Question: As shown in equation (7.10), the
As shown in equation (7.10), the price equation for a firm with positive growth opportunities is
Required:
1. Why does eBay have a higher cost of equity capital (re) than Walmart?
2. Compute NPVGO for each company.
3. Compute NPVGO as a percent of stock price for each company.
4. Why is eBay’s NPVGO as a percent of stock price less than Home Depot’s?
5. Why is Walgreens Boots Alliance’s NPVGO as a percentage of stock price so low?
> Prescott Co. management has committed to a plan to dispose of a group of assets associatedwith the manufacture of railroad cars. This group of assets qualifies as a component of anentity for financial reporting purposes. As of December 31, 20X1, manageme
> Refer to The Kroger Co. information in Case 15-3. Required: Explain how net benefit cost and OCI would change if The Kroger Co. were using IAS 19.
> Gardenia Co. and Lantana Co. both operate in the same industry. Gardenia began its operations in 20X1 with a $20 million initial investment in plant and equipment with an expectedlife of 10 years. Lantana’s net asset base is also $20 million, but its ass
> The 20X0 income statement and other information for Mallard Corporation, which is about to purchase a new machine at a cost of $500 and a new computer system at a cost of $300, follow. Additional Information: • The two new assets are ex
> Assume that Major Motors Corporation, a large automobile manufacturer, reported in a recentannual report to shareholders that its buildings had an original cost of $4,694,000,000. a. Major Motors uses the straight-line depreciation method to depreciate t
> Consider the following two scenarios: Scenario I: Over the 20X1–20X5 period, Micro Systems, Inc., spends $10 million a year todevelop patents on new computer hardware manufacturing technology. While some of itsprojects failed, the firm did develop severa
> To meet the increasing demand for its microprocessors, Intelligent Micro Devices began construction of a new manufacturing facility on January 1, 20X1. Construction costs were incurreduniformly throughout 20X1 and were recorded in the firm’s Construction
> On January 2, 20X0, Half, Inc., purchased a manufacturing machine for $864,000. The machinehas an eight-year estimated life and a $144,000 estimated salvage value. Half expects to manufacture 1,800,000 units over the machine’s life. During 20X1, Half man
> Parque Corporation (a fictional company) applied to Fairview Bank (another fictional company) early in 20X2 for a $400,000 five-year loan to finance plant modernization. The company proposes that the loan be unsecured and repaid from future operating cas
> During your audit of Patti Company’s ending inventory at December 31, 20X1, you find the following inventory accounting errors: a. Goods in Patti’s warehouse on consignment from Valley, Inc., were included in Patti’s ending inventory. b. On December 31,
> Packard, Inc., adopted the dollar-value LIFO inventory method on June 30, 20X1, the end of its fiscal year. Packard’s inventory records provide the following information: Required: Calculate the ending inventory for Packard, Inc., for
> Princess Retail Stores started doing business on January 1, 20X1. The following data reflect its inventory purchases and sales during the year: Required: 1. Compute gross margin and cost of ending inventory using the periodic FIFO cost flow assumption.
> The Kroger Co. operates numerous grocery store chains. Excerpts from Kroger’s Note 15 arepresented below. The 2017 amounts are for the fiscal year ended February 3, 2018. All amountsare in millions of U.S. dollars. At February 3, 2018,
> Diana Gomez Corporation, a manufacturer of cowboy boots, provided the following information from its accounting records for the year ended December 31, 20X1. Additional information is as follows: a. Work-in-process inventory costing $30,000 was sent to a
> Mastrolia Manufacturing produces pacifiers. The company uses absorption costing for external reporting, but management prefers variable costing for evaluating the profitability of each model. Bonuses, which make up a significant portion of each manager&a
> Bravo Wholesalers, Inc., began its business on January 1, 20X1. Information on its inventory purchases and sales during 20X1 follows: Assume a tax rate of 21%. Required: 1. Compute the cost of ending inventory and cost of goods sold under each of the fo
> The following information pertains to Yuji Corporation: Required: Sales revenue during 20X1 was $300,000. The income tax rate is 21%. Compute the following: 1. Cost of raw materials used. 2. Cost of goods manufactured/completed. 3. Cost of goods sold. 4
> 1. Refer to the facts in Problem 10-16. Repeat the requirements assuming that Jake uses the FIFO cost flow assumption. 2. Explain how the financial statements are affected when a company decides that NRV should be used for the inventory value. 3. Repeat
> Ramps by Jake, Inc., manufactures skateboard ramps. The company uses independent sales representatives to market its products and pays a commission of 8% on each sale. Data regarding the five styles of ramps in the company’s inventory a
> Caldwell Corporation (a fictional company) operates an ice cream processing plant and uses the FIFO inventory cost flow assumption. A partial income statement for the year ended December 31, 20X2, follows: Caldwell’s physical inventory
> Sirotka Retail Company began doing business in 20X1. The following information pertains to its first three years of operation: Assume the following: • The income tax rate is 21%. • Purchase and sale prices change only
> Bourne Company (a fictional company) has the following inventory note in its 20X3 annual report. LIFO revaluations decreased $140 million in 20X3, compared with decreases of $169 million in 20X2 and $82 million in 20X1. Included in these changes were dec
> JKW Corporation (a fictional company) has been selling plumbing supplies since 1981. In 2003, the company adopted the LIFO method of valuing its inventory. The company has grown steadily over the years and a layer has been added to its LIFO inventory in
> AT&T reported pre-tax income of $24,873 million, $15,139 million, and $12,976 millionfor the years ended December 31, 2018, 2017, and 2016, respectively. At December 31, 2018, it had 7,281.6 million common shares outstanding and a common share price
> The following is an excerpt from the financial statements of Talbot Industries (a fictional company): During 20X2, Chaney Technologies (a fictional company) changed its inventory cost flow assumption from LIFO to the average cost method. The following is
> Keefer, Inc., began business on January 1, 20X1. Information on its inventory purchases and sales during 20X1 and 20X2 follow: Required: 1. Calculate ending inventory, cost of goods sold, and gross margin for 20X1 and 20X2 under the periodic FIFO invent
> On January 1, 20X1, Hillock Brewing Company sold 50,000 bottles of beer to various customers for $45,000 using credit terms of 3/10, n/30. These credit terms mean that customers receive a cash discount of 3% of invoice price for payments made within 10 d
> On January 2, 20X1, Criswell Acres purchased from Mifflinburg Farm Supply a new tractor that had a cash selling price of $109,837. As payment, Criswell gave Mifflinburg Farm Supply $25,000 in cash and a $100,000, five-year note that provided for annual i
> On December 31, 20X1, Roker, Inc., reported notes receivable of $63,930,000. This amount represents the present value of future cash flows (both principal and interest) discounted at a rate of 11.12% per annum. The schedule of collections of the receivab
> The following information pertains to the financial statements of Buffalo Supply Company, a provider of plumbing fixtures to contractors in central Pennsylvania. Required: Reconstruct all journal entries pertaining to Gross accounts receivable and Allow
> On December 1, 20X1, Eva Corporation, a mortgage bank, has the following amounts on its balance sheet (in millions): Also on December 1, 20X1, Eva transfers mortgage receivables with a book value of $20,000,000 to a securitization entity (SE). The averag
> At December 31, 20X0, Oettinger Corporation, a premium kitchen cabinetmaker for the home remodeling industry, reported the following accounts receivable information on its year-end balance sheet: During 20X1, the company had credit sales of $8,200,000, o
> Avillion Corporation had a $45,000 debit balance in Accounts receivable and a $3,500 credit balance in Allowance for credit losses on December 31, 20X1. The company prepared the following aging schedule to record the adjusting entry for bad debts on Dece
> Baer Enterprises’s balance sheet at October 31, 20X1 (fiscal year-end), includes the following: Transactions for fiscal year 20X2 include the following: a. Due to a product defect, previously sold merchandise totaling $10,500 was return
> Refer to the 2017 General Electric Retiree Health and Life Benefits disclosure appearing in Exhibit 15.9. Required: 1. Reconstruct the journal entries that GE would have made in 2017 to record the effects ofits retiree health and life benefits plans. Th
> The following notes for three fictional companies represent what analysts may see in practice. Required: How do the three companies record the transfer of their receivables—that is, as a sale or borrowing? Is their accounting treatment
> Mikeska Companies purchased equipment for $108,000 from Power-line Manufacturing on January 1, 20X0. Mikeska paid $18,000 in cash and signed a five-year, 5% installment note for the remaining $90,000 of the purchase price. The note calls for annual payme
> Fish Spotters, Inc., purchased a single-engine aircraft from National Aviation on January 1, 20X0. Fish Spotters paid $55,000 cash and signed a three-year, 8% note for the remaining $45,000. Terms of the note require Fish Spotters to pay accrued interest
> The following information is taken from the financial statements of Ramsay Health Care Inc.: Required: 1. Reconstruct all journal entries relating to Gross accounts receivable and Allowance for credit losses for the year ended December 31, 20X3. You may
> Aardvark, Inc., began 20X1 with the following receivables-related account balances: Accounts receivable…………………………………………….$575,000 Allowance for credit losses…………………………………..43,250 Aardvark’s transactions during 20X1 include the following: a. On April 1, 2
> Big Energy Corporation received regulatory approval for its 20X1 electricity rate. The company has been authorized to charge customers $0.10 per kilowatt-hour (kwh), a rate lower than other utilities in the state charge. Details of the rate calculation f
> Duke Energy Corporation’s 2018 annual report to shareholders contains the following note disclosure (edited for brevity): Regulated Operations Substantially all of Duke Energy’s regulated operations meet the criteria for application of regulatory account
> Food Galore operates a chain of retail supermarkets. The supermarket business is highly competitive, and it is characterized by low profit margins. Food Galore recently entered into a credit agreement with a group of banks. Excerpts from the loan agreeme
> Following your retirement as senior vice president of finance for a large company, you joined the board of Cayman Grand Cruises, Inc. You serve on the compensation committee and help set the bonuses paid to the company’s top five execut
> On March 14, 2019, Core Molding Technologies, Inc. filed a Form 8-K disclosing an amendment to one of its borrowing agreements as follows: Required: 1. What is a minimum fixed charge coverage ratio, and what purpose does it serve in a companyâ
> Following are the consolidated statement of operations, balance sheet, and portions of theincome tax note from Acme United Corporation’s December 31, 2011, Form 10-K. (For thesake of brevity, the statements have been condensed in ways t
> Explain the potential conflict of interest that arises when doctors own the hospitals in which they work.
> Exhibit 7.5 describes the key financial ratios Standard & Poor’s analysts use to assess credit risk and assign credit ratings to industrial companies. Those same financial ratios for a single company over time follow. The company wa
> As discussed in the chapter, abnormal earnings (AE) are Required: 1. Calculate each firm’s AEt each year from 20X1 to 20X5. 2. Which firm was better managed over the 20X1–20X 5 periods? Why? 3. Which firm is likely to
> Randall Manufacturing has requested a $2 million, four-year term loan from Farmers State Bank. It will use the money to expand its warehouse and to upgrade its assembly line. Randall supplied the following cash flow forecasts as part of the loan applicat
> Margaret O’Flaherty, a portfolio manager for MCF Investments, is considering investing in Alpine Chemical 7% bonds, which mature in 10 years. She asks you to analyze the company to determine the riskiness of the bonds. Required: 1. Usi
> Griffin and Lasky, Inc. (G&L), supplies industrial automation equipment and machine tools to the automotive industry. G&L recognizes revenue on its long-term contracts over time. Customer orders have long lead times because they involve multiyear
> Tiffany & Company is a luxury jeweler and specialty retailer that sells timepieces, sterling silverware, china, crystal, fragrances, and accessories through its retail stores worldwide. Signet Jewelers Ltd. operates a number of well-known retail stor
> Nucor Corporation produces steel and steel products at its eight mills and is a major recycler of scrap metal. The following data relate to Nucor for four years. In 2017, Nucor’s net income was higher by $175.2 million because of a one-
> Danaher Corporation manufactures a variety of products, including electronic measurement instruments and network communications products, water quality measurement systems, and medical and dental instruments. Selected financial statement data and related
> ABC Inc. is in the business of airframe maintenance, modification and retrofit services, avionics and aircraft interior installations, the overhaul and repair of aircraft engines, and otherrelated services.The following are excerpted from its income stat
> Packaging Corporation of America produces containerboard and white papers. WestRock Co. manufactures paper products and corrugated products. Financial statement data for these two companies follow: Required: 1. Determine the receivables turnover ratios
> The following table provides ROA and ROCE for Best Buy, a retailer of consumer electronics. The adjusted February 3, 2018, amounts exclude the one-time income statement effect of the Tax Cuts and Jobs Act. Required: 1. In analyzing Best Buy, is it most
> AK Steel Holding Corporation is a fully integrated producer of steel. It produces cold-rolled and hot-rolled steel products as well as specialty stainless and electrical steels that are sold to the domestic automotive, appliance, industrial machinery and
> The following table reports the operating cycle, cash conversion cycle, and current ratio for three apparel retailers all having year-ends at February 3, 2018. American Eagle Outfitters is a multi brand specialty retailer of casual apparel and accessorie
> In 20X2, the new CEO of Watsontown Electric Supply became concerned about the company’s apparently deteriorating financial position. Wishing to make certain that the grim monthly reports he was receiving from the companyâ€
> KEW Enterprises began operations in January 20X1 to manufacture a hand sanitizer that promised to be more effective and gentler on the skin than existing products. Family members, one of whom was delegated to be the office manager and bookkeeper, staffed
> In 20X2, ABBA Fabrics, Inc., elected to change its method of valuing inventory to the weighted average cost (“WAC”) method, whereas in all prior years inventory was valued using the last-in, first out (LIFO) method. Th
> Barden, Inc., operates a retail chain that specializes in baby clothes and accessories that are made to its specifications by a number of overseas manufacturers. Barden began operations 20 years ago and has always employed the FIFO method to value its in
> The statement of cash flows for the year ended December 31, 20X1, and other data for Bradley Corporation are shown below: Cash flows from operating activities: Cash collections from customers………
> The following is the operating section of the statement of cash flows (direct method) of Battery Builders, Inc.: Collections from customers………………………………………………………………….$ 28,000 Payments to suppliers for inventory purchases………………………………………(13,000) Payments fo
> Delta Air Lines adopted the provisions of ASC Topic 842 using the optional alternative ­transitionmethod in which a company makes a cumulative adjustment to the opening balance of retained earnings in the period of adoption instead of to the f
> The following cash flow information pertains to the 20X1 operations of Fish master, Inc., a maker of fishing equipment. Cash collections from customers……………………………………………….$ 79,533 Cash payments to suppliers of inventory……………………………………64,097 Cash payments f
> The following cash flow information pertains to the 20X1 operations of Matterhorn, Inc., a maker of ski equipment: Cash collections from customers……………………………………………….$ 16,670 Cash payments to suppliers of inventory……………………………………19,428 Cash payments for va
> A December 31, 20X1, post closing trial balance for Short Erin Company follows. Additional information about Short Erin’s account balances: 1. Cash includes $12,000 in U.S. treasury bills purchased on December 21, 20X1, that mature in J
> Kay Wing, Inc., prepared the following balance sheet at December 31, 20X0. The following occurred during 20X1. 1. A $35,000 note payable was issued. 2. Land was purchased for $50,000. 3. Bonds payable (maturing in 20X5) in the amount of $30,000 were reti
> Ricky Corporation had the following alphabetical account balance listing at December 31, 20X1 (in thousands of dollars). Required: Prepare a balance sheet for Ricky Corporation at December 31, 20X1.
> Berger Company had sales in 20X1 of $200,000. The goods sold cost Berger $125,000. The goods were sold with the right of return. By the end of 20X1, goods having a total selling price of $10,000 had been returned. As of December 31, 20X1, Berger expected
> Online Auction Company (OAC) provides a platform for its users to buy and sell goods. Sellers post goods for sale and other users bid on them. The high bidder wins the auction and purchases the goods. After each auction, the seller pays OAC a 10% fee and
> Zahava Corporation sells equipment to Ari Company for $700,000. Ari does not need the equipment until December 31, 20X3, but agrees to pay $600,000 immediately on December 31, 20X1, in order to assist Zahava with its finances. The remaining $100,000 is d
> Zahava Corporation sells equipment to Ari Company for $700,000 on December 31, 20X1. The two companies agree that Ari will pay $100,000 upon delivery (December 31, 20X1), with the remaining $600,000 due on December 31, 20X3. Zahava is confident that Ari
> Ladd Corporation sells construction equipment to a customer for $200,000 on January 1, 20X1. The equipment comes with a standard 10-year warranty covering all maintenance and repairs during that time. Initially, Ladd estimates that it will incur $10,000
> Refer to the Target Corporation financial statement information contained in C13-1. Required: Explain how the financial statements and disclosures would change if Target were using IFRS 16. Be as specific as possible.
> On January 1, 20X1, Quenneville Corporation sold equipment to Wirtz, Inc., for $500,000. The equipment had cost $300,000 to manufacture. The contract with Wirtz requires Quenneville to provide complete maintenance and repair services on the equipment for
> MSK Construction Company contracted to construct a factory building for $525,000. Construction started during 20X1 and was completed in 20X2. Information relating to the contract follows: Required: 1. Record the preceding transactions in MSKâ€
> Cornwell Construction Company has been operating in Pennsylvania for a number of years. During 20X1, the firm contracted with the Borough of Lewisburg to build a domed sports complex. Cornwell estimated that it would take three years to complete the faci
> Foremost Company owns a royalty interest in an oil well. The contract stipulates that Foremost will receive royalty payments semiannually on January 31 and July 31. The January 31 payment will be for 30% of the oil sold to jobbers between the previous Ju
> Dale Golf Course, Inc., operates golf courses in South Carolina. A round of golf at one of Dale’s courses costs $75. Dale also sells one-year season passes, good for unlimited rounds of golf for a single golfer, for $3,000. In 20X1, Dale’s first year of
> Smith, Inc., produces and sells clothing to department stores. Its supply arrangement with Leftwich Department Stores calls for Smith to purchase from Leftwich each month in-store advertising at a cost equal to 5% of the month’s sales to Leftwich. The in
> Ball Data Corporation provides stock market data to investors. On January 1, 20X1, it sells a customer access to its real-time database for two years at a price of $600,000. The customer has the right to access Ball’s database any time, 24 hours per day,
> On January 1, 20X1, Skinner Equipment Company leased equipment used in mineral extraction operations to Erickson Corporation. The monthly base rental fee was $250,000. In addition, at the end of the year, Erickson must pay Skinner a bonus of one month’s
> On July 1, 20X1, Grams Construction, Inc., agreed to construct a factory for a customer. The contract called for payments to Grams totaling $2 million. Grams has correctly determined that it is appropriate to recognize revenue over time, and it uses its
> Posa Hotels, Inc., has a sixth-night-free policy. Every sixth night a guest stays at the hotel is free. Because not all guests stay enough nights to earn a free stay, on average the number of free nights redeemed is 70% of the maximum possible number of
> Target adopted the new leasing standard for the year ended February 2, 2019, using themodified retrospective approach outlined in ASC Topic 842. All questions relate to the yearended February 2, 2019 (fiscal 2018) unless stated otherwise. The supplementa
> AT&T Inc. is a global provider of telecommunications, media, and technology services. The following information was taken from AT&€™s Form 10-K for the year ended December 31, 2018. Required: 1. What journal entry did AT&T make to
> Barrios Communications is a provider of satellite television services. It will install a satellite dish free of charge for any customer that agrees to a one-year service contract at a price of $50 per month. Installation costs Barrios $150. Customers typ
> Maffett Ticket Brokers is a reseller of tickets to sporting events and concerts. During 20X1, Maffett sold gift cards totaling $250,000. Based on past experience, Maffett expects that 1% of the gift card purchases will not be redeemed by the time they ex
> Holman Electronics manufactures audio equipment, selling it through various distributors. Holman’s days sales outstanding (Accounts receivable/Average daily credit sales) figures increased steadily in 20X1 and then spiked dramatically in 20X2, peaking at
> For 20X1, Silvertip Construction, Inc., reported income from continuing operations (after tax) of $1,650,000. On November 15, 20X1, the company adopted a plan to dispose of a component of the business. This component qualifies for discontinued operations
> The following condensed statement of income of Helen Corporation, a diversified company, is presented for the two years ended December 31, 20X1 and 20X0: On January 1, 20X1, Helen entered into an agreement to sell for $3,200,000 the assets and product li
> Bob’s Chocolate Chips and More, a bakery specializing in gourmet pizza and chocolate chip cookies, started business October 1, 20X1. The following transactions occurred during the month of October. a. Common stock of $90,000 was sold at par to start the
> During August 20X1, Packer Manufacturing had the following cash receipts and disbursements: Cash received from customers $319,000 Cash received from selling equipment 11,200 Cash paid for salaries 47,000 Cash paid to suppliers for inventory
> Locate the December 31, 2018, consolidated financial statements for Carrefour Group, the French retail company and the second largest retailer in the world, at www.carrefour.com/ financial-information/releases? plink=4472&link=1785. Required: 1. What ty
> Richard’s Inc. (a fictional company) operates toy stores throughout the United States. In August 20X1, the company said that it might default on certain of the financial covenants contained in one of the company loan agreements. Here is an excerpt from t
> Driscol Bank is considering a $500,000 loan to Darrow Productions. Three items appearing on Darrow’s balance sheets are: a. Cash on hand and in the bank, $20,000. b. Accounts receivable of $60,000, less an allowance for uncollectible of $15,000. c. Accum
