Question 1
please, answer the question after the text "Case 5.1 MERCK ACQUISITION OF MEDCO On July 28, 1993, Merck & Company, then the world?s largest drug manufacturer, announced that it planned to acquire, for $6.6 billion, Medco Containment Services Incorporated, the largest prescription benefits management company (PBM) and marketer of mail-order medicines in the United States. This merger reflected fundamental changes taking place in the pharmaceutical industry. GROWTH IN MANAGED CARE Perhaps the most significant change involves the growth of managed care in the health care industry. Managed care plans typically provide members with medical insurance and basic health care services, using volume and long-term contracts to negotiate discounts from health care providers. In addition, managed care programs provide full coverage for prescription drugs more frequently than do traditional medical insurance plans. Industry experts estimate that by the turn of the century, 90% of Americans will have drug costs included in some kind of managed health care plan, and 60% of all outpatient pharmaceuticals will be purchased by managed care programs. The responsibility for managing the provision of prescription drugs is often contracted out by the managed care organizations to PBMs. The activities of PBMs typically include managing insurance claims, negotiating volume discounts with drug manufacturers, and encouraging the use of less expensive generic substitutes. The management of prescription benefits is enhanced through the use of formularies and drug utilization reviews. Formularies are lists of drugs compiled by committees of pharmacists and physicians on behalf of a managed care organization. Member physicians of the managed care organization are then strongly encouraged to prescribe from this list whenever possible. Drug utilization reviews consist of analyzing physician prescribing patterns and patient usage. They can identify when a patient may be getting the wrong amount or kind of medicine and when a member physician is not prescribing from a formulary. Essentially, this amounts to an additional opportunity for managed care or PBM administrators to monitor costs and consolidate decision-making authority. The key aspect of the shift to managed care is that the responsibility for payment is linked more tightly to decision making about the provision of health care services than it is in traditional indemnity insurance plans. The implications for drug manufacturers are far reaching. With prescription decision-making authority shifting away from doctors to managed care and PBM administrators, drug manufacturers? marketing strategies similarly will shift their focus from several hundred thousand doctors to a few thousand formulary and plan managers. This, in turn, will result in a dramatic reduction in the sales forces of pharmaceutical manufacturers. Several other significant changes in industry structure are expected to occur. Many industry experts predict that managed care providers will rely on a single drug company to deliver all of its pharmaceutical products and services rather than negotiating with several drug companies. This will favor those firms with manufacturing, distribution, and prescription management capabilities. In addition, many experts believe that only a handful of pharmaceutical companies will exist on the international scene in a few years. They point to intense competition, lower profits, and a decrease in the number of new drugs in the ?research pipeline? as contributing factors. BENEFITS OF THE ACQUISITION Merck & Company and Medco Containment Services Incorporated believe that a merger between the two firms will create a competitive advantage that will allow for their survival. Merck executives identify Medco?s extensive database as the key factor motivating the merger. Medco maintains a computer profile of each of its 33 million customers, amounting to 26% of all people covered by a pharmaceutical benefit plan. Medco clients include 100 Fortune 500 companies, federal and state benefit plans, and 58 Blue Cross/Blue Shield groups and insurance companies. Numerous opportunities exist for Merck to utilize the information contained in Medco?s database. First, the database will allow Merck to identify prescriptions that could be switched from a competitor?s drug to a Merck drug. Merck pharmacists will then suggest the switch to a patient?s doctor. This prospect of increasing sales is enormous. Second, the database will allow Merck to identify patients who fail to refill prescriptions. The failure to refill needed prescriptions amounts to hundreds of millions of dollars in lost sales each year. Finally, Merck will be able to use Medco?s computerized patient record system as a real-life laboratory with the goal of proving that some Merck drugs are worth the premium price charged. This will take place by identifying who takes what pill and combining that information with the patient?s medical records. This might allow Merck to establish the supremacy of its products. Additional benefits of the merger include $1 billion annual savings in redundant marketing operations and a reduction in Merck?s sales force as a result of more precise marketing strategies brought about by Medco?s database and the industry emphasis on marketing to plan managers instead of doctors. Merck & Company?s acquisition of Medco Containment Services Incorporated is essentially an attempt to increase market share in an industry with decreasing prices by capitalizing on the most valuable asset in the pharmaceutical industry?information. It also is intended to increase its competitive position in the growing managed care arena by aligning itself with a PBM. Merck & Company?s strategy was quickly emulated when British drug maker SmithKline Beecham announced plans to acquire Diversified Pharmaceutical Services Incorporated, one of the four largest drug wholesalers in the United States, from United Healthcare for $2.3 billion, and Roche Holdings Limited reported that it planned to acquire Syntex Corporation. Also, in the summer of 1994, Eli Lilly and Company announced its intention to acquire PCS Health Systems from McKesson Corporation for $4 billion. These mergers were not only a reaction to the changing industry structure but caused the change to accelerate. QUESTION C5.1.1 What was the major force driving the acquisition?,Hello Rachel, everything is ok, but can you expand on the subject up to 300-400 words?
Question 2
""Read ?Big Enchilada Strategy? and answer the following question. If you are one of the companies, what would you bid and why? also answer the question with in the story. "What should the two companies do? " (Answer should be a paragraph or two. Thank you) The ?Big Enchilada Strategy? (This is based on actual market behavior as revealed in Congressional testimony) A new drug in the 1950s was considered a wonder antibiotic and widely prescribed by doctors. It was also cheap to produce, costing 10 cents a tablet. The market was divided by two drug companies which sold the capsules to retailers for about $1.00 a capsule. By contrast mark-ups for most products in most industries are more in the range of 10 to 20%. Fixed costs were minimal. The two companies obviously were making handsome profits on the drug when a huge new customer, the Public Health Service, requested bids on an order. Only one company would get the contract. What should the two companies do? Given the size of the order, any price over 10 cents would yield a company large profits, but the other company would have the same incentives, with the result that the two companies could end up, horror of horrors, actually competing and making minimal profits. A best case scenario for each company would be for the other company to hold the line at $1.00 and to win the bid by bidding 99 cents. One hint: I have called this the "Big Enchilada" situation for a reason and it is not because this drug aids digestion "
Question 3
1. (1) Your client left the cash receipts journal open after year-end for an extra day and included January 1 cash receipts in the 12/31/XX totals. All of those cash receipts were due to cash sales. Assuming the client uses a periodic inventory system with a 12/31/XX count of the physical inventory, which of the following is most likely to be true relating to the year XX financial statements? Sales are understated. Accounts receivable are understated. Inventory is overstated. Net income is overstated. 2. (1) By preparing a four-column bank reconciliation ("proof of cash") at year-end, an auditor will generally not be able to detect: An unrecorded deposit made at the bank at the end of the month. A second payment of an account payable which had already been paid in full two months earlier. An unrecorded check cashed during that month. A bank charge during the month not recorded on the books. 3. (1) Which of the following is not a control that generally is established over cash transactions? Separating cash handling from recordkeeping. Centralizing the receipt of cash. Depositing each day's receipts intact. Obtaining a receipt for every disbursement. 4. (1) Tracing recorded sales transactions in the sales journal to the shipping documents (bills of lading) provides evidence about the: Completeness of recording of sales transactions. Occurrence of sales transactions. Billing of all sales transactions. Presentation of payables. 5. (1) Which of the following manipulations of cash transactions would overstate the cash balance on the financial statements? Understatement of outstanding checks. Overstatement of outstanding checks. Understatement of deposits in transit. Overstatement of bank services charges. 6. (1) In a manufacturing company which one of the following audit procedures would give the least assurance of the existence of the assets in the general ledger balance of investment in stocks and bonds at the audit date? Confirmation from the broker. Inspection of year-end brokers' statements. Vouching all changes during the year to brokers' advises and statements. Examination of paid checks issued in payment of securities purchased. 7. (1) The Standard Form to Confirm Account Balances with Financial Institutions includes information on all of the following except: Date due of a direct liability. The principal amount paid on a direct liability. Description of collateral for a direct liability. The interest rate of a direct liability. 8. (1) To gather evidence regarding the balance per bank in a bank reconciliation, an auditor could examine all of the following except Cutoff bank statement. Year-end bank statement. Bank confirmation. General ledger. 9. (1) Which of the following procedures in the cash disbursements cycle should not be performed by the accounts payable department? Comparing the vendor's invoice with the receiving report. Canceling supporting documentation after payment. Verifying the mathematical accuracy of the vendor's invoice. Preparing the check for signature by an authorized person. 10. (1) When a client engages in transactions involving derivatives, the auditor should Develop an understanding of the economic substance of each derivative. Confirm with the client's broker whether the derivatives are for trading purposes. Notify the audit committee about the risks involved in derivative transactions. Add an explanatory paragraph to the auditor's report describing the risks associated with each derivative. 11. (1) By preparing a four-column bank reconciliation ("proof of cash") at year-end, an auditor will generally not be able to detect: An unrecorded deposit made at the bank at the end of the month. A second payment of an account payable which had already been paid in full two months earlier. An unrecorded check cashed during that month. A bank charge during the month not recorded on the books. 12. (1) An auditor may obtain information on the December 31 month end balance per bank in which of the following? Picture Option A Option B Option C Option D 13. (1) The auditors use a bank cutoff statement to compare: Deposits in transit on the year-end cash general ledger account to deposits in the cash receipts journal. Checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation. Deposits listed on the cutoff statement to disbursements in the cash disbursements journal. Checks dated subsequent to year-end to the outstanding checks listed on the year-end bank statement. 14. (1) Which of the following is not confirmed on the standard form used for cash balances at financial institutions? Cash checking account balances. Cash savings account balances. Loans payable. Securities held for the client by the financial institution. 15. (1) The Standard Form to Confirm Account Balances with Financial Institutions includes information on all of the following except: Date due of a direct liability. The principal amount paid on a direct liability. Description of collateral for a direct liability. The interest rate of a direct liability. 16. (1) The auditors compare information on canceled checks with information contained in the cash disbursement journal. The objective of this test is to determine that: Recorded cash disbursement transactions are properly authorized. Proper cash purchase discounts have been recorded. Cash disbursements are for goods and services actually received. No discrepancies exist between the data on the checks and the data in the journal. 17. (1) Which of the following is one of the better auditing techniques that might be used by an auditor to detect kiting? Review composition of authenticated deposit slips. Review subsequent bank statements and canceled checks received directly from the banks. Prepare a schedule of bank transfers. Prepare year-end bank reconciliations. 18. (1) Banks may process electronic "substitute checks" in place of customer written hard copy checks due to the: Check Clearing for the 21stCentury Act Public Company Accounting Oversight Board's Standard No. 2. Foreign Corrupt Practices Act. Sarbanes-Oxley Act 19. (1) When a client engages in transactions involving derivatives, the auditor should Develop an understanding of the economic substance of each derivative. Confirm with the client's broker whether the derivatives are for trading purposes. Notify the audit committee about the risks involved in derivative transactions. Add an explanatory paragraph to the auditor's report describing the risks associated with each derivative. 20. (1) An auditor compares annual revenues and expenses with similar amounts from the prior year and investigates all changes exceeding 10%. This procedure most likely could indicate that Fourth quarter payroll taxes were properly accrued and recorded, but were not paid until early in the subsequent year. Unrealized gains from increases in the value of available-for-sale securities were recorded in the income account for trading securities. The annual provision for uncollectible accounts expense was inadequate because of worsening economic conditions. Notice of an increase in property tax rates was received by management, but was not recorded until early in the subsequent year.,Why is it taking so long to approve?
Question 4
1.AmazDeal is an integrated company. The following information is taken from its income statements for 2009 and 2010 (all dollar figures are in millions): 2009 Sales: $240,000; cost of goods sold: 54% of sales, depreciation: $16,000, CAPEX: $6,000, additional investment in net working capital: $1,200 2010 Sales: $267,000, cost of goods sold: 55% of sales, depreciation: $17,200, CAPEX: $6,750, additional investment in net working capital: $1,350 Applicable tax rate for the company is 35%. Calculate company?s free cash flows (FCF) for 2009 and 2010 Estimate company?s FCF for 2011-2015 using the following assumptions: Company?s sales will grow at 4% per year over the next five years; Cost of goods sold as a percentage of sales is expected to increase by 1% each year, i.e., the gross margin ratio will be decreasing by 1% every year; Total CAPEX each year is expected to be equal to 25% of additional sales that year (compared to the previous year); Increase in net working capital in a given year will be equal to 5% of additional sales that year (compared to the previous year); Total depreciation each year will be equal to the total depreciation in a prior year plus 20 % of CAPEX incurred in a prior year (for example, depreciation in 2010 was 16,000 + 20% x 6,000 = 17,200). Since the company is a going concern we need not be concerned about the liquidation value of the firm?s assets at the end of 2015. 2. A company considers purchasing a high-capacity industrial 3-D printer. The management anticipate that the new machine will lead to more economic use of raw materials, reduced labor costs, and increased sales. The firm estimates that the installation of the machine will save $40,000 on raw materials and $50,000 on reduced labor costs and will increase sales by $60,000 (all estimates are per year). The proposed machine costs $500,000 and it will have a five year anticipated life and will be depreciated using MACRS depreciation method toward a zero salvage value (MACRS depreciation rates are given below). However, the company will be able to sell the machine in the after-market for 20% of its original costs at the end of year 5. The company requires a 11% rate of return from its investment and faces a 35% tax rate (the company is profitable). Calculate the NPV and IRR for the project. Should the company invest in this machine? The manager raised some concerns about increased revenues. She projects that the increased revenues could be 10% to 50% less than what was projected. However, the savings from reduced labor costs and reduced raw material costs would remain same. She presented the probability distribution on the projected sales (see the table below). Estimate the NPV and IRR for each of these scenarios. Estimate the expected NPV, which is equal the weighted average sum of NPVs under each scenario weighted (multiplied) by the probability of a given scenario. Should the company invest in the machine under this revised analysis? At what increased sales volume, the company would have a break-even (NPV=0)? 3. Insco Inc. has the balance sheet as shown below. Recently the yield on bonds similar to the ones that company has had fallen to 4.5%, so that the market value of the bonds is now about $707 million The rate on company' short-term notes is equal the market's rate on these notes, which is 5%. What are the company's total invested capital and capital structure weights? What is the company's cost of equity according to CAPM, if the U.S. T-bond yield is 2.00 %, the long-term market risk premium is 6% and the company's levered beta is 1.5? What is the company's WACC? What would be the beta of a similar company that has no debt? You will need to estimate beta of bonds and short term debt using CAPM first
Question 5
6-9 Governments may report substantially different amounts of interest on their government-wide and fund financial statements. Charter City issued $100 million of 6%, 20-year general obligation bonds on January 1, 2012. The bonds were sold to yield 6.2% and hence were issued at a discount of $2.27 million (i.e., at a price of $97.73 million). Interest on the bonds is payable on July 1 and January 1 of each year. On July 1, 2012, and January 1, 201 3, the city made its required interest payments of $3 million each. 1. How much interest expenditure should the city report in its debt service fund statement for its ?scal year ending December 31, 2012? During 2012 the city did not transfer resources to the debt service fund for the interest pay- ment that was due January 1, 2013. 2. How much interest expense should the city report on its government-wide statements for be helpful to prepare appropriate journal entries.) 3. On January 1, 2032 the city repaid the bonds. How should the repayment be re?ected on the city?s (1) fund statements and (2) government- wide statements? 8-4 In anticipation of issuing of long-term bonds, a state issues $200 million of 60-day BANs to finance highway construction. It expects to roll over the BANs into long-term bonds within 60 days. Its fiscal year ends on May 31. 1. Prepare the appropriate journal entry in a governmental fund (such as a capital projects fund) to record the issuance of the $200 million, 60-day BANs on May 1, 2013. 2. Prepare the appropriate journal entry, if required, to record the conversion of the BANs to long-term bonds on June 18, 2013. . 3. Prepare the appropriate journal entry, if required, to adjust the accounts as of year-end May 31, 2013, assuming that the state was unable to convert the BANs to long-term bonds. 4. Comment on how the BANs are reported on the government-wide statements as of May 3 1, 2013, assuming ?rst that they were converted and second that they were not converted.,I need how do get answer,are you there?,I Are you finshed my assignment?
