FINA 3313 Chapter 1 HW

1) If Southwest Development Company is a sole proprietorship owned by Ms.​ Harper,: (Answer) Ms. Harper has unlimited​ liability, which means creditors can claim against her personal assets. 2) If Southwest Development Company is a​ 50-50 partnership of Ms. Harper and Christopher​ Black,: (Answer) Ms. Harper has unlimited​ liability, which means creditors can claim against her personal assets. 3) If Southwest Development Company is a​ corporation,: (Answer) Ms. Harper has limited liability, which guarantees that she cannot lose more than the $25,000 she invested

1) Using accrual accounting and the preceding​ values, show the​ firm's net profit for the past year in the following table. Sales - cost of goods sold = Net profit 740,000 - 303242 = 436758 2) Using cash accounting and the preceding​ values, show the​ firm's net cash flow for the past year in the following table. Cash receipts - cost of goods sold = net cash flow 669,361 - 303,242 = 366,119 3) Which is more useful to the financial​ manager? The cash flow statement because it recognizes amounts that will not be collected​ and, as a​ result, will not contribute to the wealth of the owners.

1) Jane's total cash inflows are ​ Total Cash Inflows = Interest received + salary 430 + 4400 = 4830 Jane's total cash outflows are ​ Total cash outflows = 4765 2)Jane's net cash flow for the month of August is ​ Net cash flow = cash inflows = cash outflows 4830 - 4765 = 65 3) If there is a​ shortage, what are a few options open to​ Jane? Jane can borrow money from her bank or withdraw money from an existing​ savings/investing account. Another alternative is to cut down on any unnecessary expenses. 4) If there is a​ surplus, what would be a prudent strategy for her to​ follow? Jane can use her monthly surplus to open a​ savings/investing account or increase the balance on an existing account.​ Alternatively, she could reduce debt by paying more for some obligations like her auto​ loan, credit cards or mortgage. In order to maintain her monthly surplus she should maintain her current level of expenses.

1) The marginal​ (added) benefits of the proposed new robotics. 586,000 - 388,000 = 198,000 2) The marginal​ (added) cost of the proposed new robotics. 234,400 - 70,000 = 164,400 3) The net benefit of the proposed new robotics. 198,000 - 164400 = 33,600 4) What should Ken recommend that the company​ do? Why? replace the existing robotics because the net profit is positive 5) What factors besides the costs and benefits should be considered before the final decision is​ made? ----Whether there will be additional training necessary with the new robotics. ----Whether even better robotics may be available in a short while. ----What will be the energy consumption of the new robotics.

1) The front desk receptionist routinely takes an extra 20 minutes of lunch time to run personal errands. Which of the following statements correctly identifies the cost and possible solution for the agency problem in this​ case? -----The front desk receptionist is being compensated for unproductive time. -----The company could install a time clock that would result in either​ (1) her returning on time or​ (2) reducing the cost to the firm. -----The management could bring the situation to the attention of the receptionist. The extra emphasis on meeting her duties may be all that is required. 2) Division managers are padding cost estimates so as to show​ short-term efficiency gains when the costs come in lower than the estimates. Which of the following statements correctly identifies the cost and possible solution for the agency problem in this​ case? -----One agency cost is that money budgeted to cover the project proposal is not available to fund other projects that may help to increase shareholder wealth. -----One way to reduce the agency cost is to base the reward system on how close the​ employee's estimates come to the actual cost rather than having them come in below cost. -----A reward system based on increasing shareholder wealth might motivate the division managers to make more accurate estimates in order to be able to take on additional profitable projects. 3) The​ firm's chief executive officer has had secret talks with a competitor about the possibility of a merger in which she would become the CEO of the combined firms. Which of the following statements correctly identifies the cost and possible solution for the agency problem in this​ case? -----One agency cost is that the CEO may negotiate a deal with the merging competitor that is extremely beneficial to herself at the expense of selling the firm for less than its fair market value. -----A good way to reduce the loss of shareholder wealth would be to open the firm up for purchase bids from other firms once the manager makes it known that the firm is willing to merge. -----An open bidding process may encourage other firms to offer a price closer to the fair market value of the firm. 4) A branch manager lays off experienced​ full-time employees and staffs customer service positions with​ part-time or temporary workers to lower employment costs and raise this​ year's branch profit. The​ manager's bonus is based on profitability. Which of the following statements correctly identifies the cost and possible solution for the agency problem in this​ case? -----Generally​ part-time or temporary workers are not as productive as​ full-time employees. These workers have not been on the job as long to increase their work efficiency. -----This manager is getting rid of good employees to increase​ short-term profits. -----One approach to reducing the problem would be to give the manager performance share if certain stated goals are met. -----Implementing a stock incentive plan tying management compensation to share price would also encourage the manager to retain quality employees.