Discussion: Patents & Copyrights

Article 8 of the US Consitution empowers Congress, in part, "To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries."

Some economists consider that patents & copyrights (what is called "intellectual property" or "intangible property") in their current form contribute to stifling innovation and to the unequal distribution of income by taking advantage of monopoly profits. Here is a short discussion of the benefits and costs of patents & copyrights. And here is a discussion of the effects of monopolies on income & wealth (Links to an external site.).

In several paragraphs, discuss whether in your view the patent & copyright system in the United States is perfect as it is, or if it should be modified, and in what way. Please justify your response with evidence from an academic-level outside source.

Question 1:

Tonka toys manufactures a toy truck called “Big Red” that they distribute to retailers. The company is now planning for the third quarter of 2020. In order to keep production and shipments moving smoothly, the company has the following inventory requirements:

1. The finished goods inventory on hand at the end of each month must be equal to 5,000 units plus 30 percent of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 17,000 units.

2. Big Red, requires three kilograms of plastic to make. The raw material inventory on hand at the end of each month must be equal to one half of the following month’s production needs for raw materials. The raw materials inventory on June 30 is budgeted to be 64,500 kilograms. One kilogram of plastic can be purchased for $0.15.

3. The company maintains no work in process inventory.

4. The Big Red Truck sells for $35.00 per unit. Forecasted unit sales for Big Red for the last nine months of 2020 is given below:

Budgeted Sales (units)

April                                        30,000

May                                         35,000

June                                         39,000

July                                          40,000

August                                    50,000

September                               70,000

October                                   35,000

November                               20,000

December                                10,000

5. Fifteen percent of Big Red Truck sales are on a cash basis whereas the remaining eighty-five percent are on credit. History has shown the following collection pattern for credit sales:

30% are collected in the month of sale

40 % are collected in the month following the sale

20 % are collected two months after the sale

5% are collected three months after the sale

The remaining 5% are bad debts.

Required:

1. Prepare a production budget for Big Red for the third quarter of the year. Make sure you show each month separately as well as a total column for the third quarter.

2. Prepare a raw material purchase budget for the third quarter of the year. Make sure you show each month separately as well as a total column for the third quarter.

3. Prepare a schedule showing the cash collections resulting from credit sales. Make sure you show each month separately as well as a total column for the third quarter.

Big toys manufacture a toy truck called “Big Red” that they distribute to retailers. The company is now planning for the third quarter of 2020. In order to keep production and shipments moving smoothly, the company has the following inventory requirements:

1. The finished goods inventory on hand at the end of each month must be equal to 5,000 units plus 30 percent of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 17,000 units.
2. Big Red, requires three kilograms of plastic to make. The raw material inventory on hand at the end of each month must be equal to one half of the following month’s production needs for raw materials. The raw materials inventory on June 30 is budgeted to be 64,500 kilograms. One kilogram of plastic can be purchased for $0.15.

3. The company maintains no work in process inventory.

4. The Big Red Truck sells for $35.00 per unit. Forecasted unit sales for Big Red for the last nine months of 2020 is given below:

Budgeted Sales (units)

April                                        30,000

May                                         35,000

June                                         39,000

July                                          40,000

August                                                50,000

September                               70,000

October                                   35,000

November                               20,000

December                                10,000

5. Fifteen percent of Big Red Truck sales are on a cash basis whereas the remaining eighty-five percent are on credit. History has shown the following collection pattern for credit sales:

30% are collected in the month of sale

40 % are collected in the month following the sale

20 % are collected two months after the sale

5% are collected three months after the sale

The remaining 5% are bad debts.

Required:

1. Prepare a production budget for Big Red for the third quarter of the year. Make sure you show each month separately as well as a total column for the third quarter.

2. Prepare a raw material purchase budget for the third quarter of the year. Make sure you show each month separately as well as a total column for the third quarter.

3. Prepare a schedule showing the cash collections resulting from credit sales. Make sure you show each month separately as well as a total column for the third quarter.

Tonka toys manufactures a toy truck called “Big Red” that they distribute to retailers. The company is now planning for the third quarter of 2020. In order to keep production and shipments moving smoothly, the company has the following inventory requirements:

1. The finished goods inventory on hand at the end of each month must be equal to 5,000 units plus 30 percent of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 17,000 units.

2. Big Red, requires three kilograms of plastic to make. The raw material inventory on hand at the end of each month must be equal to one half of the following month’s production needs for raw materials. The raw materials inventory on June 30 is budgeted to be 64,500 kilograms. One kilogram of plastic can be purchased for $0.15.

3. The company maintains no work in process inventory.

4. The Big Red Truck sells for $35.00 per unit. Forecasted unit sales for Big Red for the last nine months of 2020 is given below:

Budgeted Sales (units)

April                                        30,000

May                                         35,000

June                                         39,000

July                                          40,000

August                                    50,000

September                               70,000

October                                   35,000

November                               20,000

December                                10,000

5. Fifteen percent of Big Red Truck sales are on a cash basis whereas the remaining eighty-five percent are on credit. History has shown the following collection pattern for credit sales:

30% are collected in the month of sale

40 % are collected in the month following the sale

20 % are collected two months after the sale

5% are collected three months after the sale

The remaining 5% are bad debts.

Required:

1. Prepare a production budget for Big Red for the third quarter of the year. Make sure you show each month separately as well as a total column for the third quarter.

2. Prepare a raw material purchase budget for the third quarter of the year. Make sure you show each month separately as well as a total column for the third quarter.

3. Prepare a schedule showing the cash collections resulting from credit sales. Make sure you show each month separately as well as a total column for the third quarter.

Stott Plc (Stott) has £150 million in excess cash and no debt. The firm expects to generate additional free cash flows of £105 million per year in subsequent years and will pay out these future free cash flows as regular dividends.

Stott’s unlevered cost of capital is 6% and the company presently has 6 million shares outstanding. Stott's board is meeting to decide whether to pay out its £150 million in excess cash as a special dividend or to use it to repurchase shares of the firm's stock.

As some preliminary calculations to assist the board meeting you have been tasked with answering the following: -

1. What is the cummulative dividend price, the regular future annual dividend and the current market value of Stott?
2. Assume that Stott uses the entire £150 million in excess cash to pay a special dividend. What will Stott Plc’s ex-dividend price be?

c) Assume that Stott uses the entire £150 million to repurchase shares at the cummulative div price calculated in (a) and answer the following: -

i. What is the number of repurchased shares?

ii. What is the number of outstanding shares?

iii. What is the amount of regular yearly dividends in the future?

iv. Calculate the share price after the repurchase.

d) The board of Pawson plc is considering changing from its current dividend policy of paying out what is left over from its available cash after making investments. The forecast dividends if the company continues with its current policy and the forecast dividends if it changes to the new policy are shown below.

Forecast dividend payments 1 – If current dividend policy continues

Forecast dividend payments 2 – If new policy is employed

Explain which dividend policy Pawson is currently using and the advantages and disadvantages of the policy. Explain which policy is being employed in the new proposal and explain the advantages and disadvantages of the policy.

1. 1. In a galaxy far far away, Luke Skywalker was a Tatooine farmboy who rose from humble beginnings to become one ofthe greatest Jedi the galaxy has ever known. After settling down, Luke Skywalker has been investing in the stockmarket for some time, buying mostly high-quality growth stocks as a way to achieve long-term growth and capitalappreciation. He feels that with the limited time he has to devote to his security holdings, high-quality issues are his bestbet. He has become a bit perplexed lately with the market, disturbed that some of his growth stocks aren’t doing evenas well as many good-grade income shares. He therefore decides to have a chat with his broker, Minch Yoda. During their conversation, it becomes clear that both Yoda and Luke are thinking along the same lines. Yoda pointsout that dividend yields on income shares are indeed way up and that, because of the state of the economy, theoutlook for growth stocks is not particularly bright. He suggests that Luke seriously consider putting some of hismoney into income shares to capture the high dividend yields that are available. After all, as Yoda says, “where thepayoff comes from as how much it amounts to, the bottom line is not so much!” They then talk about a high-yieldpublic utility stock, Galactic Empire Power. Yoda digs up some forecast information about Galactic Empire andpresents it to Luke for his consideration:

2. Year  Expected EPS ($)     Expected Dividend Payout Ratio (%)

   2016	$3.25	40%
   2017	$3.40	40%
   2018	$3.90	45%
   2019	$4.40	45%

   
   2020           $5.00                                   45%                         

   The stock currently trades at $60 per share. Yoda thinks that within five years it should be trading at $75 to $80 a share. Luke realizes that to buy the Galactic Empire stock, he will have to sell his holdings of Han Solo Industries—a highly regarded growth stock that Luke is disenchanted with because of recent substandard performance.

   determine the amount of annual dividends Galactic Empire can be expected to pay over the years 2016 to 2020.

1. Under what circumstances would it be advisable to borrow money to take a cash discount?

2. Discuss the relative use of credit between large and small firms. Which group is generally in the net creditor position, and why?

3. How have new banking laws influenced competition?

4. What is the prime interest rate? How does the average bank customer fare in regard to the prime interest rate?

5. What does LIBOR mean? Is LIBOR normally higher or lower than the

U.S. prime interest rate?

6. What advantages do compensating balances have for banks? Are the advantages to banks necessarily disadvantages to corporate borrowers?

• Commercial paper may show up on corporate balance sheets as either

a current asset or a current liability. Explain this statement.

7. What are the advantages of commercial paper in comparison with bank borrowing at the prime rate? What is a disadvantage?

8. What is the difference between pledging accounts receivable and factoring accounts receivable?

9. What is an asset-backed public offering?

• Briefly discuss three types of lender control used in inventory financing.

10. What is meant by hedging in the financial futures market to offset interest rate risks?

The treasurer for Pittsburgh Iron Works wishes to use financial futures to hedge her interest rate exposure. She will sell five Treasury futures contracts at $138,000 per contract. It is July and the contracts must be closed out in December of this year. Long-term interest rates are currently 13.3 percent. If they increase to 14.5 percent, assume the value of the contracts will go down by 5 percent. Also if interest rates do increase by 1.2 percent, assume the firm will have additional interest expense on its business loans and other commitments of $53,000. This expense, of course, will be separate from the futures contracts.

         a.      What will be the profit or loss on the futures contract if interest rates go to 14.5 percent by December when the contract is closed out?

         b.      Explain why a profit or loss took place on the futures contracts.

         c.      After considering the hedging in part a, what is the net cost to the firm of the increased interest expense of $53,000? What percent of this $53,000 cost did the treasurer effectively hedge away?

         d.      Indicate whether there would be a profit or loss on the futures contracts if interest rates dropped.

Entries for Bonds Payable, including bond redemption

*Please find Year 3 - Loss of redemption on bonds and discount on bonds payable*

The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year:

Required:

1. Journalize the entries to record the foregoing transactions. If an amount box does not require an entry, leave it blank or enter "0". When required, round your answers to the nearest dollar.

2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2.

a. Year 1   $

b. Year 2   $

3. Determine the carrying amount of the bonds as of December 31, Year 2.
$

Ponpon produces cans of jelly. The company would like to purchase a canning machine. The machine costs $25,000 and the company needs a loan to make the purchase. Before agreeing to the loan, their bank requires Ponpon to provide both current (2020) and budgeted (3 months in 2021) financial statements.

Use the following information from Ponpon to provide the bankers with the 2021 budgeted financial states.

Balance Sheet

Cash                                        $50,000   

Accounts Receivable               $31,000   

Inventory                                $12,000

Fixed Assets                            $37,000

Total Assets                            $130,000

Accounts Payable                   $22,500

Accrued Credit Fees               $9,200

Common Stock                        $46,800

Retained Earnings                   $$51,500

Total Liabilities & Equity         $130,000

2021 Sales Forecast

January            $74,000

February          $82,000

March              $58,000

April                $54,000

May                 $80,000

June                 $67,000

July                  $70,500

Additional Info:

1. Ponpon only accepts credit cards when selling their jelly. Ponpon collects 35% of the sales on account in the month of the sale and 65% in the month after the sale.
2. Unfortunately, the credit card companies pass along a 6.2% sales fee to Ponpon for the convenience and safety of their transactions on account. The sales fee is due one month after the sale.
3. The cost of sales is 42% of (current month) sales.
4. Ponpon maintains an inventory at all times at the sales requirements (COS) for the months’ budgeted sales. This provides assurance that they won’t run out of jelly.
5. Ponpon uses a credit card for all their purchases. The company pays off their credit card balance in full the following month.
6. Ponpon pays 5% of sales each month to Jako Co. for the CEO’s security service.
7. In addition to the carriable security cost, Ponpon incurs fixed expenses of $22,000 per month, $1500 of which is for depreciation of fixed assets.

1. Complete the budget spreadsheet for Ponpon

  Cash Budget

January            February           March             April         May

      Beginning Balance:                           

Plus, cash receipts from sales:

Cash from Dec Sales

Cash from Jan Sales     $74,000

Cash from Feb Sales    $82,000

Cash from Mar Sales  $58,000

Cash from Apr Sales    $54,000

Cash from May Sales  $80,000

Cash from Jun Sales     $67,000      

Plus: Total Cash Receipts                                                                                                            

Cash Expenditures

Inventory Purchases

Variable Costs  (mgmt. fee)

Credit Card Fees

Fixed Expenses

Total Cash Expenditures

Ending Cash Balance