Question 1
QUESTION 2 - CASE STUDY ? 25 Marks Grant Limited has been a highly innovative company with a senior management dominated by scientists, who encouraged the Research and Development (R & D) staff to follow through their own ideas. The company was committed to high quality goods designed to fulfil the customers? requirements. The company had no complex planning systems and was undergoing change as the company had grown considerably in a short period, especially in terms of overseas expansion. A new chairman has been appointed and there is a belief that the company has become too committed to short-term goals. The business environment in which the company is operating is changing; increased variability in interest rates, high rates of inflation in some operating divisions, shorter life cycles for some products, scarcer and more expensive resources, and there is a declining demand for the company?s core product. A database has been set up to generate information about the company to enable managers to learn from the actions of others. However, no significant new ideas have been generated. These new arrangements also attracted some internal criticism that the knowledge capital of the company was not being properly managed. Recently the company failed to make its own financial targets for the first time in its history. The company has also announced job cuts throughout all of its operations and there have been significant inventory write-offs. Several unproductive divisions have been sold and the company has attempted to establish a higher international profile through corporate advertising. Senior staff members have been leaving to take up lucrative appointments elsewhere. As growth started diminishing, the company started borrowing heavily to finance many of its deals. Some of the borrowings allowed the company to pay large dividends. Grant Limited had invested in a large number of other activities and businesses, completely unrelated to its core business. The company had made a large number of highly speculative and ultimately poor investments. During the last few years Grant Limited has portrayed the company as a socially responsible organisation through its concern for the environment, its involvement in local communities and its activities in the emerging nations. The company was also keen to stress its empowerment of the workforce. As a top risk management graduate you have been consulted in this regard. REQUIRED: Prepare a risk management report to top management containing the following:- (a) The risk issues that would concern the CEO; and (15) (b) The consequences of ignoring these issues? (10)
Question 2
"Which one of the following is a correct definition of an Ibbotson and Sinquefield investment category as used to report historical returns in your textbook? (Points: 3) U.S. Treasury bills: 1-year debt securities issued by the U.S. Department of the Treasury Small-company stocks: Stocks of the smallest 20 percent of the firms listed on the NYSE Large-company stocks: Stocks of the largest 10 percent of the firms listed on the NYSE Long-term U.S. government bonds: Bonds issued by the U.S. government with a 30-year maturity 2. (TCO 8) Based on the efficient market hypothesis, all ?informed? investors will earn: (Points: 3) excess profits over the long-term. excess profits but only on short-term investments. a return equal to the value they paid for an investment. a return that cannot be accurately predicted because investments are subject to the random movements of the markets. 3. (TCO 8) Which of the following statements is true regarding systematic risk? Select all that apply: (Points: 4) is diversifiable is the total risk associated with surprise events it is not project or firm specific is measured by beta 4. (TCO 8) Assume a project that has the following returns for years 1 to 5: 15%, 4%, -13%, 34%, and 17%. What is the approximate expected return of this investment? (Points: 3) 11% 17% 16.60% 10% 5. (TCO 8) Assume you are considering investing in two stocks, A & B. Stock A has an expected return of 16% and Stock B has an expected return of 9.5%. Your goal is to create a two-security portfolio that will have an expected return of 12%. If you have $250,000 to invest today, approximately how much would you invest in Stock B? (Points: 3) $96,000 $150,000 $175,000 More than $200,000 6. (TCO 8) For this exercise, use the information provided for Problem 30 of Chapter 11 (page 375 of your textbook). Assume that the probability of the state of the economy has changed as follows: The probability of a recession has increased to 30% and the probability for a normal state of economy is now 40%. The market risk premium has increased by 1% as well. What is the beta and standard deviation of Stock I? (Points: 3) 1.2 and 24% 0.6 and 12% 1.2 and 12.5% Cannot be determined with the information given 7. (TCO 8) For this exercise, use the information provided for Problem 30 of Chapter 11 (page 375 of your textbook). Assume that the probability of the state of the economy has changed as follows: The probability of a recession has increased to 30% and the probability for a normal state of economy is now 40%. The market risk premium has increased by 1% as well. Which statement is true? Select all that apply: (Points: 4) Stock II has more risk than Stock I Stock II has less systematic risk than Stock I Stock I has a lower risk premium than Stock II Stock I has a lower expected return than Stock II 8. (TCO 8) Which statements are false regarding risk? Select all that apply: (Points: 4) The expected return is always the same as the actual return A key to assessing risk is determining how much risk an investment adds to a portfolio Risks can always be diversified The higher the risk, the higher the return investors require for the investment 9. (TCO 8) Are all risks diversifiable? Why or why not?",I no longer need the solution the due date has passed. Thank You
Question 3
(Journal entries and financial statements for an Internal Service Fund) Lilly County, faced with the prospect of declining revenues, decides it can save money by doing all printing in-house. ?he county creates the Lilly Printing Fund (an Internal Service Fund), directs departments to fulfill their bulk printing needs through that fund, and directs departments to pay the fund promptly to minimize its working capital needs. ?he fund had the following transactions and events during 2013. Prepare (a) journal entries to record these transactions in the Lilly Printing Fund; (b) a statement of net position as of December 31, 2013; and (c) a statement of revenues, expenses, and changes in net position for the year ended December 31, 2013. 1. Received a loan on January 2 from the county in the amount of $6,000, to be repaid in four equal annual installments of $1,500, starting December 31, 2013, with interest at the rate of 1 percent per annum on the outstanding balance. the specified purpose of the loan was to pur- chase equipment for $4,800 and to use the balance of $1,200 to meet working capital needs. 2. Purchased reproduction equipment for $4,800 on January 2, using cash provided in transaction 1. The equipment has an estimated useful life of 4 years and no salvage value. 3. Purchased paper and supplies for $4,500 on credit. (Because inventories are kept to a mini- mum, charge the purchase to Supplies expense.) 4. Sent invoices for $65,000 to department financed by the General Fund. 5. received cash in the amount of $63.000 as a result of transaction 4. 6. Paid the $4,500 invoice received in transaction. 7. Paid salaries in the amount of $50,000 and utility bills in the amount of $6,000 8. Repaid the county $1,500 of principal on the loan, plus interest of 1 percent. 9. In preparation for yer-end- financial statements, recorded depreciation on the equipment for 12 months.
Question 4
I need question c) Arrow Technology, Inc. (ATI) has total assets of $10 million and expected operating income (EBIT) of $2.5 million. If ATI uses debt in its capital structure, the cost of this debt will be 12 percent per annum. a. Complete the following table: Leverage Ratio (Debt/Total Assets) 0% 25% 50% Total assets ______ ______ ______ Debt (at 12% interest) ______ ______ ______ Equity ______ ______ ______ Total liabilities and equity ______ ______ ______ Expected operating income (EBIT) ______ ______ ______ Less: Interest (at 12%) ______ ______ ______ Earnings before tax ______ ______ ______ Less: Income tax at 40% ______ ______ ______ Earnings after tax ______ ______ ______ Return on equity ______ ______ ______ Effect of a 20% Decrease in EBIT to $2,000,000 Expected operating income (EBIT) ______ ______ ______ Less: Interest (at 12%) ______ ______ ______ Earnings before tax ______ ______ ______ Less: Income tax at 40% ______ ______ ______ Earnings after tax ______ ______ ______ Return on equity ______ ______ ______ Effect of a 20% Increase in EBIT to $3,000,000 Expected operating income (EBIT) ______ ______ ______ Less: Interest (at 12%) ______ ______ ______ Earnings before tax ______ ______ ______ Less: Income tax at 40% ______ ______ ______ Earnings after tax ______ ______ ______ Return on equity ______ ______ ______ c. Determine the percentage change in return on equity of a 20 percent increase in expected EBIT from a base level of $2.5 million with a debt-to-total-assets ratio of i. 0% ii. 25% iii. 50%
Question 5
1. (TCO 3) Dougherty Company employs 20 individuals. Eight employees are paid $12 per hour and the rest are salaried employees paid $3,000 a month. How would total costs of personnel be classified? (Points : 3) Fixed cost within relevant range Variable Mixed Variable cost within relevant range 2. (TCO 3) For January, the cost components of a picture frame include $0.35 for the glass, $0.65 for the wooden frame, and $0.80 for assembly. The assembly desk and tools cost $400. A total of 1,000 frames is expected to be produced in the coming year. What cost function best represents these costs? (Points : 3) y = 1.80 + 400X y = 400 + 1.80X y = 2.20 + 1,000X y = 1.00 + 400X 3. (TCO 3) Which cost estimation method uses a formal mathematical method to develop cost functions based on past data? (Points : 3) Quantitative analysis Industrial engineering Account analysis Conference 4. (TCO 3) Penny's TV and Appliance Store is a small company that has hired you to perform some management advisory services. The following information pertains to 20X2 operations. Sales (2,000 televisions) $900,000; Cost of goods sold $400,000; Store manager's salary per year $70,000; Operating costs per year $157,000; Advertising and promotion per year $15,000; Commissions (4% of sales) $36,000. What was the variable cost per unit sold for 20X2? (Points : 3) $200 $339 $218 $18 5. (TCO 4) The formal process of choosing among alternatives is known as a(n) (Points : 3) prediction model. alternative model. decision model. relevant model. 6. (TCO 4) For decision making, a listing of the relevant costs (Points : 3) will help the decision maker concentrate on the pertinent data. will only include future costs. will only include costs that differ among alternatives. All of the above 7. (TCO 4) A computer system installed last year is an example of a(n) (Points : 3) avoidable cost. differential cost. relevant cost. sunk cost. 8. (TCO 4) Black Tool Company has a production capacity of 1,500 units per month, but production is only 1,250 units. The manufacturing costs are $60 per unit and marketing costs are $16 per unit. Doug Hall offers to purchase 250 units at $76 each for the next five months. Should Black accept the one-time-only special order if only absorption-costing data are available? (Points : 3) Yes, since operating profits will most likely increase. No, since only the employees will benefit. No, the company will only break even. Yes, good customer relations are essential. 9. (TCO 5) The theory of constraints is used for cost analysis when (Points : 3) a manufacturing company produces multiple products and uses multiple manufacturing facilities and/or machines. using a long-term time horizon. operating costs are assumed fixed. All of the above 10. (TCO 5) A machine has been identified as a bottleneck and the source of the constraint for a manufacturing company that has multiple products and multiple machines. One way the company can overcome the bottleneck is (Points : 3) eliminating idle time at the bottleneck operation. Extra staffing at the bottleneck would be a possibility, particularly if numerous manual type tasks were involved. concentrate on processing those parts or products that increase throughput contribution, not parts or products that remain in finished goods or spare parts inventories. solicit the opinions of the factory workers for ideas as to how the design of the manufacturing process can be simplified. All of the above
