Question 1
A company must decide whether to invest $100 million in developing and implementing a new enterprise system in the face of considerable technological and market (demand for product and market share) uncertainty. The firm's cost of capital is 10%. 1. Evaluate Using Conventional NPV Analysis There can be a good and bad result for this investment. Good Result: A good result has a probability of .75 of occurring. Here the planned cost reductions have been realized and better integration of the supply chain is possible. These benefits are reinforced by strong market demand for the firm's product. There have also been feedback benefits, the enterprise systems has significantly improved perceived quality and service from the customer's point of view. Annual benefits under this scenario equal $15 million in after tax cash flow per year. Bad Result: Probability .25.The system proves to be more difficult to implement and improvements in management of the supply chain are less. In addition, the growth in market demand for the product is lower. Annual benefits under this scenario are $2 million in after tax cash flow per year. Using traditional "all or nothing" NPV analysis, calculate the expected NPV of the project: Given: Year 0 (now) cash flows: $-100 million for ERP purchase and implementation See the the diagram at: NPV Diagram 2. Real Options Approach (all cash flows are after tax) Now, evaluate the investment using managerial flexibility and a real options approach. The real options alternative allows for flexibility and the delay of the investment for 1 year. In this case, if we do a pilot project we will be better able to evaluate ERP implementation complexities, achievable supply chain benefits, and the market share our products will achieve. However, the cost of the project will rise to $110 Million ($10 Million this year and $100 Million next year) with the one-year delay and additionally management decides to purchase and implement the financial module in year 1 at a cost of $10 Million (real option). The results are slightly different: Year 0 (now) cash flows: $10 million for the pilot project, the financial module After year 1, if the conditions indicate a good result, the firm will invest the $100 million for the ERP with expected benefits (cash flows) of $15 million annually (forever) beginning in year 2. Benefits in year one from the financial module are $1 million. If a bad result is indicated, the firm makes no further investments beyond the financial module, which yield annual benefits of $.5 million in year 1 and each year there after (forever). Here the firm has flexibility and has exercised its option to make no further investments based on better information and knowledge of expected future benefits. Evaluate the expected NPV of this project using the described real option. Compare the expected NPV using the traditional NPV approach with the expected NPV using real options. What do you conclude in each case?
Question 2
P21-13 Amirante Inc manufacturers an X-ray machine with an estimated life of 12 years and leases it to Chambers Medical Center for a period of 10 years. The normal selling price of the machine is $411,324, and its guaranteed residual value at the end of the non-cancelable lease term is estimated to be $15,000. The hospital will pay rents of $60,000 at the beginning of each year and all maintenance, insurance, and taxes. Amirante Inc incurred costs of $250,000 in manufacturing the machine and $14,000 in negotiating and closing the lease. Amirante Inc. has determined that the collectibility of the lease payments is reasonably predictable, that there will be no additional costs incurred, and that the implicit interest rate is 10%. Instructions: (Round all numbers to nearest dollar). (a) discuss the nature of this lease in relation to the lessor and compute the amount of each of the following items: (1) Lease receivable at the inception of the lease (2) sales price (3) cost of sales (b) prepare a 10 year lease amortization schedule (c) prepare all of the lessor's journal entries for the first year P21-14 Assume the same data as in P21-13 and that Chambers Medical Center has an incremental borrowing rate of 10%. Instructions: (Round all numbers to the nearest dollar) (a) Discuss the nature of this lease in relation to the lessee, and compute the amount of the initial obligation under capital leases. (b) prepare a 10 year lease amortization schedule (c) prepare all of the lessee's journal entries for the first year
Question 3
manufacturer of fashion clothing that has just opened its first large retail store for selling in- season clothes at regular prices. The company?s competitive strategy depends on a comprehensive point- of- sale (POS) system supporting online, up- to- the- minute sales totals, day- to- day tracking of stock information, and quick checkout of customer purchases. Because cashiers were already familiar with electronic cash registers, management decided that only minimal training was required. Cashiers enter four- digit stock tracking numbers (STNs) into one of the POS terminals that retrieves price and description data, computes the tax and total amount due, accepts the type of payment, and controls the cash drawer. A unique STN identifies each of the 9,500 pieces of merchandise. The central computer server maintains stock information. In the first month of operation, new cashiers were awkward using the new system. They eventually became proficient users but were frustrated with the slow printing of sales tickets and the unpredictable action of their cash drawers. Each checkout stand has a telephone that cashiers use to call for approval of credit- card transactions. Customers became impatient when credit approvals delayed the checkout process or when the computer was down, thus stopping all sales, including cash sales. Identify four problems with the system and describe how you would remedy each of them. 13- 19. Wright Company (Analyzing System Reports) Wright Company employs a computer- based data processing system for maintaining all company records. The current system was developed in stages over the past five years and has been fully operational for the last 24 months. When the system was being designed, all department heads were asked to specify the types of information and reports they would need for planning and controlling operations. The systems department attempted to meet the specifications of each department head. Company management specified that certain other reports be prepared for department heads. During the five years of systems development and operation, there have been several changes in the department head positions due to attrition and promotions. The new department heads often made requests for additional reports according to their specifications. The systems department complied with all of these requests. Reports were discontinued only on request by a department head, and then only if it was not a standard report required by top management. As a result, few reports were discontinued. Consequently, the information processing subsystem was generating a large quantity of reports each reporting period. Company management became concerned about the quantity of report information that was being produced by the system. The internal audit department was asked to evaluate the effectiveness of the reports generated by the system. The audit staff determined early in the study that more information was being generated by the information processing subsystem than could be used effectively. They noted the following reactions to this information overload: ? Many department heads would not act on certain reports during periods of peak activity. The department heads would let these reports accumulate with the hope of catching up during subsequent lulls. ? Some department heads had so many reports they did not act at all on the information, or they made incorrect decisions because of misuse of the information. ? Frequently, actions required by the nature of the report data were not taken until the department heads were reminded by others who needed the decisions. These department heads did not appear to have developed a priority system for acting on the information produced by the information processing subsystem. ? Department heads often would develop the information they needed from alternative, independent sources, rather than use the reports generated by the information processing subsystem. This was often easier than trying to search among the reports for the needed data. Requirements: 1. Indicate whether each of the foregoing four reactions contributes positively or negatively to the Wright Company?s operating effectiveness. Explain your answer for each of the four reactions. 2. For each reaction that you indicated as negative, recommend alternative procedures the Wright Company could employ to eliminate this negative contribution to operating
Question 4
Note: this is part d of a multipart question that I broke up. Only the instruction line at the end is different. "P19-9 (Five Differences, Compute Taxable Income and Deferred Taxes, Draft Income Statement) Wise Company began operations at the beginning of 2011. The following information pertains to this company. 1. Pretax financial income for 2011 is $100,000. 2. The tax rate enacted for 2011 and future years is 40%. 3. Differences between the 2011 income statement and tax return are listed below: a. Warranty expense accrued for financial reporting purposes amounts to $7,000. Warranty deductions per the tax return amount to $2,000. b. Gross profit on construction contracts using the percentage-of-completion method per books amounts to $92,000. Gross profit on construction contracts for tax purposes amounts to $67,000. c. Depreciation of property, plant, and equipment for financial reporting purposes amounts to $60,000. Depreciation of these assets amounts to $80,000 for the tax return. d. A $3,500 fine paid for violation of pollution laws was deducted in computing pretax financial income. e. Interest revenue earned on an investment in tax-exempt municipal bonds amounts to $1,500. (Assume (a) is short-term in nature; assume (b) and (c) are long-term in nature.) 4. Taxable income is expected for the next few years. Instructions:d. Draft the income tax expense section of the income statement beginning with ?Income before income taxes.?
Question 5
Provide a quick definition of Marketing Plans using your text. Using an article from the library?s full-text databases discuss an example of how a marketing plan helped make a product/service successful. On the other hand (using an article from the library?s full-text databases), discuss an example of how decisions in a marketing plan led to failure. Analyze what was different in the two examples.,Below is this is the entire assignment (for your review)...thanks! Marketing Plans are tools used by managers to guide the process of marketing. They contain strategies, and consider many environment aspects that work together to affect the success of the product or service being marketed. Marketers must learn to do solid research in support of upcoming projects. The Unit 1 IP is a research paper and should address the following: 1. Provide a quick definition of Marketing Plans using your text. ? Using an article from the library?s full-text databases discuss an example of how a marketing plan helped make a product/service successful. ? On the other hand (using an article from the library?s full-text databases), discuss an example of how decisions in a marketing plan led to failure. ? Analyze what was different in the two examples. (This section of the paper should be at least two pages in length.) In a marketing plan, objectives are created that can be used to gauge progress. Let us have some fun with the concept. Movie studios pay stars big bucks to star in what they hope is a blockbuster. But as we know, there are lots of box office flops (failures). ? Using an internet search, find a movie that failed. Provide a quick overview of why the movie was considered a ?flop.? ? Applying what you have learned about the concept of market plans, extrapolate what could have gone wrong in the studio?s plan with regard to forecasting demand for the project. (This section should be at least two pages in length.) The assignment requires the use of ARTICLES from the library?s full-text databases. Articles are found in periodicals. These are not to be confused with eBooks or Reference Books. The most popular databases in marketing are: ABI Inform Global, Academic Search Premier, and Business Source Premier. Your report MUST include a reference list. All research should be cited in the body of the paper. In-text citations and corresponding references should be included in your paper. For more information on APA, please visit the APA Lab. The paper should be written in third person; this means words like ?I?, ?we?, and ?you? are not appropriate. The use of direct quotes is discouraged, but may be used sparingly in appropriate situations. Your assignment should contain a cover page, an abstract page and a reference page in addition to the body. The body of the paper should be 4-5 pages in length - starting with a brief one paragraph introduction and ending with a short conclusion. The entire submission will be 7-8 pages in length.,Although the information was useful, it was not complete and was also late. There were a few incomplete sentences; however, most importantly, the deadline I specified was Sunday 07252010.
