BOSS Manufacturing Company, which employs about 160 productions and administrative workers have the following payroll procedures:
The factory supervisor interviews and hires all job applicants. The new employee prepares a W-4 form (Employee’s Withholding Exemption Certificate) and gives it to the supervisor. The supervisor writes the hourly rate of pay for the new employee in the corner of the W-4 form and then gives the form to the payroll clerk as notice that a new worker has been hired. The supervisor verbally advises the payroll department of any subsequent pay raises.
A supply of blank time cards is kept in a box near the entrance to the factory. All workers take a time card on Monday morning and fill in their names. The workers are nice people. During the week they record the time they arrive and leave work by punching their time cards in the time clock located near the main entrance to the factory. At the end of the week, the workers drop the time cards in a box near the exit.
A payroll clerk, who is also nice, retrieves the completed time cards from the box on Monday morning. Employees are automatically removed from the payroll master file when they fail to turn in a time card.
The payroll checks are manually signed by the chief accountant and then given to the factory supervisor, who distributes them to the employees. The factory supervisor arranges for delivery of the paychecks to any employee who is absent on payday.
The payroll bank account is reconciled by the chief accountant, who also prepares the various quarterly and annual tax reports.
a. Identify weaknesses in current procedures and explain the threats that they may allow to occur.
b. Suggest ways to improve the BOSS Manufacturing Company’s internal controls over hiring and payroll processing. List up to five recommendations.
In: Accounting
Question B3:
Alcoa Chemical, a US company, has sold £2 million chemicals to CPL
Co. Payment is due in 180 days.
Spot rate: $1.60/£
180-day forward rate $1.56/£
180-day U.S. dollar interest rate (annualized) 3%
180-day Pound interest rate (annualized) 4%
180-day call option on pound at $1.57/£ premium $0.06 per
pound
180-day put option on pound at $1.57/£ premium $0.05 per
pound
(a) What is the hedged value of Alcoa's receivable using the
forward market hedge?
(b) What is the hedged value of Alcoa's receivable using the money
market hedge?
(c) Which of the hedging alternatives analyzed in parts (a) and (b)
would you recommend to Alcoa? Why?
(d) What alternative is available to Alcoa to use currency options
to hedge its receivable? What is the
hedged value of Alcoa's receivable using the option hedge?
(e) Discuss and compare the costs of hedging by forward contracts
and option contracts.
(Numbers should be rounded to at least 3 decimal places.
Please include currency symbols $, £ in
your answer)
Question B4:
Mill Company is evaluating the proposed acquisition of a new
milling machine. The machine's base price is
$150,000, and has a terminal value of $20,000. The company's cost
of capital is 8%. The project has a
life-time of 3 years. The operating cash flows are as
follows:
Year 1 Year 2 Year 3
1. After-tax savings $35,000 $35,000 $35,000
2. Depreciation tax savings $22,500 $25,000 $8,000
Net cash flow $57,500 $55,000 $43,000
(a) Find the net present value of this project (NPV). Should it be
accepted?
Suppose Mill Company wishes to expand its operations in the UK. The
exchange rate at the time of
investment is £1= $1.60.
(b) Use the PPP to find the exchange rate 1 year from now, 2 years
from now and 3 years from now. The
inflation rate in the U.S. (?$) is 3 percent and in the UK 5
percent (?£)
(c) Find the NPV in pounds. Should Mill Company invest in the UK?
(Numbers should be rounded to at least 3 decimal places.
Please include currency symbols $, £ in
your answer)
In: Finance
|
Last month your company posted $100,000 with Contracts-R-Us to get approved to bid on contracts via their website. Trump Enterprises is looking for a supplier of red baseball caps, and your boss wants you to bid on the contract. The company requires 112,000 baseball caps per year over the next five years. You estimate that the necessary equipment will cost $790,000, and the equipment will be depreciated straight-line to zero over the project’s life. You believe this equipment can be sold for $62,000 at the end of the project. You further estimate the fixed costs to be $317,000 per year, and the variable production costs to be $9.50 per hat. You'll need an initial investment in net working capital of $67,000, but this will be recovered at the end of the project. Your tax rate is 35 percent and you require a return of 12 percent on your investment. What is the lowest bid price (per unit) you should submit (i.e. price where NPV=0)? |
| Part A: Start by calculating the operating cash flow that, when received as an annuity for 5 years, would set the NPV = 0. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| OCF* | $ |
| Part B: Now calculate the bid price. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Bid price | $ |
In: Finance
Assignment 2
USE GAAP
INCLUDE US GAAP CODIFICATION (CITATIONS)
In 2010, the No-slice Golf Company decided to augment their very successful line of golf clubs with a new line of professional caliber golf balls. The executives at No-Slice were aware of the difficulty of penetrating the golf ball market but feel, with their name recognition and the possibility of receiving endorsements from tour professionals that were playing No-Slice clubs, chances for success were substantial. The company purchased $175 million of equipment and buildings in 2011 to begin production. The No-Slice golf ball has not performed up to expectations. The tour professionals did not care for the ball and did not endorse it. Significant improvements in golf balls by Callaway and Nike and the continued dominance of the Titleist ProV1 series made entering the market very difficult.
On July 1, 2017, the Board of Directors voted to sell off the golf ball manufacturing division. The company continued to operate the facility at current levels of production until the sale of the division was completed on June 1, 2018. No-Slice has a April 30 year end and the controller and CEO are concerned about the proper reporting for the disposal of the golf ball manufacturing division in the year-end April 30, 2018 financials. The company wants to issue the financial statements to the public by the end of June 2018. You are to draft a report to the controller and CEO identifying the issues and accounting choices associated with reporting the disposal and the authoritative guidance that exists to determine the proper manner of reporting the assets, liabilities, and results of operation for the division.
In: Accounting
Your company (US-based organization) is expected to receive 4 million British pounds in nine months. You decide to use European call options to fully hedge against your currency risk. Each call option has 500,000 pounds attached and has an exercise price and premium of $1.25/pound and $.75/pound, respectively. The spot price for pounds the day that you established your hedge was $1.2/pound.
Find the exercise value (in dollars) of the call options on the day you created your hedge. Round intermediate steps and your final answer to four decimals.
Find the time value (in dollars) of the call options on the day you created your hedge.
Find your profit/loss (in dollars) from your options if the dollar/pound spot price is $1.3/pound when the options expire.
Find your profit/loss (in dollars) from your options if the dollar/pound spot price is $1.1/pound when the options expire.
In: Finance
|
Consider the following rates of return: |
| Year |
Large-Company Stocks |
US Treasury Bills | |||
| 1 | 3.99 | % | 4.59 | % | |
| 2 | 14.16 | 4.94 | |||
| 3 | 19.25 | 3.86 | |||
| 4 | –14.43 | 6.99 | |||
| 5 | –31.92 | 5.30 | |||
| 6 | 37.49 | 6.20 | |||
| a. |
Calculate the arithmetic average returns for large-company stocks and T-bills over this period. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| Average returns | |
| Large-company stocks | % |
| T-bills | % |
| b. |
Calculate the standard deviation of the returns for large-company stocks and T-bills over this period. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| Standard deviation | |
| Large-company stocks | % |
| T-bills | % |
| c-1. |
Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the arithmetic average risk premium over this period? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| Average risk premium | % |
| c-2. |
Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the standard deviation of the risk premium over this period? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| Standard deviation | % |
In: Finance
1. The return on assets ratio tells us the profit generated by each dollar in assets. You will want to compare this ratio to Choice Hotels' historical performance and to Marriott International to understand if it is an acceptable ratio. Is the return on assets ratio acceptable? Why or why not?
2. Which of the above ratios would you use to determine which company, Choice Hotels or Marriott International, is more attractive for an acquisition? Why?
3. Based on the financial statement analysis, earnings per share analysis, budgeting ratios, and the above profitability ratios, which company would you invest in and why?
| Choice Hotels | Marriott International | (2016/2015)-1 | (2016/2015)-1 | |||||
| Ratios | 2016 | 2015 | 2016 | 2015 | Percent Change from 2015 to 2016 | Percent Change from 2015 to 2016 | ||
| Choice | Marriott | |||||||
| Basic earning power (BEP) ratio = earnings before interest and taxes (EBIT) / total assets | 3.5 | 3.2 | 0.06 | 0.23 | 0.09 | 2.98 | ||
| Return on equity (ROE) = net profit / total equity | -0.45 | -0.32 | 0.15 | -0.24 | 0.41 | -1.61 | ||
| Return on assets (ROA) = net income / total assets | 0.16 | 0.18 | 0.03 | 0.14 | -0.08 | -0.77 | ||
| Profit margin = profit (gross or net) / sales | -0.14 | -0.16 | 0.18 | 0.15 | -0.13 | 0.41 | ||
| Operating margin = operating income / revenue | 0.26 | 0.26 | 0.16 | 1.57 | -0.01 | -0.90 | ||
In: Finance
FOREIGN CAPITAL BUDGETING Sandrine Machinery is a Swiss multinational manufacturing company. Currently, Sandrine’s financial planners are considering undertaking a 1-year project in the United States. The project’s expected dollar-denominated cash flows consist of an initial investment of $2,000 and a cash inflow the following year of $2,400. Sandrine estimates that its risk-adjusted cost of capital is 10%. Currently, 1 U.S. dollar will buy 0.96 Swiss franc. In addition, 1-year risk-free securities in the United States are yielding 3%, while similar securities in Switzerland are yielding 1.50%. a. If this project was instead undertaken by a similar U.S.-based company with the same risk-adjusted cost of capital, what would be the net present value and rate of return generated by this project? b. What is the expected forward exchange rate 1 year from now? c. If Sandrine undertakes the project, what is the net present value and rate of return of the project for Sandrine? below is the table given by instructor to use for this problems.
Class: A direct quote is the foreign exchange rate stated in terms of the domestic currency per unit of the foreign currency. In the U.S., a direct quote for the Canadian dollar would be US$0.82 = C$1. Conversely, in Canada, a direct quote for U.S. dollars would be C$1.22 = US$1.
Using the interest rate parity theorem, the one-period forward exchange rate is calculated using the spot rate (stated as a direct quote) and the interest rate forecasted for the two countries in the period ahead.
If the Japanese yen is the home currency and the U.S. dollar is the foreign currency and the one-year interest rate in Japan is 1% and in U.S. is 2%, the one-year forward exchange rate (direct quote) in Japan is given by
The spot rate (yen/$1) x [(1 + Japanese interest rate)/(1 + U.S. interest rate)]
If the spot rate is 100 yen/ US $ then we have 100yen/$1 x [(1+1%)/(1+2%)
= 100 x [(1.01)/(1.02)] = 100 x 0.9902 = 99.02 yen/$ 1
An initial investment in the U.S. of $100,000 = 100,000 x 100 yen = 10,000,000 yen
If the one-year cash inflow is $125,000
The yen equivalent is 125,000 x 99.02 = 12,377,500 yen
You can then calculate the NPV and rate of return with the information of cash outflows and inflows in yen.
In: Finance
Sales-Related Transactions Using Perpetual Inventory System
The following selected transactions were completed by Green Lawn Supplies Co., which sells irrigation supplies primarily to other businesses and occasionally to retail customers:
| July 1. | Sold merchandise on account to Landscapes Co., $59,820, terms FOB shipping point, n/eom. The cost of the goods sold was $33,100. |
| 2. | Sold merchandise for $12,450 plus 6% sales tax to retail cash customers. The cost of the goods sold was $7,140. |
| 5. | Sold merchandise on account to Peacock Company, $17,500, terms FOB destination, 1/10, n/30. The cost of the goods sold was $12,280. |
| 8. | Sold merchandise for $29,100 plus 6% sales tax to retail customers who used VISA cards. The cost of the goods sold was $18,230. |
| 13. | Sold merchandise to customers who used MasterCard cards, $13,030. The cost of the goods sold was $7,800. |
| 14. | Sold merchandise on account to Loeb Co., $29,200, terms FOB shipping point, 1/10, n/30. The cost of the goods sold was $15,060. |
| 15. | Received check for amount due from Peacock Company for sale on July 5. |
| 16. | Issued credit memo to Loeb Co. for merchandise with an invoice amount of $4,300 returned from the sale on July 14. The cost of the merchandise returned was $2,630. |
| 18. | Sold merchandise on account to Jennings Company, $9,000, terms FOB shipping point, 2/10, n/30. Paid $60 for freight and added it to the invoice. The cost of the goods sold was $5,250. |
| 24. | Received check for amount due from Loeb Co. for sale on July 14 less credit memo of July 16. |
| 28. | Received check for amount due from Jennings Company for sale of July 18. |
| 31. | Paid Black Lab Delivery Service $5,530 for merchandise delivered during July to customers under shipping terms of FOB destination. |
| 31. | Received check for amount due from Landscapes Co. for sale of July 1. |
| Aug. 3. | Paid Hays Federal Bank $800 for service fees for handling MasterCard and VISA sales during July. |
| 10. | Paid $6,463 to state sales tax division for taxes owed on sales. |
Required:
Journalize the entries to record the transactions of Green Lawn Supplies Co. If an amount box does not require an entry, leave it blank.
In: Accounting
Sales-Related Transactions Using Perpetual Inventory System
The following selected transactions were completed by Green Lawn Supplies Co., which sells irrigation supplies primarily to wholesalers and occasionally to retail customers:
| July 1. | Sold merchandise on account to Landscapes Co., $15,200, terms FOB shipping point, n/eom. The cost of merchandise sold was $9,100. |
| 2. | Sold merchandise for $21,700 plus 6% sales tax to retail cash customers. The cost of merchandise sold was $14,100. |
| 5. | Sold merchandise on account to Peacock Company, $37,700, terms FOB destination, 1/10, n/30. The cost of merchandise sold was $24,500. |
| 8. | Sold merchandise for $8,000 plus 5% sales tax to retail customers who used VISA cards. The cost of merchandise sold was $4,800. |
| 13. | Sold merchandise to customers who used MasterCard cards, $6,000. The cost of merchandise sold was $3,800. |
| 14. | Sold merchandise on account to Loeb Co., $11,300, terms FOB shipping point, 1/10, n/30. The cost of merchandise sold was $6,700. |
| 15. | Received check for amount due from Peacock Company for sale on July 5. |
| 16. | Issued credit memo for $1,700 to Loeb Co. for merchandise returned from sale on July 14. The cost of the merchandise returned was $1,000. |
| 18. | Sold merchandise on account to Jennings Company, $5,800, terms FOB shipping point, 2/10, n/30. Paid $260 for freight and added it to the invoice. The cost of merchandise sold was $3,500. |
| 24. | Received check for amount due from Loeb Co. for sale on July 14 less credit memo of July 16. |
| 28. | Received check for amount due from Jennings Company for sale of July 18. |
| 31. | Paid Black Lab Delivery Service $1,600 for merchandise delivered during July to customers under shipping terms of FOB destination. |
| 31. | Received check for amount due from Landscapes Co. for sale of July 1. |
| Aug. 3. | Paid Hays Federal Bank $1,070 for service fees for handling MasterCard and VISA sales during July |
| 10. | Paid $1,960 to state sales tax division for taxes owed on sales. |
Required:
Journalize the entries to record the transactions of Green Lawn Supplies Co. For a compound transaction, if no entry is required, leave the entry box blank.
In: Accounting