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Forthis discussion, assume the role of a business owner who has tomake a decision to raise additional capital. What considerationswould you evaluate relative to issuing bonds as compared withconventional financing methods? How would you reflect the bondtransactions on your statement of cash flows, and how would thefinancial statement users use that information?

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Casey Durgan
Casey DurganLv2
28 Sep 2019

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Investment and financing decisions, which may beshort-term or long-term decisions are best describedas:

financial decision making.

economic decision making.

accounting decision making.

Mutual funds, pension funds, investment dealers andinsurance companies are best described as examples of:

corporate finance.

market intermediaries.

financial intermediaries.

Farmers and Merchants Bank lends money to Ruth topurchase a car from Steven Toyota. Ruth is going to insure the carwith Allstate Insurance. Which party is best described as thecreditor?

Ruth

Steven Toyota

Allstate Insurance

Farmers and Merchants Bank

Which of the following would not be described as adebenture?

An unsecured loan

A loan secured by collateral

A loan secured by the “full faith and credit” of theissuer

Morgan Stanley was the investment banking firm that tookFacebook from being a closely held company to issuing stock to thepublic for the first time. Which of the following terms mostclosely describes this?

money market security.

issuing commercial paper.

initial public offering (IPO).

debt security backed by the general credit of theissuer.

Which of the following transactions does not take placein the primary market? An investor:

buying a newly issued municipal bond.

buying shares of an initial publicoffering.

selling one hundred shares of stock through a stockbroker.

buying a U.S. Treasury bill through the governmentauction.

The majority of home purchases in the U.S. are securedwith a mortgage. A mortgage is:

an unsecured loan.

an equity investment in the property.

a debt obligation secured by a specificproperty.

Which form of business would most likely describe thefollowing, a college student other students, a retired woman whobabysits children, a teenager who mows lawns, and a partyclown?

Partnership

Corporation

Sole proprietorship

Limited liability company

Flow-through taxation is a characteristic for all butthe following forms of business?

Partnership

Corporation

Sole proprietorship

Limited liability company

Your sister wants to start a tee shirt business on e-Baywith you to help pay for college tuition. All of the following areadvantages to partnerships that you should both consider, except____________?

Easy to form

Access to capital

Business income is taxed once, at the individualpartner’s level

Which of the following takes into account takes intoaccount the opportunity cost of funds?

Net profit

Economic profit

Accounting profit

When we talk about capital structure, this refersto:

the cash, inventory, and accountsreceivable.

mix of debt and equity to finance anenterprise.

the investment in plant, property andequipment.

The uncertainty associated with the use of debt tofinance a business enterprise is best described as:

financial risk.

business risk.

operating risk.

The mix of debt and equity that is used to finance abusiness enterprise is best described as theenterprise’s:

assets.

working capital.

capital structure.

capital expenditures

Generally accepted accounting principles (GAAP) are bestdescribed as a(n):

organization that establishes the accounting principlesfor U.S. financial reporting.

accounting standards promulgated by the InternationalAccounting Standards Board (IASB.)

set of basic principles and conventions that are appliedin the preparation of financial statements.

organization that establishes the accounting principlesfor business entities in the European EconomicCommunity.

Which reporting convention requires recording revenueand expenses when the transaction occurs, regardless of when cashchanges hands?

Cost basis

Cash basis

Accrual basis

The summary of the company’s performance over a periodof time, typically a fiscal quarter or fiscal year

Balance sheet

Statement of stockholder’s equity

Income statement

Statement of cash flows

_______ is the cash flow from the day-to-day operationsof the business; the result of subtracting the increase in newworking capital from traditional cash flow.

Cash flow from investing

Cash flow from financing

Simple cash flow

Cash flow from operations

The debt ratio is classified as which type ofratio?

Owner

Liquidity

Efficiency

Productivity

Financial Leverage

Inventory turnover, accountsreceivable turnover, fixed asset turnover, and total asset turnoverare all classified as which type of ratio?

Owner

Liquidity

Efficiency

Productivity

Financial Leverage

ABC Company attempts tomanage its earnings by extending the useful life of all of itsequipment. Which of the following will not be an outcome of thischoice by management?

Income will be higher than it would have been underprior accounting methods.

Equipment values will be higher than they would havebeen without the change.

Depreciation expense will be lower than it would havebeen under prior accounting methods.

Depreciation expense will be higher than it would havebeen under prior accounting methods.

It is important for a companyto know the level of sales at which it covers all its variable andfixed operating costs. This level of sales is best described asthe:

gross profit margin.

contribution margin.

operating break even.

operating profit margin.

The minimum return thatinvestors expect to earn on the investment in stock is bestdescribed as:

growth rate.

risk premium.

capital gains yield.

required rate of return

If a company returns more than the required rate ofreturn on a stock, what happens to the value of thatstock?

The stock price falls.

The stock price rises.

The stock price stays the same.

When market rates are greaterthan the dividend rate, preferred shares will tradeat:

par.

a discount.

a premium.

Discussion: you will assume the role of an entrepreneur. Youwill create a fictional organization and consider some costingconcepts as you create it.

First, compose a full paragraph that describes the organization.Be sure to include the name of your company, the product (orproducts) or services that it provides, and who your intendedcustomer base would be. Think strategically about what you canoffer that a customer base would see as valuable, and what basicbusiness model would help you to be most profitable.

1.Once you have outlined the company and its goals, pleaseconsider and answer the following questions:

2.Identify at least one fixed and one variable cost you willhave in producing your product(s) or service(s).

3.Identify at least one potential sunk cost.

4.Identify a potential relevant cost decision you would have tomake and explain which aspects of the decision might be relevantand which ones would not be relevant.

5. Explain how opportunity costs could apply to one or more ofyour products and/or services.

6. Identify at least one outsourcing decision in which you would“buy” and at least one outsourcing decision in which you would“make." Keep in mind these can be not only production issues butissues related to how your business is structured. Explain theanalysis you would use in arriving at an item you would “buy” andthe analysis you would use in arriving at an item you would“make.”

Your initial posting should be between 300 to 400 words and usea minimum of three sources (one of which may be the textbook). Citeyour sources and references using APA format (a tutorial isprovided in the Class Tutorials Section of the course).

You will use two items to complete Part II. First, go back andreview the company that you created for the Discussion. Thinkstrategically about the company, its products and services, andissues related to cost. Then, review the case study on Boeing(http://web.mit.edu/ctpid/lara/pdfs/abccasestudy.pdf) to understandhow activity-based costing and activity-based management can impactmanagerial decisions within firms. Once you have completed thesetwo activities, respond to the following questions in the spaceprovided below. You should use source materials, citations ANDreferences (in APA format) to help support your answers. Generally,3-5 sources (or more) should be used. Remember to double space youranswers as well.

Topic A (10 points) – Using the company you created in Module 2,if you were to conduct an ABCM pilot in the organization, thenwhich stakeholders would be most likely to support the project?Which stakeholders would find the project threatening orproblematic? Why?

Answer:

Topic B (10 points) – Do you believe that make-buy decisionswould be better, worse, or no different with an ABCM system inplace? Why do you reach this conclusion?

Answer:

Topic C (10 points) – Do you believe that continuous improvementefforts would be strengthened by such a system? Why or why not?

Answer:

Topic D (10 points) – Do you have enough evidence here to decidewhether you would support or oppose an ABCM initiative within yourcompany? If so, then explain. If not, then what additional data orinformation would you need?

Answer:

References: (10 points)

On January 2, 2004, Tameka Essendoh opened the Essendoh Tailor and Alterations Service. She invested $9,000 in the venture and set up a bank account in the company's name. Also on that day, she rented a small area in a laundry and cleaning shop at a cost of $300 per month; all utilities were provided by the building owner. On January 3, 2004, she purchased tailoring equipment (sewing machines, pressing machines, and other equipment) which had an expected life of 5 years and cost $5,600. She paid $2,600 in cash; the balance was on account. She agreed to pay the balance in four quarterly payments of $750 each, with payments due on April 4, July 5, and October 5, 2004; the final payment was due on January 5, 2005. On January 4, 2004, Tameka purchased furniture which had an expected life of 10 years and cost $3,000. She paid $1,000 in cash and agreed to pay the balance on March 3, 2005. Tameka decided to pay herself a monthly salary of $2,000, with the payment for each month to be made on the first business day of the following month. The first payment, for January, was made on February 2.

During 2004, Tameka received cash of $28,000 for services rendered. Her cash outlays during the year for equipment and furniture were as follows:

Tailoring equipment (down payment of $2,600, plus

three quarterly payments totaling $2,250) $4,850

Furniture 1,000

$5,850

On December 31, 2004, Tameka decided to get married and join her husband in another city. Samatha Dewbury, who had previous tailoring experience, learned that Tameka was leaving the city and discussed with Tameka the possibility of purchasing her shop. Tameka prepared and gave to Samatha the following income statement for the year and balance sheet as of December 31.

ESSENDOH TAILOR AND ALTERATIONS SERVICE

Income Statement

for Year 2004

Income

Cash Received From Tailoring and Alterations $28,000

Additional Cash Invested in June, 2004 3,000

Total Income $31,000

Cash Expenses

Tailoring Supplies 1,000

Insurance 1,200

Salary Withdrawn by Tameka Essendoh 22,000

Rent 3,900

Repairs to Equipment 100

Advertising 400

Office Supplies and Postage 250

Membership in Organization of Tailor Shops 100

Telephone 520

Subcontract of Tailoring Services for Rush Jobs 500

Miscellaneous Expenses 500

Total Expenses 30,470

Net Income for Year $ 530

ESSENDOH TAILOR AND ALTERATIONS SERVICE

Balance Sheet

December 31, 2004

Assets Owner's Equity

Cash $3,680 Tameka Essendoh, Capital $9,130

Tailoring Equipment 4,850

Furniture 1,000

Total Assets $9,530 Total Liabilities and Equity $9,130

Additional Information: After some negotiation about the purchase price, the parties agreed that Samatha would purchase the business according to the following conditions.

1. The purchase price would be an amount equal to twice the net income for 2004, computed under generally accepted accounting principles and standards.

2. Samatha would assume all liabilities of the business. The balance of the purchase price would be paid in cash by Samatha.

3. Because the two parties were unsure that the statements were exactly in accord with generally accepted accounting principles and standards, they have asked you to review the statements and make whatever changes are necessary.

Assume that you discover the following additional information in your review:

1. The insurance premiums paid covered a period of 2 years, beginning January 2, 2004.

2. On December 31, 2004, amounts owed by customers who had picked up tailoring work totaled $235.

3. Unused tailoring supplies on hand on December 31, 2004, were estimated to have cost $120. Unused office supplies on that date cost $60.

4. There is an unpaid bill of $280 for November and December advertising.

5. The rent expense includes payments for 2004 and for January 2005.

Required:

1. Prepare an Excel-based income statement for 2004 and balance sheet as of December 31, 2004, based on generally accepted accounting principles.

2. Compute the amount of cash to be paid by Samatha for the business.

3. Using the buyer's viewpoint, evaluate this approach to establishing the sales price of the business.

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