ACCOUNTING CASES, RESEARCH, AND ANALYSIS GROUP ASSIGNEMNT #1 MEMORANDUM TO: Professor Siyi Li FROM: Group 5 DATE: October 3, 2013 SUBJECT: Performance Based Stock Compensation This memo is an analysis of the case in which the Company Sooner or Later Inc granted “at the money” performance based stock options and the fair value is not easily determinable. The grant-date fair value of each award is $9. With the revenue target factored into the fair value assessment the grant-date fair value is $6. Management believes it is probable the company will achieve cumulative revenue in excess of $10 million. General Priciple – Performance are only recorded when the target is proable to be acheived Sooner and Later Inc On January 1, 2006, Sooner or Later Inc. granted 1,000 “at-the-money” employee stock options (i.e., the exercise price was equal to the stock price on the grant date).
Actual costs were $31.50 / lb., which may indicate unanticipated price increases (for example an increase in commodity prices since steel is a commodity), or higher costs for additional orders of steel required to meet the increased production demand. Although steel price variance was unfavorable, we see a positive impact from efficiency variance, as only 3% more steel (113,400 vs. 100,000 lbs.) was required to produce 8% more output (10,800 vs. 10,000 bikes). Paint has a total unfavorable variance of $1,187. Paint caused an unfavorable variance from both a price and efficiency standpoint.
C) The answers are different because if the interest is left untouched, it makes the principal amount higher each year, giving more money after 10 years. Compounded interest allows for more money that simple interest would. 2. A) If the individual retires at the age of 65, having started the program at age 40, there would be $219,318 in the account. $3,000 x (8% in 25 years) 3000 x 73.106 = $219,318 B) If
Page 484 has formulas!! 6. When the firms maintains a target leverage ratio, we compute its levered value V^L as the present value of its free cash flows using the WACC, whereas its unlevered value V^U is the present value of its free cash flows using its unlevered cost of capital or pretax WACC. 15.3 Recapitalizing to Capture the Tax Shield 1. when securities are fairly priced, the original shareholders of a firm capture the full benefit of the interest tax shield from an increase in leverage 15.4 Personal
Monopoly output: MR=400-4q MC=40 MR=MC 400 – 4q = 40 then q=90 unit The reason that producing on half the monopoly output (90*1.5 = 135) a Nash equilibrium outcome is that it will exceed the market demand of Nash equilibrium ($160). 4. Problem #8, p. 221-222 in text. (HINT: First calculate the profits of a market with two firms, and then continue this process for 3, 4, and 5 firms.) a.
A positive side to these transfer taxes is that “it takes lifetime transfers into account to determine the tax on assets transferred at death” (Spilker, Ayers, Robinson, Outslay & Worsham, 2013, pg. 25-3) Gift taxes are in a sense a prepayment of the estate tax. Despite the disagreements about the estate and gift taxes, the government does provide certain ways around these taxes. Most taxpayers will not actually have to pay an estate tax
If the cash is higher than the net income, the company’s net income is of high quality. If the cash is lower than the net income, the company’s net income is not turning into cash and a red flag should go up. Having more cash than the net income can mean shareholders will receive an increase in dividends can reduce debt, buy back stocks, or purchase another company. According to, the cash flow statement Home Depot, Incorporated is similar to fiscal year 2007. In fiscal year 2008, Home Depot Incorporated generated $5.5 billion of cash flow from operations and used $2.0 billion to repay short-term debt and other obligations plus $1.8 billion for capital expenditures and $1.5 billion in dividends.
SciTronics had a total of $ 102,000 (75,000 + 27,000) of capital at year-end 2008 and earned before interest but after taxes (EBIAT) $ 16,120 (avg. tax rate = 38%) during 2008. Its return on capital was 15.8% in 2008 which represented an increase from the 8.7% earned in 2005. 4. SciTronics had $ 75,000 of owners’ equity and earned $ 14,000 after taxes in 2008.
The assumptions are listed below: Capital expenditure is £3.3m in 2007 and grows and 4% per year after 2009 Depreciation is £2.2m and grows at 4% per year after 2009 Risk free rate (rf) is 4.57% Tottenham’s equity beta is 1.29 The tax rate is 35% The market premium is 4% (based on a mature market, as shown in the slides) Tottenham’s debt rate 5.25%% [2.26/43.08] We assume the default rate of Tottenham is 0 (zero) The company’s long term growth rate is 4% The cost of equity (Re) is 9.73% (4.57% + 1.29 * 4%) The cost of debt is 3.41% [5.25% * (1 - 0.35)] The appropriate WACC is 8.14% [9.73% * (128.2/(128.2 + 43.08)) + 3.41 * (43.08/(128.2 + 43.08))] We assumed the items property plant equipment, intangible assets, accounts receivable, inventory, investments and cash as a percentage of revenues. The items accounts payable and long term debt are used as a percentage of operating costs An important assumption is that NWC is being managed efficiently immediately, reducing the change in NWC to zero Table 1-4 show the process of valuing the company through the DCF method. The ultimate value can be found in table 4. The forecasted P&L is shown below: Revenue Evolution 2007-2020 (£m) Attendance Sponsorship Broadcast Merchandise 250 200 150 100 50 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017