Question 1
Flandro Company uses a standard cost system and sets predetermined overhead rates on the basis of direct labor-hours. The following data are taken from the company's budget for the current year: Denominator activity (direct labor-hours) 12,800 Variable manufacturing overhead cost $60,160 Fixed manufacturing overhead cost $128,000 The standard cost card for the company's only product is given below: Direct materials, 3 yards at $3.40 per yard $10.20 Direct labor, 2 hour at $11 per hour 22.00 Manufacturing overhead, 133.64% of direct labor cost 29.40 Standard cost per unit $61.60 During the year, the company produced 4,800 units of product and incurred the following costs: Materials purchased, 36,000 yards at $3.30 per yard $118,800 Materials used in production (in yards) 25,000 Direct labor cost incurred, 13,000 hours at $8.4 per hour $109,200 Variable manufacturing overhead cost incurred $34,600 Fixed manufacturing overhead cost incurred $33,800 Requirement 1: Redo the standard cost card in a clearer, more usable format by detailing the variable and fixed overhead cost elements. (Round your answers to 2 decimal places. Omit the "$" sign in your response.) Direct materials $ Direct labor Variable manufacturing overhead Fixed manufacturing overhead cost Standard cost per unit $ Requirement 2: Prepare an analysis of the variances for direct materials and direct labor for the year. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.) Materials variances: Price Variance $ Quantity Variance $ Labor variances: Rate Variance $ Efficiency Variance $ Requirement 3: Prepare an analysis of the variances for variable and fixed overhead for the year. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.) Variable overhead variances: Rate Variance $ Efficiency Variance $ Fixed manufacturing overhead variances: Budget variance $ Volume Variance $
Question 2
As an IT manager, create a 10 ? 15 slide professional PowerPoint presentation (using speaker notes) for the CEO by Monday, November 21, 2011. The presentation topic is the evolution of information systems as seen in the organization you selected in module 1. You will conduct research and analyze information to make recommendations for an updated system that can meet the business requirements of your chosen organization. Summarize the organization?s current and past use of information systems and its impact on operations, decision making, efficiency, and profitability. Explain the usage and purpose of the IS system, the improvements that can be made to it, and analyze the need for an information system. Elaborate on how decisions are made using the IT system. Identify three key business requirements or needs that the system must meet of your selected organization (e.g., the system must track all customer sales by product, region, and sales representative). Then, assuming that a system upgrade would be possible, discuss your responsibility as an IS professional and the roles of others in the organization to define new or other business information systems that might be needed and to select an appropriate platform. Consider various types of decision-making support systems (DSS). Include a title slide, reference slide and incorporate at least three resources in your presentation.
Question 3
Great Subs, Inc., a regional sandwich chain, is considering purchasing a smaller chain, Eastern Pizza, which is currently financed using 20% debt at a cost of 8%. Great Subs' analysts project that the merger will result in incremental free cash flows and interest tax savings of $2 million in Year 1, $4 million in Year 2, $5 million in Year 3, and $117 million in Year 4. (The Year 4 cash flow includes the horizon value of $107 million.) The acquisition would be made immediately, if it is to be undertaken. Eastern's pre-merger beta is 3.1, and its post-merger tax rate would be 34%. The risk-free rate is 6%, and the market risk premium is 4.5%. What is the appropriate rate to use in discounting the free cash flows and the interest tax savings if you use the Adjusted Present Value approach? Blazer Inc. is thinking of acquiring Laker Company. Blazer expects Laker's NOPAT to be $9 million the first year, with no net new investment in operating capital and no interest expense. For the second year, Laker is expected to have NOPAT of $28 million and interest expense of $6 million. Also, in the second year only, Laker will need $10 million of net new investment in operating capital. Laker's marginal tax rate is 40%. After the second year, the free cash flows and the tax shields from Laker to Blazer will both grow at a constant rate of 3%. Blazer has determined that Laker's cost of equity is 18.0%, and Laker currently has no debt outstanding. Assume that all cash flows occur at the end of the year and that Blazer must pay $45 million to acquire Laker. What is the NPV of the proposed acquisition? Note that you must first calculate the value to Blazer of Laker's equity. Rainier Bros. has 10.0% semiannual coupon bonds outstanding that mature in 10 years. Each bond has a par value of $1,000 and is now eligible to be called at $1,090. If the bonds are called, the company must replace them with new 10 year bonds. The flotation cost of issuing the new bonds is estimated to be $45 per bond. How low would the yield to maturity on the new bonds have to be for it to be profitable to call the bonds today, i.e., what is the nominal annual "breakeven rate"? Its investment bankers have told Donner Corporation that it can issue a 25 year, 8.0% annual payment bond at par. They also stated that the company can sell an issue of annual payment preferred stock to corporate investors who are in the 35% tax bracket. The corporate investors require an after-tax return on the preferred that exceeds their after-tax return on the bonds by 1.5%, which would represent an after-tax risk premium. What coupon rate must be set on the preferred in order to issue it at par? Valdes Enterprises is considering issuing a 10 year convertible bond that would be priced at its $1,000 par value. The bonds would have an 8.00% annual coupon, and each bond could be converted into 20 shares of common stock. The required rate of return on an otherwise similar nonconvertible bond is 9.50%. The stock currently sells for $40.00 a share, has an expected dividend in the coming year of $2.00, and has an expected constant growth rate of 6.00%. What is the estimated floor price of the convertible at the end of Year 3? Dunbar Hardware, a national hardware chain, is considering purchasing a smaller chain, Eastern Hardware. Dunbar's analysts project that the merger will result in incremental free cash flows and interest tax savings with a combined present value of $92.52 million, and they have determined that the appropriate discount rate for valuing Eastern is 16%. Eastern has 8 million shares outstanding and no debt. Eastern's current price is $10.25 per share. What is the maximum price per share that Dunbar should offer? Tuttle Buildings Inc. has decided to go public by selling $5,000,000 of new common stock. Its investment bankers agreed to take a smaller fee now (7% of gross proceeds versus their normal 10%) in exchange for a 1 year option to purchase an additional 250,000 shares at $5.00 per share. The investment bankers expect to exercise the option and purchase the 250,000 shares in exactly one year, when the stock price is forecasted to be $6.50 per share. However, there is a chance that the stock price will actually be $12.00 per share one year from now. If the $12 price occurs, what would the present value of the entire underwriting compensation be? Assume that the investment banker's required return on such arrangements is 21% and ignore taxes. Kohers Inc. is considering a leasing arrangement to finance some manufacturing tools that it needs for the next 3 years. The tools will be obsolete and worthless after 3 years. The firm will depreciate the cost of the tools on a straight-line basis over their 3 year life. It can borrow $5,900,000, the purchase price, at 11% and buy the tools, or it can make 3 equal beginning-of-year lease payments of $2,100,000 each and lease them. The loan obtained from the bank is a 3 year simple interest loan, with interest paid at the end of the year and the full loan amount repaid at the end of year 3. The firm's tax rate is 40%. Annual maintenance costs associated with ownership are estimated at $290,000, but this cost would be borne by the lessor if it leases. Assume annual maintenance costs are paid at the beginning of each year. What is the net advantage to leasing (NAL) for Kohers? Curry Corporation is setting the terms on a new issue of bonds with warrants. The bonds will have a 30 year maturity and annual interest payments. Each bond will come with 25 warrants that give the holder the right to purchase one share of stock per warrant. The investment bankers estimate that each warrant will have a value of $15.00. A similar straight-debt issue would require a 8.5% coupon rate. What coupon rate should be set on the bonds-with-warrants so that the package would sell for $1,000? Brau Auto, a national autoparts chain, is considering purchasing a smaller chain, South Georgia Parts (SGP). Brau's analysts project that the merger will result in the following incremental free cash flows, tax shields, and horizon values, in millions of dollars: Year 1 2 3 Free Cash Flows $ 1.00 $ 3.00 $ 3.00 Unlevered Horizon Value Tax Shield $ 1.00 $ 1.00 $ 2.00 Horizon Value of Tax Shield Assume that all cash flows occur at the end of the year. SGP is currently financed with 40% debt at a rate of 10%. The acquisition will be made immediately, and if it is undertaken, SGP would retain its current $15 million of debt and issue enough new debt to continue at the 40% target level. The interest rate will remain the same. SGP's per-merger beta is 2.0, and its post-merger tax rate would be 34%. The risk-free rate is 7% and the market risk premium is 4%. What is the value of SGP to Brau? Kelly Tubes is considering a merger with Reilly Tires. Reilly's market-determined beta is 1.1, and the firm is financed with 20% debt, at an interest rate of 7.5%, and its tax rate is 25%. If Kelly acquires Reilly, it will increase the debt to 60%, at an interest rate of 9.50%, and the tax rate will increase to 35%. The risk-free rate is 6% and the market risk premium is 5%. What will Reilly's required rate of return on equity be after it is acquired? Europa Corporation is financing an ongoing construction project. The firm will need $9,000,000 of new capital during each of the next 3 years. The firm has a choice of issuing new debt or equity each year as the funds are needed, or issue only debt now and equity later. Its target capital structure is 30% debt and 70% equity, and it wants to be at that structure in 3 years, when the project is completed. Debt flotation costs for a single debt issue would be 1.7% of the gross debt proceeds. Yearly flotation costs for three separate issues of debt would be 3.1% of the gross amount. Ignoring time value effects, how much would the firm save by raising all the debt now, in a single issue, rather than in 3 separate issues? Remember that the $9,000,000 of new capital needed during each of the new 3 years is the amount needed net of flotation costs. Buster's Beverages is negotiating a lease on a new piece of equipment that would cost $100,000 if purchased. The equipment falls into the MACRS 3 year class, and it would be used for 3 years and then sold, because the firm plans to move to a new facility at that time. The estimated value of the equipment after 3 years is $30,000. A maintenance contract on the equipment would cost $3,000 per year, payable at the beginning of each year. Alternatively, the firm could lease the equipment for 3 years for a lease payment of $28,000 per year, payable at the beginning of each year. The lease would include maintenance. The firm is in the 35% tax bracket, and it could obtain a 3 year simple interest loan, with interest payable at the end of each year, to purchase the equipment at a before-tax cost of 10%, with all loan principle to be repaid at the end of year 3. If there is a positive Net Advantage to Leasing the firm will lease the equipment. Otherwise, it will buy it. What is the NAL? show working .,I need to see how to work the problems. thanks
Question 4
On January 1, 20X1, LGM Company purchased 80% of the outstanding common stock of MEL Company for $296,000. On this date, the book value of MEL?s net asset was equal to $370,000. LGM uses the equity method to account for investments. Below is the trial balance for both LGM and MEL as of December 31, 20X1 LGM MEL Cash 191,000 46,000 Accounts Receivable 140,000 60,000 Inventory 190,000 120,000 Investment in MEL 350,400 0 Land 250,000 125,000 Buildings & Equipment 875,000 250,000 Cost of Goods Sold 250,000 155,000 Depreciation Expense 65,000 12,000 Selling & Adm. Expense 280,000 50,000 Dividends Declared 80,000 25,000 Accumulated Depreciation 565,000 36,000 Accounts Payable 77,000 27,000 Bonds Payable 250,000 100,000 Common Stock 625,000 250,000 Retained Earnings 280,000 120,000 Sales 800,000 310,000 Income from MEL 74,400 0 Required: 1. Prepare all necessary journal entries to record the investment in MEL. 2. Prepare the book value calculations. 3. Prepare all necessary elimination entries for the consolidating worksheet of December 31, 20X1. 4. Complete the consolidating worksheet for December 31, 20X1. 5. Prepare the following financial statements: a. Balance Sheet b. Income Statement 6. Determine the amount of total revenue, total expense and net income to be reported as of December 31, 20X1 under the following consolidation alternatives: a. Proprietary theory b. Parent company theory c. Entity theory d. Current accounting practice
Question 5
PinkJet Airlines is a relatively new, low-cost commercial carrier who now wants to expand its aircraft fleet. They have shopped-around for aircraft and what they need sells for about $50 million for each aircraft. They have retained your group as investment advisors. Your job is to present various financing alternatives to PinkJet. Pinkjet operates in an ever-changing competitive and economic environment. In the old days, airlines pretty much knew the routes they would be flying many years out, but that's not true anymore. Flexibility is very important these days, so airlines are less willing to lock-in deals that stretch many years out even though flexibility comes at a higher cost. However, PinkJet is also very interested in how your proposals will impact the financial statements. They already have some debt on their balance sheet, and naturally they would prefer not to have any more. On the other hand, they have no restrictive debt covenants, so they might be receptive to additional debt at the right price and terms. PinkJet wants to see three financing alternatives, and they have told you that one alternative must be straight debt financing where Pinket owns the aircraft (in other words, they receive the tax benefits), and another must be a "short-term" operating lease. The third alternative is up to you, but PinkJet has mentioned convertible debt as a possibility. Another possibility is a capital lease, but that would be attractive only if its afforded off-balance sheet treatment. PinkJet analyzes investment opportunities based on net present value of after-tax cash flows. PinkJet is profitable, and they project taxable income well into the future, i.e., they could use the tax benefits of ownership. PinkJet will tolerate some risk, but they will balk at what they think is excessive financial risk, and that includes accounting risk as well as economic risk. Presentation/Submission: Your FINAL proposal should be addressed to PinkJet's management team and include the following: 1. Comprehensive written report including objective, assumptions, results and conclusions (must inlcude all research to support the accounting treatment for your recommended alternatives) 2. Attached appendices of all calculations contained in the main report supporting your conclusions 3. 10 slide powerpoint presentation that would be used to present your conclusions and findings to the management group 4. Collaborate with your team and upload either a video or audio presentation of the power point presentation Your proposal must include your assumptions. I'm not giving you much to work on so your assumptions will be critical. For example, you have to come-up with your own interest rates, and you will have to do some research to determine a reasonable rate. Also, PinkJet looks at after-tax cash flows, so you will have some tax assumptions. Here too, they must be based upon something reasonable, for example MACRS
