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An older gentlemen – let’s call him Horatio – decided he was getting too old to work in the local car wash. He had been working at this one for twenty years. He knew a lot about car wash operations.

He heard of one for sale a few towns away... The owner was asking for $1,350,000 but had told friends and other people that he was anxious to sell, maybe desperate. Horatio heard this too.

He had saved $100,000 over the years and his banker, who knew him well, told Horatio that the bank would loan him as much as he needed. Horatio had saved his money in the bank’s money market funds which paid 9% but Horatio wanted to earn 12%.

Horatio learned that a car wash sold for $8.00, that the car wash was open for only three seasons during the year – 270 days and that it averaged 250 cars a day. It use to wash close to 300 per day. Repairs and maintenance cost about $75,000 per year. The owner had fired all the employees. He thought they were all lazy. The owner didn’t realize that he could not open the car was at 8:00 AM and close it twelve hours later seven days a week. He started losing customers because the customers couldn’t depend on the car wash being open for them.

Horatio wanted a salary of $150,000 per year. He planned on restoring the profitability of the car wash so that he could pay off any bank loan in five years, sell the car wash and retire.

He planned to rehire the former employees as well as advertising the new owner change. He planned to increase the $8.00 price for a car wash.

Disregard depreciation and taxes. Use $70,000.00 for interest expense.

Part One – Considering that the owner wanted $1,350,000, should Horatio agree with this price? If not, what should Horatio do? You need to consider all the facts, including but not limited to the price of a car wash, the hours and days the car wash is open, the number of employees and the hours they would work at an amount you decide. In essence to need to put together a budget which will produce a positive net present value.

Part Two – Consider the balanced score card approach to making money. What steps, if any, should Horatio take to improve the profitability of the car wash? Please be specific.


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Jarrod Robel
Jarrod RobelLv2
28 Sep 2019

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Bob, Chad and Dylan had been dreaming of this day for the past six years; ever since they first met in an introductory economics course in college. For several years they had been pooling their money and buying Arizona Lottery tickets dreaming that one day they would win big. They realized that the lottery was considered by many to be a voluntary tax on the statistically challenged. But miraculously they now sat at their favorite local “watering hole” holding the winning ticket that meant they would split “The Pick” jackpot of $6 million. What a great feeling! Now they just needed to decide if they wanted to take their winnings as a lump sum now or to be paid over the next twenty in installments. Bob had been a political science major in college but things hadn’t worked out as he anticipated when he was a student. He had entered the job market at what looked now to be the bottom of the economic downturn following the housing crisis in the U.S. Bob believes he did not start his job search soon enough and found suitable openings virtually nonexistent. He was currently working part-time at an organic farm and still living at home which cramped his style consider-ably. He has $150,000 in college related loans (7% interest rate) which he cannot service based on his annual taxable income of $15,000. His share of the jackpot would allow him to be debt free and change his life for the better without doubt. Chad had been more fortunate than Bob. He had applied himself in college and earned a master of accounting degree with an emphasis in taxation. After graduation he immediately went to work for one of the international accounting firms and was now earning a taxable income of $100,000 in spite of the economic issues facing his friend Bob and the country as a whole. He too had debt but not from student loans. Chad had purchased a very nice home in Anthem, Arizona for approximately 50% of what it had sold for three years earlier when built. He had a $250,000 mortgage on the home, at a 4% interest rate, which he saw little reason to pay off since he anticipated significant inflation in the near future. Of the three friends Dylan was by far the most successful. Dylan had majored in finance and had excelled. When he graduated, although he had several attractive offers in the financial services industry, he decided to go into the family business. The company which his father and uncle had started nearly 50 years ago had done amazingly well in the downturn and since he was the only child/nephew they were rewarding him handsomely. He had been reluctant to tell Bob but he was on track to receive to- tal compensation (including bonuses) that yielded a taxable income of $300,000 this year. Unlike his friend Bob, Dylan was frugal and had taken on zero debt. He was pleased with the trio’s good fortune but he didn’t think the windfall would change his life all that much. A few days later when the euphoria of winning was subsiding the three friends met again at the same establishment. All four were obviously in good spirits and were looking forward to presenting their winning ticket to Arizona Lottery officials. Chad started the conversation by telling Bob and Dylan that he had taken the initiative of doing some basic research on how “The Pick” worked and what the payout options were. Bob, proud of his forethought, produced an article he had saved years earlier from the Arizona Daily Star with the headline “Lump-sum Lotto Payout is Best, Experts Say.” Bob excitedly told his buddies that the experts were local CPAs and that clearly the lump-sum payout was “the way to go.” Dylan said he wanted to hear what Chad had found out since he had gone to the effort of looking into the specifics. Chad (being a tax accountant) had prepared a summary of his research which follows: “A percentage of the proceeds from the sale of Lotto tickets are allocated to a prize pool. The size of the Jackpot that is prominently advertised, six million dollars in this instance, is actually only an estimate. The advertised amount is the sum of the estimated annuity1 payments, without consideration of the time value of money, which Lotto officials believe can be purchased from the prize pool. If the winner chooses the annuity payout multiple insurance companies submit bids. Officials award the bid to the insurance company that offers the largest annual payments in return for the prize pool amount. The insurance company with the best bid typically offers a rate that is near the long term U.S. Treasury Bonds rate (currently 3%). If the winner chooses the Lump Sum payout they simply receive the prize pool amount; the amount that would have been used to buy the annuity.” 1.The term annuity is actually a misnomer. Since the payments are made by the insurance company at the beginning of each of twenty periods it is an annuity due. After reading the summary Bob said he didn’t see how this related to the decision that had to be made since he didn’t see anything that changed the preferred option being that the lump-sum payout is best. Chad acknowledged that Bob was probably correct but he still wanted to “run the numbers” and suggested that Bob and Dylan should do the same. Chad reminded them that they needed to consider the tax consequences of the payout schema and then provided the following schedule of federal income tax rates and reminded them that the state tax rate was an additional 5%.Bob rolled his eyes but said he would get right on it. Dylan thanked Chad for the information and they agreed to meet again tomorrow to decide on the best course of action.

Questions 1. Prepare a personal analysis of the payout options for Bob, Chad and Dylan including their net income after taxes. Designate the preferred option for each individual and explain why.

This questions are based on FINANCE LAW subject,
If you guys can solve it using IRAC METHOD.
PART A
Jasper is a furniture manufacturer who runs a successful business in Caroline Springs as a sole trader. He owns the land on which his existing factory is built together with plant and equipment including two motor vehicles. He wants to take on partners to help put into effect his grand plans for expansion including the setting up of several more factories. Obviously, he says to himself, I need an injection of funds to finance these great plans.
So Jasper goes to a branch of the Very Accommodating Bank (‘VA Bank’) that has just opened up in his area.
On 31 August he sees the local manager of the VA Bank, a lady called Gloria. He discusses with Gloria the amount of borrowed funds Jasper thinks he will need for his business. They agree that a loan of $750,000.00 would meet Jasper’s immediate needs.
They discuss different types of loans and Gloria says: ‘Well, Jasper that is all very interesting. Based upon my experience with similar businesses to yours, I can say that the Bank would be very interested in lending you what you need. Of course we would require security. We would certainly require a mortgage over your real property together with a fixed/floating charge over your other assets.’
Jasper says that he doesn’t want to pay high fees and requires an interest rate of no more than 7% payable quarterly for the loan. Gloria says: ‘As to interest, I can only tell you that our current rate is 7.25%. What do you think about all of this? ‘Jasper says to her: ‘I will think about it and get back to you.’ Gloria says: ‘Well, don’t take too long about it.’
Jasper is getting a little fed up with Gloria’s over bearing manner and thinks he can get a better deal elsewhere. Unfortunately, he finds that in fact no one else will lend to him. So two weeks later on 14 September Jasper emails Gloria, in which email he states: ‘I accept your offer of 31 August.’
A week later Jasper phones Gloria to ask when he can access the loan. Gloria says to him: ‘Sorry, Jasper, but there has been a downturn in the Bank’s shares and the interest rate for loans such as yours is now 8.5%.’
(a) Ignoring legislation or Codes of Conduct, advise Jasper as to whether or not VA Bank is obliged to provide him with a loan of $750,000.00 at 7.25%. Give reasons for your answer.​ [5 marks]
Although he is dismayed at the Bank’s attitude, Jasper is desperate to get his plans under way and phones Gloria saying: ‘We agree to your terms but I have one question of importance to me - Can I have the option of repaying the loan on an interest only basis instead of repaying principal and interest should my circumstances make such a change necessary?’ To which Gloria replied: ‘I am fairly certain you can have that facility.’
Jasper receives the Bank’s standard contract documents for the loan, signs them and returns the documents to Gloria. Unfortunately Jasper was pressed for time and did not actually read the contracts before signing. On reading them the next day he is dismayed to find that they contain the usual obligations to repay regular instalments of principal and interest but there is no reference to an option to pay interest only.
(b) Advise Jasper if he can insist upon the Bank including an option clause in the loan agreement.​​ [3 marks]
Finally, Jasper had previously banked at the ​Westfall Bank. In the course of discussions between Gloria and Joe, the Manager of Westfall Bank, Joe tells Gloria that Jasper needs to be kept an eye on as he was always writing cheques in favour of the local casino. Gloria passes this information on to Jasper, who is appalled at this slight on his reputation.
(c) Advise Jasper what rights he has against Westfall Bank. [2 marks]​
PART B
Chameleon Ltd is a customer of the Caring and Wealthy Bank. It is a very large company and employs more than 100 people and therefore the Code of Banking Practice does not apply to it. When it opened its account with the Caring and Wealthy Bank, Chameleon Ltd agreed to be bound by this Bank’s terms and conditions as notified to it from time to time. Six months after the account is opened Caring and Wealthy Bank sends its statement to Chameleon Ltd together with the following letter:
PLEASE READ THIS LETTER. IT CONTAINS EXCITING NEW INFORMATION ABOUT YOUR ACCOUNT.
Dear Customer (‘you’),
The Caring and Wealthy Bank (‘us’) is always trying to find new ways to service you.
To enable us to do this, however, we have decided to introduce a new term of the contract between you and us. This is to enable us to reduce costs in one area so we can provide you with exciting new services. The new clause 12 of the contract between you and us is as follows:
The customer (‘you’) must read each bank statement sent to you. If there are any inconsistencies in the statement you must notify the bank of the inconsistencies within 10 business days. Failure to notify us of such inconsistencies means the amount of the balance contained in the incorrect statement represents what you owe us or what we owe you, as the case may be.
The managing director of Chameleon Ltd receives the bank statement and letter. She doesn’t read the bank statement. She starts to read the letter but throws it in the bin after she reads the first sentence thinking the bank is trying to sell new products to the company. ‘Just another publicity stunt,’ she remarks to the office cat.
The bank statement shows that between 1 February and 1 April $1 million has been fraudulently withdrawn from the company’s bank account. Chameleon Ltd does not notify the bank of the fraudulent withdrawal within 10 business days of receiving the statement. It is later discovered by the bank that an employee of Chameleon Ltd, called Cynthia, had fraudulently withdrawn the $1 million and then proceeded to lose the whole sum at the casino. The bank was then informed.
Two months later on 1 June the managing director becomes aware that on 15 May, Colin, the company’s accounts clerk, had fraudulently stolen $2,000 from the company’s current bank account at The Caring and Wealthy Bank by forging company cheques. Colin’s wife had just died and the managing director does not tell the bank about the forgeries. On 30 July, Colin steals a further $1,000 from the company account in the same manner.
After discovering on 30 July what Colin has done, the managing director comes to you and asks you to advise Chameleon Ltd what to do and whether The Caring and Wealthy Bank is entitled to debit the company’s account for
1. the $1million stolen by Cynthia and
2. the $3,000 in total stolen by Colin.
Advise Chameleon Ltd giving reasons with relevant cases. Consider what effect, if any, the letter from the Bank purporting to introduce a ‘NEW TERM’ has on the situation? What Duties of the Banker and Customer ,if any,are involved here? ​ [7 marks]
PART C
Martin Pty Ltd has an account with the Caring and Wealthy Bank named ‘Wages Account’ used (as Martin’s CEO explained to the Bank’s Manager ) for payment of wages to staff. The balance in credit was $25,000.The company also had a current account in debit to the extent of $10,000 and a loan account so designated in debit to the extent of $15,000.
Can the Bank combine any of these accounts? Explain the concept of Combination of Accounts using case law to illustrate your answer. [3 marks]

PART A
Jasper is a furniture manufacturer who runs a successful business in Caroline Springs as a sole trader. He owns the land on which his existing factory is built together with plant and equipment including two motor vehicles. He wants to take on partners to help put into effect his grand plans for expansion including the setting up of several more factories. Obviously, he says to himself, I need an injection of funds to finance these great plans.
So Jasper goes to a branch of the Very Accommodating Bank (‘VA Bank’) that has just opened up in his area.
On 31 August he sees the local manager of the VA Bank, a lady called Gloria. He discusses with Gloria the amount of borrowed funds Jasper thinks he will need for his business. They agree that a loan of $750,000.00 would meet Jasper’s immediate needs.
They discuss different types of loans and Gloria says: ‘Well, Jasper that is all very interesting. Based upon my experience with similar businesses to yours, I can say that the Bank would be very interested in lending you what you need. Of course we would require security. We would certainly require a mortgage over your real property together with a fixed/floating charge over your other assets.’
Jasper says that he doesn’t want to pay high fees and requires an interest rate of no more than 7% payable quarterly for the loan. Gloria says: ‘As to interest, I can only tell you that our current rate is 7.25%. What do you think about all of this? ‘Jasper says to her: ‘I will think about it and get back to you.’ Gloria says: ‘Well, don’t take too long about it.’
Jasper is getting a little fed up with Gloria’s over bearing manner and thinks he can get a better deal elsewhere. Unfortunately, he finds that in fact no one else will lend to him. So two weeks later on 14 September Jasper emails Gloria, in which email he states: ‘I accept your offer of 31 August.’
A week later Jasper phones Gloria to ask when he can access the loan. Gloria says to him: ‘Sorry, Jasper, but there has been a downturn in the Bank’s shares and the interest rate for loans such as yours is now 8.5%.’
(a) Ignoring legislation or Codes of Conduct, advise Jasper as to whether or not VA Bank is obliged to provide him with a loan of $750,000.00 at 7.25%. Give reasons for your answer.​ [5 marks]
Although he is dismayed at the Bank’s attitude, Jasper is desperate to get his plans under way and phones Gloria saying: ‘We agree to your terms but I have one question of importance to me - Can I have the option of repaying the loan on an interest only basis instead of repaying principal and interest should my circumstances make such a change necessary?’ To which Gloria replied: ‘I am fairly certain you can have that facility.’
Jasper receives the Bank’s standard contract documents for the loan, signs them and returns the documents to Gloria. Unfortunately Jasper was pressed for time and did not actually read the contracts before signing. On reading them the next day he is dismayed to find that they contain the usual obligations to repay regular instalments of principal and interest but there is no reference to an option to pay interest only.
(b) Advise Jasper if he can insist upon the Bank including an option clause in the loan agreement.​​ [3 marks]
Finally, Jasper had previously banked at the ​Westfall Bank. In the course of discussions between Gloria and Joe, the Manager of Westfall Bank, Joe tells Gloria that Jasper needs to be kept an eye on as he was always writing cheques in favour of the local casino. Gloria passes this information on to Jasper, who is appalled at this slight on his reputation.
(c) Advise Jasper what rights he has against Westfall Bank. [2 marks]​
PART B
Chameleon Ltd is a customer of the Caring and Wealthy Bank. It is a very large company and employs more than 100 people and therefore the Code of Banking Practice does not apply to it. When it opened its account with the Caring and Wealthy Bank, Chameleon Ltd agreed to be bound by this Bank’s terms and conditions as notified to it from time to time. Six months after the account is opened Caring and Wealthy Bank sends its statement to Chameleon Ltd together with the following letter:
PLEASE READ THIS LETTER. IT CONTAINS EXCITING NEW INFORMATION ABOUT YOUR ACCOUNT.
Dear Customer (‘you’),
The Caring and Wealthy Bank (‘us’) is always trying to find new ways to service you.
To enable us to do this, however, we have decided to introduce a new term of the contract between you and us. This is to enable us to reduce costs in one area so we can provide you with exciting new services. The new clause 12 of the contract between you and us is as follows:
The customer (‘you’) must read each bank statement sent to you. If there are any inconsistencies in the statement you must notify the bank of the inconsistencies within 10 business days. Failure to notify us of such inconsistencies means the amount of the balance contained in the incorrect statement represents what you owe us or what we owe you, as the case may be.
The managing director of Chameleon Ltd receives the bank statement and letter. She doesn’t read the bank statement. She starts to read the letter but throws it in the bin after she reads the first sentence thinking the bank is trying to sell new products to the company. ‘Just another publicity stunt,’ she remarks to the office cat.
The bank statement shows that between 1 February and 1 April $1 million has been fraudulently withdrawn from the company’s bank account. Chameleon Ltd does not notify the bank of the fraudulent withdrawal within 10 business days of receiving the statement. It is later discovered by the bank that an employee of Chameleon Ltd, called Cynthia, had fraudulently withdrawn the $1 million and then proceeded to lose the whole sum at the casino. The bank was then informed.
Two months later on 1 June the managing director becomes aware that on 15 May, Colin, the company’s accounts clerk, had fraudulently stolen $2,000 from the company’s current bank account at The Caring and Wealthy Bank by forging company cheques. Colin’s wife had just died and the managing director does not tell the bank about the forgeries. On 30 July, Colin steals a further $1,000 from the company account in the same manner.
After discovering on 30 July what Colin has done, the managing director comes to you and asks you to advise Chameleon Ltd what to do and whether The Caring and Wealthy Bank is entitled to debit the company’s account for
1. the $1million stolen by Cynthia and
2. the $3,000 in total stolen by Colin.
Advise Chameleon Ltd giving reasons with relevant cases. Consider what effect, if any, the letter from the Bank purporting to introduce a ‘NEW TERM’ has on the situation? What Duties of the Banker and Customer ,if any,are involved here? ​ [7 marks]
PART C
Martin Pty Ltd has an account with the Caring and Wealthy Bank named ‘Wages Account’ used (as Martin’s CEO explained to the Bank’s Manager ) for payment of wages to staff. The balance in credit was $25,000.The company also had a current account in debit to the extent of $10,000 and a loan account so designated in debit to the extent of $15,000.
Can the Bank combine any of these accounts? Explain the concept of Combination of Accounts using case law to illustrate your answer. [3 marks]

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