Brazil, Korea, and Taiwan, have restricted your firm's imports through a maze of complex regulations. These regulations require that you disclose important manufacturing and design techniques before import licenses will be granted. You are also concerned that your design patents will not be protected there, because Korean patent protection laws are not enforced. Korea has imposed quotas on OTs that make it virtually impossible to export to that market. What remedies are available to your firm under U.S. law? What factors (economic, political, or other) will affect the outcome of the case? Please be as specific as possible.

Read the following scenario and complete the questions below.

The entire poultry industry is working hard to keep up with demand, but egg production is falling behind. According to the USDA’s Economic Research Service, the price of eggs in the U.S. is expected to rise more than 35 percent in 2018. The cause of this egg price increases? An uptick in foreign demand for US eggs is partly to blame. When avian influenza devastated Europe this past year, egg suppliers in the U.S. stepped in to help fill the demand in these countries. Another problem arose in late 2017 where some egg supplies were contaminated with a dangerous insecticide, affecting countries including Germany, France, and Belgium. With millions of eggs being pulled from the shelves in Europe, US exports of eggs rose 663 percent between 2016 and 2017. Domestic demand has increased as well. In the United States, 2017 saw a 20-year record in egg consumption at 275.2 eggs per person per year. When you multiply that by 325 million Americans, that’s a lot of eggs.

Now, consider the commercial use of eggs in the production of grocery items such as bread, ice cream, pasta, cakes, and waffles. Let’s focus on the Sara Lee® All Butter Pound Cake® found in the freezer section of your local grocery store. The first ingredient listed on the package is, you guessed it – eggs. The pound cake sells for around $3.97 at the grocery store. However, with the price of eggs on the rise, it is likely that the $3.97 price may change.

1. Which of Sara Lee’s variances will be affected by the increase in egg prices? Why?
2. Will the increase in egg prices result in favorable or unfavorable variances for Sara Lee? Why?
3. What is Sara Lee® likely to do to its standards based on this increase in price and which standards will be impacted?
4. What, if anything, can Sara Lee® do to mitigate the impact of the rising cost of eggs on its manufacturing costs?

In the competitive software development market, patent protection is imperative for new products. Electronic Solutions Incorporated (ESI), where you work, has spent millions of dollars and many years developing a new software platform. While ESI has been waiting for a patent to be granted, its revenues, profits, and stock prices have slipped to an all-time low because so much time, money, and energy have been devoted to the software development effort.

You, as director of public relations, have been called to a meeting with the company president and members of the executive team. They give you the bad news: The United States Patent and Trademark Office denied ESI's application for patent on the new software platform. The executives at ESI were counting on the new software to restore the company's prestige and save the company from financial ruin. In the meeting, you also learn that this patent was ESI's last hope to avoid bankruptcy. The company attorney explains that ESI might win an appealwith the Patent and Trademark Office, but winning an appeal is a "long shot at best."

After the meeting, Mr. Mateo, the president, asks you to stay. He reminds you that your job is to "make the best of a bad situation." He tells you to write a press release about the situation. He says, "You need to write a press release reassuring employees, shareholders, and the public that everything will be fine. Make sure you include the fact that we are planning an appeal and are confident that the patent will be issued when our appeal is heard. Your responsibility is to get the positive story out there so that ESI does not fall apart."

Questions for Discussion

1. Does Mr. Mateo have the right to ask you to create a misleading press release? Should you write a release according to Mr. Mateo's instructions? Do employees, shareholders, and the public have a right to know what is happening?

2. What are your options? What could you do to try to resolve the situation?

1. One of the biggest news stories of the past few months is the outbreak of COVID-19 (novel coronavirus), first in China and then throughout the world. Numerous pharmaceutical companies have begun to develop COVID-19 vaccines. If all goes well, it will be at least a year before a vaccine is developed, tested, and approved by the FDA. However, one company—Moderna Therapeutics—has beaten all of the other companies in the race so far and is the first to advance to Phase 1 clinical trials.

Suppose that Moderna is the first company to gain approval for a COVID-19 vaccine in the United States. The monthly demand for COVID-19 vaccines in the U.S. is Q = 16 – (P/6) where Q is measured in millions of vials and P is measured in dollars. Moderna’s total cost of producing Q vials of vaccine is 2Q² and Moderna’s marginal cost is 4Q.

1.A As the only company allowed to sell COVID-19 vaccines in the U.S., what price would Moderna charge for its vaccine to maximize profit? How many vials of vaccine would Moderna sell each month? What are Moderna’s monthly profits from the sale of COVID-19 vaccine?

1.B How many vials of vaccine would be produced and what price per vial would be charged if this were a perfectly competitive market?

1.C (Vaccines, like the COVID-19 vaccine being developed by Moderna, provide benefits beyond the benefits received by those vaccinated. For instance, as more people are vaccinated, the odds of disease transmission to vulnerable groups who cannot be vaccinated (e.g., infants) are reduced. Suppose the marginal social benefit of the COVID-19 vaccine is 110 – 6Q, which is greater than the marginal private benefit. Given this, what role do you think the federal government should play in vaccine development, if any, beyond the determination of safety and effectiveness associated with vaccine approval?

You will complete all 4 questions from case 13.1.... all responses must hit the minimum of 5-7 sentence length with evidence (per question)

Eddie & Company: Exceeding the Relevant Range

Eddie & Company is a small manufacturer located in the North Central part of the United States. The company manufactures auto and truck axles for automobile producers. Most of its output is sold to one of the larger auto companies. Because its sales have recently increased beyond all expectation, that company now wants Eddie & Company to increase its production level to satisfy the increased demand.

This request poses a serious dilemma for the owners of Eddie & Company. It would have to considerably increase production in order to ship more axles to the automaker. However, it has already been operating at full capacity just to meet the demands of its customers, including the automaker, when sales were low. The only ways to satisfy the increased demand would be (1) to buy the needed new products from its competitors and resell them to the automaker—at no profit—or (2) to increase its own production capacity in order to satisfy the demand.

The first alternative would satisfy the short-run increase in demand, but not the long-range one. But the second alternative of increasing production capacity would pose different problems. First, there is no assurance that the increased demand from the automaker will be permanent, and Eddie & Company could find itself with unused capacity. Second, this alternative would mean increased fixed expenses, which would raise the company’s break-even point. And this increase would continue even if the automaker cut back its orders to the original level.

Questions

1. What options are available to the company?
2. What would you do if you faced the same situation?
3. Would you buy the product from your competitor to meet the contract? Explain.
4. Would you add the additional capacity? Explain.

2. United Rentals Corporation is authorized to issue 100,000 shares of 5%, $60 par value preferred stock and 5,000,000 shares of no-par common stock with a stated value of $3 per share. During 2016, its first year of operation, the company has the following transactions.

    Jan. 1 Issued 15,000 shares of preferred stock for cash at $105 per share.

    Jan. 15 Issued 500,000 shares of common stock for cash at $10 per share.

    Mar. 2 Issued 20,000 shares of common stock for land. The land had an

              asking price of $310,000. The stock is currently selling

              on a national exchange at $15 per share.

    Apr. 30 Issued 4,000 shares of common stock to attorneys in payment of

              their bill for $72,000 for legal services rendered in helping the

              company incorporate.

    Sept. 5 Purchased 12,000 shares of its own common stock at

              $17 per share.

    Dec. 6 Sold 8,000 shares of the treasury stock at $20 per share.

    Dec. 10 Sold the remaining treasury stock for $15 per share.

     INSTRUCTIONS

     Journalize the transactions for United Rentals Corporation.