International Finance

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_____________________________________________________________________ Question # 1 (10 Points): Hermosa Beach Components, Inc., of California exports low-density light bulbs per year to Argentina under an import license. In Argentina the bulbs are sold for the Argentine peso equivalent price. The Argentine government has invited Hermosa to open a manufacturing plant so imported bulbs can be replaced by local production. Under the assumptions tables below, create a project viewpoint capital budget and a parent viewpoint capital budget. What do you conclude from your analysis? [Use the discrete version of the RPPP to project the future FX rates].

 

 

 

2

 

 

_____________________________________________________________________ Question # 2 (10 Points): Hermosa Beach Components, Inc., of California exports low-density light bulbs per year to Argentina under an import license. In Argentina the bulbs are sold for the Argentine peso equivalent price. The Argentine government has invited Hermosa to open a manufacturing plant so imported bulbs can be replaced by local production. Under the assumptions tables below, create a project viewpoint capital budget and a parent viewpoint capital budget. What do you conclude from your analysis? [Use the discrete version of the RPPP to project the future FX rates].

EMPLOYMENT COMPENSATION 1

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Running head: EMPLOYMENT COMPENSATION 1

EMPLOYMENT COMPENSATION 6

Introduction

Jane Swift is becoming frustrated with her job as a Shift Leader at Jones Department Store. She’s worked there for six months and the full-time job has turned into more than full-time. Several Associates have left the store and as a result, the past several weeks she has worked 45-50 hours each week. She doesn’t mind working the extra hours; she is just frustrated because she is not getting paid overtime pay.

She asked the Store Manager, Amy Kostner, about the overtime pay she was due. Amy informed Jane that Shift Leaders are part of the management team and they are classified as Exempt under the Fair Labor Standards Act. The store is not required to pay Exempt workers overtime pay.

Jane agrees that she is part of the management team. As a Shift Leader, Jane runs the floor when she is on duty. One of the Assistant Managers sets the daily schedule of Associates each week, but Jane and other Shift Leaders assign the Associates to various work areas as needed. Depending on store traffic, Associates need to be moved from stocking shelves and cleaning to cashiering or assisting customers. When not working on such management responsibilities, the Shift Leaders generally assume the duties of Associates by assisting customers and cashiering. Jane reports that she typically spends only a little more than half of her time performing Associate duties.

Shift leaders are also involved in managerial decisions. For example, they often sit in on employment interviews, and typically are aware of employee terminations before the employee is fired. They also give feedback about the Associates to the Assistant Managers who write the annual performance appraisals.

Just like a manager, Jane makes a lot of decisions during the course of her shift each day. If there is a dispute on a sale price, Jane searches the weekly sales flyer to determine the correct price. If a customer has a return, Jane reviews the transaction and initials it before the cashier can give a refund. However, she does not have complete autonomy in making decisions. For example, if a return is greater than $50.00, an Assistant Manager or the Store Manager needs to approve the refund.

But even though she agrees that she is part of the management team, Jane isn’t satisfied with Amy’s answer on her question about pay. If she isn’t eligible for overtime pay, she thinks that she should be paid more. While she is paid at a higher rate than most of the Associates, she is not paid nearly as much as the Assistant Managers. A pay increase or overtime pay would at least make it worthwhile for her to put in the extra hours (Martocchio, 2015).

 

1. Why did Amy classify the shift leaders as Exempt? Are there any advantages to Jones Department Store to having the shift leaders classified as Exempt?

Exempt refers to an employees’ status regarding the overtime pay provisions of the Fair Labor Standards Act of 1938 (FLSA). Administrative, professional, and executive employees are generally exempt from FLSA overtime and minimum wage provisions (Martocchio, 2015). It is only advantageous for an an employee to be characterized as exempt, if compensated well for his/her time on the job. In this scenario with Amy, it looks as if she hasn’t been thoroughly communicated with, concerning her job description and compensation. Supervisors and managers are held to a higher standard concerning his/her schedule and work responsibilities. However, most of the time, these employees are compensated at a higher rate than the average hourly employee. Jane is a shift leader, which seems to be some type of supervisor. While, she and the other shift leaders assume the duties of associates, when they are not performing managerial duties; most of the time the shift leaders act as managers. Jane is not happy about her exempt status, but apparently she agreed to this level of compensation upon her hiring. To answer question #1, Amy considers these shift leaders to be exempt, and rightfully so. Technically, because these shift leaders make managerial decisions, sit in on interviews, etc., they can be considered as exempt employees. There are definitely advantages for this company to have exempt employees such as these shift leaders. I currently serve as an (exempt) production manager at an organization and rarely do I just work forty hours a week. It is often times, upwards of 60 hours per week. Being exempt status, my manager can ask me to stay late or come in early at any time, as part of my responsibilities (Mathis & Jackson, 2011).

 

2. Do you think that the shift leaders are properly classified as Exempt? Why or why not?

I believe that these shift leaders are properly classified. Of course they don’t make the same level of compensation as managers, but they also don’t take on all the responsibilities that a manager does (Brady, 2008). This position should be thought of, as a type of managerial trainee job. The experience of being allowed to make some managerial decisions is of great importance and can lead to better opportunities in the future (Hernandez, 2009). While the responsibilities are greater for that shift leader, so are the opportunities for advancement (Zweig, 1991).

 

3. What are some factors that Amy should consider when determining if shift leaders are Exempt or Nonexempt?

Some factors that Amy should consider when determining if shift leaders are Exempt or Nonexempt are the responsibilities involved with the position. I’m not sure why many think that having greater responsibility should automatically involve overtime pay. First of all, we are not given adequate data concerning the incentive package that is given to these shift leaders, but often times they can involve bonuses, PTO, etc.

 

Again, the issue of greater responsibility is the criteria that makes for an exempt employee. The FLSA strictly states that an exempt employee is one who “directs the work of other employees or who has the authority to make recommendations affecting the status of those employees (FLSA). So, the exempt employee is one whom has greater responsibility.

 

 

 

References

 

Milkovich, George, Newman, Jerry, Gehart, & Barry. (2013). Compensation and benefits.

McGraw Hill.

Mathis, Robert L., Jackson, John H., Human Resource Management: Essential Perspectives,

CENGAGE, 2012, (page 254).

Brady, Robert, J., FLSA Wage and Hour Self Audit Guide, BLR, 2008, (page 44).

Hernandez, Robert., Strategic Human Resources Management in Health Services Organizations,

CENGAGE, page 245, (2009).

Zweig, Mark, C., Human Resources Management: The Complete Guidebook for Design Firms,
John Wiley and Sons, Inc., 1991, (page 210).

calculate the marginal and average tax rates for a single taxpayer

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Construct a balance sheet for Sophie’s Sofas given the following data. (Be sure to list the assets and liabilities in order of their liquidity.)

 

 
  Cash balances = $ 14,500
  Inventory of sofas = $ 245,000
  Store and property = $ 145,000
  Accounts receivable = $ 26,500
  Accounts payable = $ 21,500
  Long-term debt = $ 215,000

 

 

Using Table 3.7, calculate the marginal and average tax rates for a single taxpayer with the following incomes: (Do not round intermediate calculations. Round “Average tax rate” to 2 decimal places.)

 

The year-end 2010 balance sheet of Brandex Inc. listed common stock and other paid-in capital at $2,500,000 and retained earnings at $4,800,000. The next year, retained earnings were listed at $5,100,000. The firm’s net income in 2011 was $1,040,000. There were no stock repurchases during the year. What were the dividends paid by the firm in 2011?

 

 

You have set up your tax preparation firm as an incorporated business. You took $76,000 from the firm as your salary. The firm’s taxable income for the year (net of your salary) was $18,000. Assume you pay personal taxes as an unmarried taxpayer. Use the tax rates presented in Table 3-5 and Table 3-7.

 

How much taxes must be paid to the federal government, including both your personal taxes and the firm’s taxes?

 

By how much will you reduce the total tax bill by reducing your salary to $56,000, thereby leaving the firm with taxable income of $38,000?

 

The founder of Alchemy Products, Inc., discovered a way to turn lead into gold and patented this new technology. He then formed a corporation and invested $600,000 in setting up a production plant. He believes that he could sell his patent for $25 million.

 

a. What are the book value and market value of the firm? (Enter your answers in dollars not in millions.)

 

b. If there are 1 million shares of stock in the new corporation, what would be the price per share and the book value per share? (Round your answers to 2 decimal places.)

 

 

Sheryl’s Shipping had sales last year of $19,500. The cost of goods sold was $8,400, general and administrative expenses were $2,900, interest expenses were $2,400, and depreciation was $2,900. The firm’s tax rate is 30%.

 

a. What are earnings before interest and taxes?

b. What is net income?

What is cash flow from operations?
Ponzi Products produced 98 chain letter kits this quarter, resulting in a total cash outlay of $12 per unit. It will sell 49 of the kits next quarter at a price of $13, and the other 49 kits in two quarters at a price of $14. It takes a full quarter for it to collect its bills from its customers. (Ignore possible sales in earlier or later quarters and assume all positive cash flow is distributed as expenses or earnings to shareholders.)

 

a. Prepare an income statement for Ponzi for today and for each of the next three quarters. Ignore taxes.(Leave no cells blank – be certain to enter “0” wherever required.)

 

 

b. What are the cash flows for the company today and in each of the next three quarters? (Leave no cells blank – be certain to enter “0” wherever required. Negative amounts should be indicated by a minus sign.)

 

 
c. What is Ponzi’s net working capital in each quarter? (Leave no cells blank – be certain to enter “0” wherever required.)

 
During the last year of operations, accounts receivable increased by $10,500, accounts payable increased by $5,500, and inventories decreased by $2,500. What is the total impact of these changes on the difference between profits and cash flow? (Input the amount as a positive value.)

 

 
Butterfly Tractors had $22.50 million in sales last year. Cost of goods sold was $9.70 million, depreciation expense was $3.70 million, interest payment on outstanding debt was $2.70 million, and the firm’s tax rate was 30%.

 

a. What was the firm’s net income and net cash flow? (Enter your answers in millions rounded to 2 decimal places.)

b.

What would happen to net income and cash flow if depreciation were increased by $2.70 million? (Input all amounts as positive values. Enter your answers in millions rounded to 2 decimal places.)

 
d. What would be the impact on net income and cash flow if the firm’s interest expense were $2.70 million higher. (Input all amounts as positive values. Enter your answers in millions rounded to 2 decimal places.)
Candy Canes, Inc., spends $145,000 to buy sugar and peppermint in April. It produces its candy and sells it to distributors in May for $200,000, but it does not receive payment until June. For each month, find the firm’s sales, net income, and net cash flow. (Leave no cells blank – be certain to enter “0” wherever required. Negative amounts should be indicated by a minus sign. Omit the “$” sign in your responses.)

 
The table below contains data on Fincorp, Inc., the balance sheet items correspond to values at year-end of 2010 and 2011, while the income statement items correspond to revenues or expenses during the year ending in either 2010 or 2011. All values are in thousands of dollars.

 

2010 2011
  Revenue $3,800 $3,900
  Cost of goods sold 1,500 1,600
  Depreciation 480 500
  Inventories 360 470
  Administrative expenses 480 530
  Interest expense 130 130
  Federal and state taxes* 380 400
  Accounts payable 360 470
  Accounts receivable 472 570
  Net fixed assets† 4,800 5,580
  Long-term debt 1,800 2,200
  Notes payable 1,060 720
  Dividends paid 370 370
  Cash and marketable securities 780 280

 

* Taxes are paid in their entirety in the year that the tax obligation is incurred.
† Net fixed assets are fixed assets net of accumulated depreciation since the asset was installed.

 

Suppose that Fincorp has 500,000 shares outstanding. What were earnings per share? (Round your answers to 2 decimal places.)

 

The table below contains data on Fincorp, Inc., the balance sheet items correspond to values at year-end of 2010 and 2011, while the income statement items correspond to revenues or expenses during the year ending in either 2010 or 2011. All values are in thousands of dollars.

 

2010 2011
  Revenue $3,400 $3,500
  Cost of goods sold 1,300 1,400
  Depreciation 440 460
  Inventories 380 510
  Administrative expenses 440 490
  Interest expense 90 90
  Federal and state taxes* 340 360
  Accounts payable 380 510
  Accounts receivable 496 610
  Net fixed assets† 4,400 5,140
  Long-term debt 1,400 1,800
  Notes payable 1,080 760
  Dividends paid 290 290
  Cash and marketable securities 740 240

 

* Taxes are paid in their entirety in the year that the tax obligation is incurred.
† Net fixed assets are fixed assets net of accumulated depreciation since the asset was installed.

 

What was the firm’s average tax bracket for each year? (Round your answers to 2 decimal places.)

 

Here are simplified financial statements of Phone Corporation from a recent year:

 

INCOME STATEMENT
(Figures in millions of dollars)
  Net sales 13,200
  Cost of goods sold 4,110
  Other expenses 4,072
  Depreciation 2,548
  Earnings before interest and taxes (EBIT) 2,470
  Interest expense 690
  Income before tax 1,780
  Taxes (at 35%) 623
  Net income 1,157
  Dividends 866

 

BALANCE SHEET
(Figures in millions of dollars)
End of Year Start of Year
  Assets
     Cash and marketable securities 90 159
     Receivables 2,432 2,510
     Inventories 192 243
     Other current assets 872 937
        Total current assets 3,586 3,849
     Net property, plant, and equipment 19,983 19,925
     Other long-term assets 4,226 3,780
        Total assets 27,795 27,554
  Liabilities and shareholders’ equity
     Payables 2,574 3,050
     Short-term debt 1,424 1,578
     Other current liabilities 816 792
        Total current liabilities 4,814 5,420
     Long-term debt and leases 6,769 6,654
     Other long-term liabilities 6,188 6,159
     Shareholders’ equity 10,024 9,321
        Total liabilities and shareholders’ equity 27,795 27,554

 

Calculate the following financial ratios: (Use 365 days in a year. Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

 
Here are simplified financial statements of Phone Corporation from a recent year:

 

INCOME STATEMENT
(Figures in millions of dollars)
  Net sales 13,000
  Cost of goods sold 3,960
  Other expenses 4,037
  Depreciation 2,458
  Earnings before interest and taxes (EBIT) 2,545
  Interest expense 675
  Income before tax 1,870
  Taxes (at 30%) 561
  Net income 1,309
  Dividends 856

 

BALANCE SHEET
(Figures in millions of dollars)
End of Year Start of Year
  Assets
     Cash and marketable securities 87 156
     Receivables 2,282 2,450
     Inventories 177 228
     Other current assets 857 922
        Total current assets 3,403 3,756
     Net property, plant, and equipment 19,953 19,895
     Other long-term assets 4,196 3,750
        Total assets 27,552 27,401
  Liabilities and shareholders’ equity
     Payables 2,544 3,020
     Short-term debt 1,409 1,563
     Other current liabilities 801 777
        Total current liabilities 4,754 5,360
     Long-term debt and leases 7,516 7,191
     Other long-term liabilities 6,158 6,129
     Shareholders’ equity 9,124 8,721
        Total liabilities and shareholders’ equity 27,552 27,401

 

Phone Corp.’s stock price was $82 at the end of the year. There were 203 million shares outstanding.

 

a. What was the company’s market capitalization and market value added? (Enter your answers in billions rounded to 2 decimal places.)
Consider the following information:

 

  Davis
Chili’s		 Bagwell Company
  Return on equity (ROE) 15.50% 10.40%
  Plowback ratio 0.48 0.83
  Sustainable growth 7.00% 8.20%

 

a. What would the sustainable growth rate be if Davis Chili’s plowback ratio rose to the same value as Bagwell Company? (Round your answer to 2 decimal places.)
What would the sustainable growth rate be if Davis Chili’s return on equity were only 14.5%? (Round your answer to 2 decimal places.)

 
Chik’s Chickens has average accounts receivable of $5,533. Sales for the year were $9,000. What is its average collection period? (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 2 decimal places.)

 
Salad Daze maintains an inventory of produce worth $540. Its total bill for produce over the course of the year was $78,000. How old on average is the lettuce it serves its customers? (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 2 decimal places.)

 
Assume a firm’s inventory level of $14,000 represents 38 days’ sales. What is the inventory turnover ratio?(Use 365 days in a year. Do not round intermediate calculations. Round your answer to 2 decimal places.)

 
Lever Age pays a(n) 8% rate of interest on $10.3 million of outstanding debt with face value $10.3 million. The firm’s EBIT was $1.3 million.

What is times interest earned? (Round your answer to 2 decimal places.)

 

 

If depreciation is $230,000, what is cash coverage? (Round your answer to 2 decimal places.)

 

 

If the firm must retire $330,000 of debt for the sinking fund each year, what is its “fixed-payment cash-coverage ratio” (the ratio of cash flow to interest plus other fixed debt payments)? (Round your answer to 2 decimal places.)

 

Keller Cosmetics maintains an operating profit margin of 4.1% and asset turnover ratio of 2.1.

 

a. What is its ROA? (Round your answer to 2 decimal places.)

 
If its debt-equity ratio is 1, its interest payments and taxes are each $7,100, and EBIT is $21,900, what is its ROE? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 
Torrid Romance Publishers has total receivables of $3,180, which represents 20 days’ sales. Total assets are $77,380. The firm’s operating profit margin is 6.2%. Find the firm’s asset turnover ratio and ROA. (Use 365 days in a year. Do not round intermediate calculations. Round your answers to 2 decimal places.)

 
A firm has a long-term debt-equity ratio of 0.5. Shareholders’ equity is $1.07 million. Current assets are $256,500, and the current ratio is 1.9. The only current liabilities are notes payable. What is the total debt ratio? (Round your answer to 2 decimal places.)

 
A firm has a debt-to-equity ratio of 0.69 and a market-to-book ratio of 3.0. What is the ratio of the book value of debt to the market value of equity? (Round your answer to 2 decimal places.)

 
In the past year, TVG had revenues of $3.06 million, cost of goods sold of $2.56 million, and depreciation expense of $156,560. The firm has a single issue of debt outstanding with book value of $1.06 million on which it pays an interest rate of 8%. What is the firm’s times interest earned ratio? (Round your answer to 2 decimal places.)

 

Gary Grandview – A Continuing Case – Part 2

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Name: Date: 3/12/13
Chapter 8
Building Your Own Financial Plan
Goals
1. Establish a credit limit that will enable you to pay credit card balances in full each month.
2. Select credit cards that will provide the most favorable terms at the lowest cost.
Analysis
1. Referring to your personal cash flow statement, determine how much excess cash inflows
you have each month. Based on this amount, set a self-imposed credit limit each month so
that you can pay off your balance in full. If you have existing credit card debt, use the
template below to determine how many months it will take you to pay off your balance
at three different monthly payment amounts. (The Excel template will perform the
calculations for you.) Revise your cash flow statement based on your decisions.
Alternative 1 Alternative 2 Alternative 3
Credit Card Debt
Monthly Payment
Interest Rate per Year
Months to Pay off Debt 0.00 0.00 0.00
2. Use the following template to select a credit card with favorable terms.
Rate the cards from “5” as the best in a category to “1” as the worst.
Bank Credit Card Scorecard
CREDIT CARD ISSUER
QUESTION 1 2 3 4 5
1. Annual fee
2. Interest rate on purchases
3. Interest rate on cash advances
4. Transaction fee for cash advances
5. Insurance on purchases
6. Credit earned toward purchases at selected businesses
7. Frequent flyer miles
8. Free delivery on mail order purchases
9. Phone card capability
10. Credit limit available
TOTAL 0 0 0 0 0
Decisions
1. What is your self-imposed credit limit each month for future credit card purchases? How much of your cash
inflows do you need to allot each month to paying off any existing credit card debt?
2. What credit cards offer the most favorable terms for your needs?

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