Problem 9-5 of Kaplan-Transfer Pricing Dispute A transportation equipment manufacturer is heavily decentralized. Each division head has full authority on all decisions regarding sales to internal and external customers. Division P has always acquired a certain equipment component from Division S. However, when informed that Division S was increasing its unit price to $220, Division P's management decided to purchase the component from outside suppliers at a price of $200. Division S had recently acquired some specialized equipment that was used primarily to make this component. The manager cited the resulting high depreciation charges as the justification for the price boost.
Written Assignment 3 Answer all of the following questions. Title your assignment "Written Assignment 3," unless your mentor directs otherwise. This assignment covers text chapters 13 through 17. 1. At its current level of production, a profit-maximizing firm in a competitive market receives $12.50 for each unit it produces and faces an average total cost of $10.
Stock Valuation at Ragan, Inc. Ragan, Inc., was founded nine years ago by brother and sister Carrington and Genevieve Ragan. The company manufactures and installs commercial heating, ventilation, and cooling (HVAC) units. Ragan, Inc., has experienced rapid growth because of a proprietary technology that increases the energy efficiency in its units. The company is equally owned by Carrington and Genevieve. The original partnership agreement between the siblings gave each 50,000 shares of stock.
Kendle Net Income margin of 5.3 % in 1996 is much higher than 1.6% of the Quintiles which is considered to be the “golden standard” of the industry and more than double more than 2.2% net income margins average. These good financial ratios can be explained by the in-depth control of financial performance of the Company by its owners and Kendle preparation to the IPO process. By 1996, Kandle conducted clinical trials for 12 of the world’s 20 largest pharmaceutical companies. Research is a labor-intensive business and Kendle focuses a lot on maximizing labor utilization on 65 % to 70% utulazation rate to make sure that the profit margins are higher, especially on the operational level. With a qualitative and experienced management team Kendle organized the well-defined organizational structure where all the strategic business units carried profit responsibility.
Finally we chose ICAPM because it captures substantial foreign risks. We will recommend DOW to bid the minimum price of $150m. Introduction Dow held a leading market position in the chemical industry. Chemicals, Plastics, and agricultures products are three major business generated annual revenues of $20.2 for Dow’s. Even though Dow has plants in over 30 different countries about 75% of its sales are from US and Europe.
1. Question: (TCO4) In a merchandising business, gross profit is equal to sales revenue minus: Your Answer: Instructor Explanation: Merchandising companies are those that buy products and resell them to the end consumer, so the cost of the product sold is usually their largest cost. Their income statement should start with revenues minus cost of goods sold equals gross profit. Points Received: 5 of 5 Comments: 2. Question: (TCO4) BMX Co. sells item XJ15 for $1,000 per unit, and has a cost of goods sold percentage of 80%.
The depreciating expense is $5000 each year with a tax rate of 25% and discount rate of 10%. These numbers were crucial in finding the NPV (net present value) and IRR (internal rate of return). Corporation “A” had a $100,000 operating revenue and I had to first figure out earnings before interest and tax so I could come out with taxes owed. By deducting cash expenses and depreciation I came up with the EBIT in which now I just multiplied by 25% tax rate. Now by deducting the EBIT I can figure out the net earnings and adding the depreciation back I got the C.F.
The company stated that the loss ($10 - $20 million) was associated with the accident. (Chapman, 2009) Using facts from the Harvard Business School case study Biovail Corporation: Revenue Recognition and FOB Sales Accounting and other sources, I will discuss the concepts of revenue and expense recognition. I will do this while answering the following questions: 1) How many truckloads of product (Wellbutrin) are actually required to carry $10 million of product? (used to validate Biovail’s claim of value) 2) How should the company recognize revenue based upon the two possible FOB contract structures in the case? Why?
We created the following examples to show how WACC could potentially influence Marriott’s financial decisions: Suppose Marriott is taking on a project that requires a $100,000 initial investment, which produces cash inflows of $20,000 per year for 10 years. If we use Marriott’s current WACC of 9.29% the project would produce an NPV of $26,730. If we use the Target WACC, 10.24% for Marriott the NPV would be $21,634. Deciding based on the assumption of an NPV of $26K but it will actually achieve a NPV of $21K. Management will have to explain to shareholders why they were unsuccessful in achieving increased shareholder value.
Bonuses were based 100% on corporate EVA while the information reports were rewarded on a mixture of corporate EVA, business unit EVA and team EVA goals. Why the introduction of EVA system at Vyaderm? To maximize firm value, a firm must earn more than its cost of capital. The third performance metric is in %, but captures the spirit of two important (and essentially similar) metrics: Residual income, and Economic Value Added (EVA). These differ only in certain details.