Using the financial statements above, what is Rosnan's 2013 market value added (MVA)? Round your answer to the nearest dollar. Do not round intermediate calculations.

$

Using the financial statements given earlier, what is Rosnan's 2013 economic value added (EVA)? Round your answer to the nearest cent. Do not round intermediate calculations.

Assume that Ambrose Motor Corp. (AMC) estimates next year’s earnings before interest payments as $100 million, provided it does not lose a product liability lawsuit. The probability of a lawsuit is .02 and the payment if it occurs is estimated to be $50 million. From its $100 million in earning, Ambrose expects to pay $60 million on its interest and principal payments, leaving $40 million for shareholders - again provided the company does not lose a product liability suit. Ambrose is trying to decide how to finance risk associated with the potential liability suit.

What is the expected value of loss associated with the product liability lawsuit?

In a perfect market without transactions costs (taxes are among potential transactions costs) where AMC does not value insurer services, how much would AMC’s shareholders want AMC to pay for $50 million of product liability insurance?

Would an insurer be willing to provide this policy for the price AMC would be willing to pay? Explain.

Next, suppose that AMC’s insurer has an in-house legal expert on product liability who can reduce the probability of losing the lawsuit from .02 to .01. If the insurer’s premium loadings add an additional amount to the premium of 30% of the losses and loss adjustment expense, how much is the premium for $50 million of coverage, and would AMC be willing to pay it?

Acme Dry cleaning has an on-campus location with 5 years to go on its lease. An existing dry cleaning machine will last for the 5-year duration of the lease, at which time it will be worn out and worthless. A machine will be more efficient and will allow the company to handle a broader range of fabrics. As a result, the new machine will increase revenues by $1,500 a year and decrease operating costs (other than depreciation) by $600 per year.

The old machine was purchased two years ago (purchase price = $8,000) and has a 3-year life for depreciation purposes. The old machine could be sold today for $6,000. The new machine will cost $15,000, last 5 years, and has a 3-year life for depreciation purposes. The new machine is expected to have a re-sale value of $5,000 in 5 years (when the lease is up).

Since revenue are expected to increase, the company will need to keep an additional $250 of petty cash in the storee's cash register beginning at time 1. This petty cash balance will need to be increased by an additional 100$ at time 2. This $350 (250 + 100) will be removed at time 5.

Acme Dry cleaning is in the 40 percent tax bracket and uses straight line depreciation. The required return for projects of this risk class is 18%. Should Acme purchase the new machine? Provide a numerical solution.

Let A be a builder, B a shoemaker, C a house, D a shoe. The builder, then, must get from the shoemaker the latter's work, and must himself give him in return his own. If, then, first there is proportionate equality of goods, and then reciprocal action takes place, the result we mention will be effected. If not, the bargain is not equal, and does not hold; for there is nothing to prevent the work of the one being better than that of the other; they must therefore be equated. (And this is true of the other arts also; for they would have been destroyed if what the patient suffered had not been just what the agent did, and of the same amount and kind.) For it is not two doctors that associate for exchange, but a doctor and a farmer, or in general people who are different and unequal; but these must be equated. This is why all things that are exchanged must be somehow comparable. It is for this end that money has been introduced, and it becomes in a sense an intermediate; for it measures all things, and therefore the excess and the defect-how many shoes are equal to a house or to a given amount of food. The number of shoes exchanged for a house (or for a given amount of food) must therefore correspond to the ratio of builder to shoemaker. For if this be not so, there will be no exchange and no intercourse. And this proportion will not be effected unless the goods are somehow equal. All goods must therefore be measured by some one thing, as we said before. (Aristotle Nicomachean Ethics Book V. What two functions of money is Aristotle describing in this passage? [Select two answers]. Unit of Account, Store of Value, Medium of Exchange, Liquidity. Initially, 20,000 pairs of shoes can buy one house. Additionally, the price of one pair of shoes $50. What is the price of one house? $500,000, $1,000,000, $10,000,000, $5,000,000. Suppose the central bank increases the money supply. After the action by the central bank, the price of a pair of shoes is now $75. What is the price of one house? $1,500,000, $3,000,000, $15,000,000, Not enough information. Based on your answers above, what is the theory that explains the relationship between the price of a pair shoes and the price of a house?

1. Hockley Brewing has produced a new craft lager beer that will be branded Hockley Classic Lager. The market for craft beer is about $20 million retail per year and the average retail price across all craft beer producers is $2.50. The following information applies to Hockley’s new craft lager beer.

Factory production costs                                                $1.05 / can

Beer ingredients                                                            $0.35 / can

Packaging                                                                     $0.20 / can

Advertising and promotion                                            $60,000

Channel listing fees                                                       $30,000

Hockley’s wholesale price to retailers                             $2.40 / can

(Hockley’s) manufacturer’s suggested retail price           $2.55 / can

a. What is Hockley’s unit contribution (measured in $ per can) and contribution margin (measured in percentage)?

b. What is the break-even point in cans? in dollars?

c. What is the necessary sales volume in cans to achieve a $150,000 (target) profit?

d. What will Hockley’s net profit be if 100,000 cans of the new lager are sold?

e. What will Hockley’s market share of craft beer be if they sell 100,000 cans? [Hint: to calculate the total number of cans sold in the market, use the total retail value of the market and industry average retail price given above.]

f. Their largest competitor is Mill Street Brewery whose Original Organic Lager has 2.5% market share of the craft beer market. Given Hockley’s market share calculated in part (e), what will Hockley’s relative market share (RMS) be for their Classic Lager?

g. The craft beer market is growing at 10% annually, higher than any other type of beer. With the RMS for Hockley Classic Lager calculated in part (f), at the end of their first year, where in Hockley’s portfolio will Classic Lager be positioned and what recommendation would follow?

h. Calculate the price elasticity of demand if they raise the MSRP from $2.55 to $2.75 and demand falls from 100,000 cans to 95,000 cans. Is demand for this product price elastic or inelastic?

TeeBee manufactures springs and related components for a variety of industrial and consumer end products.  TB is evaluating a new business opportunity.  In response to the growing health consciousness of the affluent aging baby boomer generation, a new concept in traction-associated exercise equipment is being developed.  TB feels confident it can be a supplier of choice of the high quality springs needed for this new generation of equipment. TB has determined that its existing manufacturing facilities are not suitable for the manufacture of the type of spring needed.  In order to evaluate whether to enter this market, TB needs to consider the return on investment in a new manufacturing facility.  TB has identified two options for its potential new manufacturing site:

            Option A:  Renovation of an existing warehouse (economic life of 10 years)

            Option B:  Construction of a completely new facility (economic life of 20 years)

TB projects it will be able to sell 9,000 spring sets per year for the foreseeable future.  Price per spring set is $699 (in year end 1 dollars).  TB has employed a nominal discount rate of 9 percent on similar construction projects in the past.  The following additional data have been collected.  Assume all cash flows occur at the end of the year.  Inflation is 3 percent per year.  

*Assume all construction costs are incurred in period 0.

**Assume all these operating costs are incremental and represent cash flows. These operating cost projections apply to the first year of operations.  Cash costs (as well as revenues) are expected to increase with inflation.  Inflation applies initially in year 2.

Required:  Prepare a financial analysis of the two options and make a recommendation.  Use the income statement to net cash flow format, reflecting EBITDA, EBIT, EBIAT, and  NCF.  To see some of the implications of the changes to the tax code enacted in 2017, do your analysis under both the old and the new tax code regimes, as outlined below.

*Straight line depreciation of construction costs over life of asset (term of project), no salvage value.

**Immediate expensing of construction costs.  This change can most easily be accommodated by showing depreciation of 100% of the capital expenditure in year 1 of the project. Then, depreciation expense for the remaining years of the project is $0.  

A researcher working for an insurance company that sells life insurance would like to use regression analysis to predict life expectancy of his clients. He knows that there are several factors that contribute to life expectancy: some are genetic, some are related to life style, some are related to biological factors, and some are related to environment (access to health care, cleanliness of air, etc.) . He selects these candidate variables to develop his regression equation: gender, number of cigarettes smoked per day, cholesterol level, systolic blood pressure, and height-to-weight index: (actual weight / appropriate weight given gender, build, and height) * 100. Use the datasheet life expectancy in datasetsRM.xls to develop a regression equation to predict how long a person should live (for gender: 0=female, 1=male): 1. First, plot each non-categorical predictor variable against the dependent variable (age of death) and examine the plot to see if the relationship is linear. What’s your assessment? 2. Perform a multiple regression analysis and write up the results of your regression analysis in APA style. 3. For a male who does not smoke cigarettes at all, has a systolic blood pressure of 130, a height-to-weight index of 110, and a cholesterol level of 200, what is his life expectancy? NumCigsDay WtHtIndex Gender Cholesterol BloodPres AgeOfDeath 0 98 0 179 120 90 0 90 0 186 100 98 0 140 0 190 130 90 3 96 0 191 120 87 0 120 0 200 120 90 0 100 0 187 120 94 0 130 0 190 110 96 4 92 0 191 110 83 5 110 0 200 110 79 5 193 0 210 120 79 10 107 0 215 130 77 0 117 0 227 140 80 0 128 0 240 130 99 15 179 0 230 150 68 10 150 0 240 160 70 5 100 0 245 120 79 8 112 0 260 130 76 10 150 0 275 140 67 8 121 0 280 130 72 0 90 1 210 120 85 0 100 1 187 100 94 0 130 1 179 130 88 10 92 1 183 120 72 0 119 1 184 120 89 0 110 1 189 120 80 2 120 1 192 110 87 6 100 1 196 110 69 4 140 1 204 110 73 10 128 1 215 120 65 0 107 1 216 140 85 0 98 1 219 130 75 8 119 1 220 140 68 3 117 1 222 130 89 11 193 1 232 150 62 12 179 1 245 160 66 8 150 1 246 120 78 12 96 1 261 130 67 0 121 1 269 130 70 8 112 1 279 140 64 0 150 1 280 130 74

Case 4 – Budgeting and Variance

Mike has been selling lemonade at his lemonade stand under the name ‘Mike’s Lemonade’ for the past few summers and has had tremendous success. As a matter of fact, kids are so “hooked” on his lemonade that he is now offering credit to those customers who have spent their allowance but need more of his product. His weekly budget is:

BUDGET NOTES:

• ‘Salaries & wages’ are comprised of Mike’s salary
• Cash customers pay $0.50/cup and credit customers pay a 10% surcharge
• Lemons, sugar, and cups expenses are for 100 cups of lemonade
• Equipment (pitcher, spoons, measuring cups) are rented from Mike’s mother

1. Mike’s Lemonade – Monthly Budget

Mike plans to keep his lemonade stand open for the 3 summer months (total of 12 weeks) each year. For better planning, expand his weekly budget into a monthly (4 weeks) budget.

2. Mike’s Lemonade – Budget Variance

Things go well for the first two months of operations. However, after the third month Mike finds that he is losing money badly, having to offset his losses from his personal savings account (previous months’ profits). He speaks with his father, a CPA at an accounting firm, who recommends that Mike run a budget variance report. Mike asks you to complete the following table (note – the budget numbers should come from your monthly budget in #1):

Clearly there is a problem, so Mike begins to investigate. He talks to his customers and finds that many were away on vacation some or part of his third month of operations. He also talks to his distributors (the grocery store manager) and finds that the price of lemons and sugar are likely to increase this year due to drought and freezing. Mike estimates that the cost of his supplies will increase by 3% next year.

Mike talks to his father again, who recommends that Mike project monthly budgets for next year including predictions for drops in volume and increases in costs. He also suggests that Mike may want to consider raising the price of his lemonade, but must take into account that price affects volume.

3. Mike’s Lemonade – Projected Monthly Budget

Develop a monthly budget for each of the 3 summer months (June, July, and August) for next year. Make and note any assumptions under ‘Budget Notes’, including from the information that Mike learned from his investigation.

4. What could Mike do to improve his net profit?

Assume that using the midpoint method, we calculated the price elasticity of demand for good A is 2. Hence which of the following is true if the price of good A increases by 0.1 percent?

a.

The quantity demanded of good A declines by 20 percent.

b.

The quantity demanded of good A declines from 200 to 100.

c.

The quantity demanded of good A declines by 0.05 percent.

d.

The quantity demanded of good A declines by 0.2 percent.

Which of the following best describes inelastic demand?

Suppose two goods A and B are substitutes. If the price of good B increases, which of the following is correct?

If a tax has been raised by 20 percent, how will the deadweight loss change?

If the price elasticity of demand for a good is 2, then a 6 percent increase in price results in a

A tax imposed on the sellers of good X will have which of the following effects.

hich of the following would shift the demand curve for gasoline to the right?

Which of the following will result in the increase of equilibrium quantity for sure?

John chooses to work 5 hours instead of going to a party. His hourly wage is $14. Find John's opportunity cost of working.

Assume that using the midpoint method, we calculated the price elasticity of demand for good A is 0.75. Hence which of the following is true if the quantity demanded of good A decreases by 10 percent?

Assume that production possibilities frontier is bowed outward, and further assume that two goods are good A and good B, then how does the opportunity cost of producing more of good A change?

Minimum wage would be one example of

When the price of good A is $50, the quantity demanded of good A is 600 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is

A movement downward and to the right along a demand curve is called a(n)