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Question 5 - Geoffrey decides not to buy the car mentioned earlier. Instead, he is now considering a food delivery service "You, bars, meats" that his friend Gillian has recently started. Gillian has agreed that for a single payment of $66,000 today to help her launch her business, she will provide all the delivery services that Geoffrey needs for his business for the next 5 years. Geoffrey is considering borrowing the full amount from his business account. Suppose that Geoffrey makes level quarterly repayments over the coming 5 years, the first payment being exactly 3 months from today. Again, the interest rate on Geoffrey's account is 4.3% p.a. effective. (a) Calculate the size of the level quarterly repayment.

Question 6 - (b) How much money does Geoffrey owe on this loan after 1 year?

Question 7 - (c) How much interest does Geoffrey pay in the first year

Question 8 - (d) Geoffrey believes that the overall benefit from this agreement amounts to $313.62126244401 per week in arrears (this would include money he would have spent on alternative delivery services, estimated additional profits from using Gillian's services, etc). By considering only the initial cost of $66,000 and this weekly benefit of $313.62126244401, calculate the interest rate that represents the return on this investment, expressed as a nominal annual rate compounding weekly.

Question 9 - A) Gillian has entered the agreement with Geoffrey described above. She estimates that the costs of the delivery services she has promised to Geoffrey (petrol, insurance, wear and tear, etc) amount to $1371.7057354746 per month in advance for the coming 5 years. If Gillian can borrow/invest money at a rate of 3.8% p.a. effective, what is the equivalent amount today of her future liabilities? Note that this calculation should not involve the payment she receives from Geoffrey today.

Question 10 - (b) The money she receives from Geoffrey can be considered a loan ($66000), with repayments being the value of the services she provides in return. What is the interest rate, expressed as an effective annual rate, she is being charged on this "loan"?

A circularly polarised beam of light with a vacuum wavelength of 1.55 micro meters is incident on a two cascaded quarter wave-plates, followed by a third unknown wave-plate. The light emerging from the system remains circularly polarised.

Find out the Jones vector characterizing the state of polarisation of the incident beam of light?

Consider these long-term investment data: • The price of a 10-year $100 par zero coupon inflation-indexed bond is $80.65. • A real-estate property is expected to yield 2% per quarter (nominal) with a SD of the (effective) quarterly rate of 10%. What is the probability of loss or shortfall after 10 years?

IT Investment at North American Financial1 Caroline Weese checked her makeup and then glanced at her watch for the tenth time. Almost 10:45. Showtime. As North American Financial’s (NAF) first female CIO, she knew she had to be better than good when she met with the company’s senior executives for the first time to justify her IT budget. They had shown their faith in her three months ago by giving her this position, when NAF’s long-serving senior vice president of IT had had to retire early due to ill health. But women were just beginning to crack the “glass ceiling” at the bank, and she knew there was a lot more riding on this presentation than just this budget.

That said, the budget situation wasn’t great. As she well knew from her earlier experience in more subordinate roles, the CIO had the unenviable task of justifying the company’s $500M budget to a group of executives who only saw the expense of IT, not its value. This was especially frustrating because NAF’s IT management was excellent, when looked at by any standard. NAF’s IT group consisted of almost 7,000 professionals who followed all the recommended standards, such as CMM, CMMI, ISO9001, and ITIL, to ensure that its IT processes were efficient, cost effective, and on par with, if not higher than, industry standards. It had been certified at a minimum Level 3 CMMI and was an industry leader in delivering projects on time, on budget, and in scope. But in the past few years, NAF executives had implemented rigorous cost containment measures for IT, leaving the CIO to struggle to be all things to all people.

They want innovation, they need reliability and stability, and we’re required by law to meet ever more stringent government regulations, but they’re still nickel-and-diming us, Caroline thought indignantly. She envied the bank’s business units that could clearly show profit-and-loss statements, and their ability to make strategic decisions about what to do with the excess capital they often had. In her world, business strategies changed regularly and thus IT’s goals had to as well. But strategies were not linked to budgets, which were typically set six to nine months in advance. As a result, IT was always struggling to keep up and find the resources to be flexible.

She squared her shoulders, took a deep breath, pasted a smile on her face, and pushed open the door to the executive conference room to face her colleagues and her future. The room was full of “suits”—a few females here and there, but mostly tough, middleage males who expected answers and action. Following a few pleasantries about how she was adjusting to her new role, they got down to business. “The thing we’re most concerned about, Caroline,” said Bill Harris, NAF’s CEO, “is we simply don’t see where we’re getting value from our IT investments. There’s no proof in the bottom line.” Matt Harper, NAF’s CFO added, “Every year we approve hundreds of millions of dollars for IT projects, which are supposedly based on sound cost–benefit analyses, but the benefits never materialize.” Heads around the room began nodding.

Caroline’s mind was whirling. What did they really want from her? Pulling her thoughts together quickly, she responded. “If you’re looking for IT to tell you which projects will deliver the most business value, or if you want me to monitor the business units after the projects they asked for are implemented to see if they are delivering value, you’re asking me to do something that’s well beyond IT’s scope of expertise. We’re not the experts in your business case, and it shouldn’t be up to us to monitor how you use the technology we give you. I’ll take full responsibility for the quality of our work, its timely delivery, and its cost, but we really have to work together to ensure we’re investing in the right projects and delivering benefits.”

“What do you recommend then?” asked Sam Patel, head of Retail Banking. “I think we need an IT Investment Committee that I would co-lead jointly with you, Matt,” Caroline said while looking pointedly at the CFO. “We need a strong partnership to explore what can be done and who should be responsible for doing it. Finance is the only place where all the money comes together in this organization. Although I have to pull together an IT budget every year, it’s really contingent on what each business unit wants to spend. We don’t really have an enterprise IT budgeting process that looks across our business silos to see if what we’re spending is good for NAF as a whole.” Matt looked thoughtful. “You could be on to something here, Caroline. Let’s see if we can figure this out together.”

The rest of the meeting passed in a blur, and before Caroline knew it, she and Matt were trying to identify who they should assign to help them look at their IT investment challenges. These were significant. First, there was inconsistent alignment of the total IT development budget with enterprise strategies. “We have enterprise strategies but no way of linking them to enterprise spending,” Caroline pointed out. IT budgets were allocated according to the size of the business unit. Smaller lines of business had smaller IT budgets than larger ones. “For some small business units like ours, government mandatory projects eat up our entire IT budget,” complained Cathy Benson, senior vice president of Business Banking Product Management. This made it extremely difficult to allocate IT resources strategically—say, for example, to grow a smaller business unit into a larger one.

Second, project approvals were made by business units without addressing cross-unit synergies. Looking at the projects IT had underway revealed that the company had eighteen separate projects in different parts of the business to comply with anti–money laundering regulations. “We’ve got to be reinventing the wheel with some of these,” complained Ian Ha, senior director of NAF’s Risk and Compliance department. Third, although business cases were required for all major projects, their formats were inconsistent, and the data provided to justify the costs lacked rigor. “There seems to be a lot of gaming going on here,” observed Michael Cranston, director of Financial Strategy. “A lot of these numbers don’t make sense. How come we’ve never asked the business sponsors of these projects to take ownership for the business benefits they claim when they ask for the money in the first place?”

Fourth, once a project was approved, everyone focused on on-time, on-budget delivery. No one ever asked whether a project was still necessary or was still on track to deliver the benefits anticipated. Do we ever stop projects once they’ve started or review the business case ‘in-flight’? mused Matt. Finally, no one appeared to be accountable for delivering these benefits once an IT project was developed and implemented; rather, everyone just heaved a great sigh of relief and moved on to the next project.

Because the total IT budget for new development work was allocated by business unit, the result was a prioritization process that worked reasonably well at the business unit level but not for NAF as a whole. Enterprise executives created enterprise strategies, but they didn’t get involved in implementing them in the business units, which left the business unit heads to prioritize initiatives within their own silo. In prioritization meetings, leaders would argue passionately for their own particular cause, focusing on their own needs, not on NAF’s overall strategies. “We really need to align this process with our enterprise priorities,” said Caroline. Matt agreed. “There’s got to be a process to bring all our investment decisions for new projects together so we can compare them across business units and adjust our resourcing accordingly.”

Looking deeper into these matters revealed that there was more to IT spending than simply prioritizing projects, however. Almost 60 percent of the bank’s IT budget was spent not on strategic new development projects but on maintaining existing systems, interfaces, and data. Another 20 percent was work that had to be done to meet the demands of government legislation or the bank’s regulators. “How is this possible?” asked Sam. “No wonder we’re not getting much ‘bang for our buck,’” Caroline exclaimed. “Every time we develop or acquire a new system without getting rid of something else, we add to our ‘application clutter.’ When we continually add new systems while holding IT budgets and head counts relatively flat, more and more of our resources have to be devoted to supporting these systems.” New systems meant new interfaces between and among existing systems, additional data and dependencies, and increasing risk that something could go wrong. “We’ve tried to get the business units interested in sponsoring an initiative to reduce duplication and simplify our applications portfolio, but they’re not interested in what they call ‘IT housekeeping.’ They don’t see how dealing with this will help them in the long run. I guess we haven’t explained it to them very well.”

Brenda Liu, senior director of IT Infrastructure, added, “We also have to keep our IT environment up to date. Vendors are continually making upgrades to software, and there are also license fees to consider. And, as you know, we have to build in extra reliability and redundancy for our critical systems and data, as well as privacy protection for our banking customers. It’s an expensive process.” “I get all this,” said Cathy, “but why can’t you explain it to us properly? How can you just expect us to accept that 80 percent of your budget is a ‘black box’ that doesn’t need justification? Although every dime you spend may be critical to this company, the fact remains that IT’s lack of transparency is damaging its internal credibility with the business.”

Round and round the issues they went. Over the next two months, Caroline, Matt, and their team hammered away trying to solve them. Eventually, they came up with a set of five principles on which their new IT investment process would be based:

1. 1. Alignment of the IT development portfolio with enterprise strategies;

2. 2. Rigor and common standards around IT planning and business casing;

3. 3. Accountability in both business and IT for delivering value;

4. 4. Transparency at all levels and stages of development;

5. 5. Collaboration and cross-group synergies in all IT work.

In their team update to the bank’s executive committee, Caroline and Matt wrote, “Our vision is for a holistic view of our IT spending that will allow us to direct our resources where they will have the greatest impact. We propose to increase rigor and discipline in business casing and benefits tracking so NAF can invest with confidence in IT. The result will be strategic partnerships between IT and business units based on trust, leading us to surprise and delight our customers and employees and amaze our competitors.”

With the executive committee’s blessing, the IT Investment Office was created to design and implement a detailed investment optimization process that could be implemented throughout the bank in time for the next budget cycle. Cathy Benson was named its new director, reporting to Matt. Speaking to her staff after the announcement, Caroline stated, “I really believe that getting this work out of IT and into the business will be critical for this process. We need to make the decision-making process clearer and more collaborative. This will help us learn how to jointly make better decisions for the enterprise.”

With the hand-off from IT officially in place, Cathy and Matt knew they had to move quickly. “We’ve got three months before the next budget cycle begins,” said Matt. “You’ve got to make it real by then. I’ll back you all the way, but you’re going to have to find some way to deal with the business unit heads. They’re not going to like having their autonomy for decision-making taken away from them. And you have to remember they need some flexibility to do work that’s important to them.” Cathy nodded. She had already heard some of the negative rumors about the process and knew she was going to have to be tough if it was going to be successful and not torpedoed during its implementation.

Calling her project team together for its first meeting, she summarized their challenge. “We have to design and implement three interrelated practices: a thorough and rigorous method of project categorization and prioritization, comprehensive and holistic governance of IT spending and benefits delivery at all levels, and an annual IT planning process that provides transparency and accountability for all types of IT spending and which creates an integrated and strategically aligned development portfolio. Then we have to roll it out across the organization. The change management is going to be massive. Now, who has any ideas about what to do next?”

Discussion Questions

Cathy Benson, the director of the newly created IT Investment Office, is tasked with the “design and implementation of a detailed investment optimization process to be implemented throughout the bank in time for the next budget cycle.” She has three months to do this and it must be in accordance with the five established principles to guide the bank’s IT investment process.

Your task is to design and implement the following:

1. 1. A thorough and rigorous method of project categorization and prioritization;

2. 2. A comprehensive and holistic governance of IT spending and benefits delivery at all levels;

3. 3. An annual IT planning process that provides transparency and accountability for all types of IT spending and that creates an integrated and strategically aligned development portfolio.

1.

value:
35.00 points

Required information

References

WorksheetLearning Objective: 20-C2 Define and compute equivalent units and explain their use in process cost accounting.Learning Objective: 20-P2 Record the flow of direct labor costs in process cost accounting.

Difficulty: 3 HardLearning Objective: 20-P1 Record the flow of direct materials costs in process cost accounting.Learning Objective: 20-P3 Record the flow of factory overhead costs in process cost accounting.

Check my work

2.

value:
35.00 points

Required information

Compare and contrast the "life cycle" hypothesis and the "permanent income" hypothesis. What are their respective implications for inequality in the income distribution?

I answered: Let’s begin by understanding the difference between the life cycle hypothesis and permanent income, we have to understand the life cycle and the permanent income hypothesis.The life-cycle hypothesis (LCH) is an economic theory that describes the spending and saving habits of people throughout a lifetime. The concept was developed by Franco Modigliani and his student Richard Brumberg in the early 1950s.The theory is that individuals seek to smooth consumption throughout their lifetime by borrowing when their income is low and saving when their income is high.The LCH assumes that individuals plan their spending over their lifetimes, taking into account their future income. Accordingly, they take on debt when they are young, assuming future income will enable them to pay it off.They then save during middle age in order to maintain their level of consumption when they retire. A graph of an individual's spending overtime thus shows a hump-shaped pattern in which wealth accumulation is low during youth and old age and high during middle age.The permanent income hypothesis is a theory of consumer spending, stating that people will spend money at a level consistent with their expected long-term average income.The level of expected long-term income then becomes thought of as the level of "permanent" income that can be safely spent. A worker will save only if his or her current income is higher than the anticipated level of permanent income, in order to guard against future declines in income.The permanent income hypothesis was formulated by the Nobel Prize-winning economist Milton Friedman in 1957. The hypothesis implies that changes in consumption behavior are not predictable because they are based on individual expectations.Even if economic policies are successful in increasing income in the economy, the policies may not kick off a multiplier effect from increased consumer spending.Instead, the theory predicts there will not be an uptick in consumer spending until workers reform expectations about their future incomes.It is now clear from the above the difference between the two, so we can conclude that if there is some similarity between the two, then there are some inequalities which we can see as follows:Would it be correct to say that the Permanent Income Hypothesis (PIH) stipulates that current consumption decisions are made based on future income projections/expectations, while the Life-Cycle Hypothesis (LCH) claims that consumption is constant over the average person's lifetime, and this is made possible, despite changes in income level throughout his/her lifetime, through borrowing when younger and savings during the elderly years?This contribution aims to discuss carefully the implications of income inequality and the economic policies to tackle it, especially so because of inequality being one of the leading causes of the 2008 international financial crisis and the "great recession" that subsequently emerged.Wealth inequality is also essential in this respect, but the focus is on income inequality.Ever since the financial crisis and the subsequent "great recession," inequality of income and wealth, has increased and the demand for economic policy initiatives to produce an equal distribution of income and wealth has become more urgent.Reduction would help to increase the level of economic activity as has been demonstrated again more recently. Several economic policy initiatives for this purpose will be the focus of this contribution.

Any edits and corrections?

LeMans Company produces specialty papers at its Fox Run plant. At the beginning of June, the following information was supplied by its accountant:

During June, direct labor cost was $134,500, direct materials purchases were $339,500, and the total overhead cost was $369,600. The inventories at the end of June were:

Required:

1. Prepare a cost of goods manufactured statement for June.

2. Prepare a cost of goods sold schedule for June.

Han Merchants has a periodic inventory system, uses the earnings approach to recognize revenue, and has the following accounts in its chart of accounts for its income statement.

For each account listed below:

CASE 6B – CHESTER & WAYNE
Chester & Wayne is a regional food distribution company. Mr. Chester, CEO, has asked your
assistance in preparing cash-flow information for the last three months of this year. Selected
accounts from an interim balance sheet dated September 30, have the following balances:
Cash $142,100 Accounts payable $354,155
Marketable securities 200,000 Other payables 53,200
Accounts receivable $1,012,500
Inventories 150,388
Mr. Wayne, CFO, provides you with the following information based on experience and
management policy. All sales are credit sales and are billed the last day of the month of sale.
Customers paying within 10 days of the billing date may take a 2 percent cash discount. Forty
percent of the sales is paid within the discount period in the month following billing. An
additional 25 percent pays in the same month but does not receive the cash discount. Thirty
percent is collected in the second month after billing; the remainder is uncollectible. Additional
cash of $24,000 is expected in October from renting unused warehouse space.
Sixty percent of all purchases, selling and administrative expenses, and advertising expenses is
paid in the month incurred. The remainder is paid in the following month. Ending inventory is
set at 25 percent of the next month's budgeted cost of goods sold. The company's gross profit
averages 30 percent of sales for the month. Selling and administrative expenses follow the
formula of 5 percent of the current month's sales plus $75,000, which includes depreciation of
$5,000. Advertising expenses are budgeted at 3 percent of sales.
Actual and budgeted sales information is as follows:
Actual: Budgeted:
August $750,000 October $826,800
September 787,500 November 868,200
December 911,600
January 930,000
The company will acquire equipment costing $250,000 cash in November. Dividends of $45,000
will be paid in December.
The company would like to maintain a minimum cash balance at the end of each month of
$120,000. Any excess amounts go first to repayment of short-term borrowings and then to
investment in marketable securities. When cash is needed to reach the minimum balance, the
company policy is to sell marketable securities before borrowing.
The company will acquire equipment costing $250,000 cash in November. Dividends of $45,000
will be paid in December.
The company would like to maintain a minimum cash balance at the end of each month of
$120,000. Any excess amounts go first to repayment of short-term borrowings and then to
investment in marketable securities. When cash is needed to reach the minimum balance, the
company policy is to sell marketable securities before borrowing.
Questions (use of spreadsheet software is recommended):
1. Prepare a cash budget for each month of the fourth quarter and for the quarter in total.
Prepare supporting schedules as needed. (Round all budget schedule amounts to the
nearest dollar.)
2. You meet with Mr. Chester and Mr. Wayne to present your findings and happen to bring
along your PC with the budget model software. They are worried about your findings in
Part 1. They have obviously been arguing over certain assumptions you were given.
a. Mr. Wayne thinks that the gross margin may shrink to 27.5 percent because of
higher purchase prices. He is concerned about what impact this will have on
borrowings. Comment.
b. Mr. Chester thinks that "stock outs" occur too frequently and wants to see the
impact of increasing inventory levels to 30 and 40 percent of next quarter's sales
on their total investment. Comment on these changes.
c. Mr. Wayne wants to discontinue the cash discount for prompt payment. He thinks
that maybe collections of an additional 20 percent of sales will be delayed from
the month of billing to the next month. Mr. Chester says "That's ridiculous! We
should increase the discount to 3 percent. Twenty percent more would be
collected in the current month to get the higher discount." Comment on the cashflow
impacts.