According to the Wall Street Journal, merger and acquisition activity in the first quarter rose to $5.3 billion. Approximately three-fourths of the 78 first-quarter deals occurred between information technology (IT) companies. The largest IT transaction of the quarter was EMC’s $625 million acquisition of VMWare. The VMWare acquisition broadened EMC’s core data storage device business to include software technology enabling multiple operating systems – such as Microsoft’s Windows, Linux, and OS X – to simultaneously and independently run on the same Intel-based server or workstation. Suppose that at the time of the acquisition a weak economy led many analysts to project that VMWare’s profits would grow at a constant rate of 2 percent for the foreseeable future, and that the company’s annual net income was $39.60 million. If EMC’s estimated opportunity cost of funds is 9 percent, as an analyst, how would you view the acquisition? Explain.
Would your conclusion change if you knew that EMC had credible information that the economy was on the verge of an expansion period that would boost VMWare’s projected annual growth rate to 4 percent for the foreseeable future? Explain.
Category: Accounting
Determine the maximum amount you would pay for an asset that generates an income
What is the maximum amount you would pay for an asset that generates an income of $250,000 at the end of each of five years, if the opportunity cost of using funds is 8 percent?
Instructions: Do not round intermediate calculations. Round only your final calculation to the nearest penny (two decimal places).
Maximizing BankGlobal’s Value: A Case for Launching the New Advertising Campaign in the U.S. Market
You are the manager in charge of global operations at BankGlobal – a large commercial bank that operates in a number of countries around the world. You must decide whether or not to launch a new advertising campaign in the U.S. market. Your accounting department has provided the accompanying statement, which summarizes the financial impact of the advertising campaign on U.S. operations. In addition, you recently received a call from a colleague in charge of foreign operations, and she indicated that her unit would lose $8 million if the U.S. advertising campaign were launched. Your goal is to maximize BankGlobal’s value.
Pre-Advertising Campaign Post-Advertising Campaign
Total Revenues $18,610,900 $31,980,200
Variable Cost
TV Airtime 5,750,350 8,610,400
Ad development labor 1,960,580 3,102,450
Total variable costs 7,710,930 11,712,850
Direct Fixed Cost
Depreciation – computer equipment 1,500,000 1,500,000
Total direct fixed cost 1,500,000 1,500,000
Indirect Fixed Cost
Managerial salaries 8,458,100 8,458,100
Office supplies 2,003,500 2,003,500
Total indirect fixed cost $10,461,600 $10,461,600
Should you launch the new campaign? Explain.
The equation for net benefits
Suppose that the total benefit and total cost from a continuous activity are, respectively, given by the following equations:
B(Q) = 100 + 36Q − 4Q2 and C(Q) =80 + 12Q.
(Note: MB(Q) = 36 − 8Q and MC(Q) = 12.)
Instructions: Use a negative sign (-) where appropriate.
a. Write out the equation for the net benefits.
N(Q) = + Q + Q2
b. What are the net benefits when Q = 1? Q = 5?
Net benefits when Q = 1:
Net benefits when Q = 5:
c. Write out the equation for the marginal net benefits.
MNB(Q) = + Q
d. What are the marginal net benefits when Q = 1? Q = 5?
Marginal net benefits when Q = 1:
Marginal net benefits when Q = 5:
e. What level of Q maximizes net benefits?
f. At the value of Q that maximizes net benefits, what is the value of marginal net benefits?
The value of the firm before and after paying out current profits as dividends
A firm’s current profits are $900,000. These profits are expected to grow indefinitely at a constant annual rate of 2 percent. If the firm’s opportunity cost of funds is 4 percent, determine the value of the firm:
Instructions: Enter your responses rounded to one decimal place.
a. The instant before it pays out current profits as dividends.$ _____million
b. The instant after it pays out current profits as dividends.$ _____ million
Controllable Costs and the Role of a Profit Center Manager
A profit center manager of a company’s eastern sales division is looking at decreasing the following costs: direct labor, utilities, and purchasing, which is allocated by the number of requisitions. To do so, the manager plans to do the following: increase efficiency in production to decrease the number of hours needed, thus decreasing the direct labor and utilities and ordering larger quantities each purchase to decrease the number of purchase orders. Are all of the costs the manager would like to decrease controllable costs? Explain.
The profit margin, investment turnover, and rate of return: calculation
Use the information shown below to calculate the profit margin, investment turnover, and rate of return on investment using the DuPont formula for the company in 2019 and 2020. Determine if changes in the rate of return on investment are favorable or unfavorable. Round answers to two decimal places.
2020 2019
Sales $ 456,000 $ 420,000
Income from operations 320,000 305,700
Invested assets 1,270,000 1,255,000
Income Statement for Bright Light – 2020 Calendar Year End
Prepare an income statement that includes variances for the 2020 calendar year end for Bright Light using the information shown and the direct labor variances calculated in Exercise 10. The company sold all goods produced during the period at a selling price of $75 each.
Standard costs per unit:
Direct materials $ 10.00
Fixed factory overhead 6.50
Variable factory overhead 4.50
Direct labor 9.00
Total $ 30.00
Variances:
Direct materials price $(1,900)
Direct materials quantity $2,750
Factory overhead controllable $6,700
Factory overhead volume $(2,100)
Selling expenses $23,500
Administrative expenses $27,900
Labour variances calculation : favorable or unfavorable
Each lamp manufactured at Bright Light uses a standard of 0.75 hours to produce. Production employees are paid a $9 hourly wage. The company incurred 5,000 direct labor hours at a cost of $47,500 to produce 6,700 lamps. Calculate the following variances and determine if it is considered favorable or unfavorable:
(A) Direct labor rate variance (B) Direct labor time variance (C) Direct labor cost variance
To determine the budgeted revenue
In 2020, Cards by Shannon generated the sales shown. The company expects for sales to increase by 2% for each product in the following year if the prices remain the same. Determine the budgeted revenue for 2021.
Cards by Shannon Sales Budget For the Year Ended December 31, 2020
Sales (2020) Sales (2021) Selling Price per Unit
Budgeted Revenue
Product A 2,000 $10
Product B 5,000 12
Product C 1,500