1.) a) Kaimondake is a department store. Its sales managers wish to introduce a generous bonus app. The purpose is to boost current sales and increase customer loyalty by offering free high end products to their shoppers, in the future, once they have spent a certain amount of money. (i) Imagine that you are working for Kaimondake as an accountant and you have a meeting with the sales managers. Making reference to concepts of costs & liabilities and any relevant accounting conventions, explain to the sales managers the accounting implications of the introduction of the bonus card. How will the Kaimondake's accounts need to be adjusted once the app is introduced? (5 marks) (ii) You are now an equity analyst and intend to carry out business strategy analysis on Kaimondake. What questions will you need to ask the management? What other research do you need to carry out? Explain briefly why the results of your business strategy analysis will allow you to make better forecasts, perform better financial analysis and perform better accounting analysis. (7 marks) b) These are the median analyst calendar year end predictions for Kaimondake and its competitor Kisokoma. Actual Projected JPY million 2021 2022 2023 2024 2025 Comprehensive income Kaimondake Common shareholders' equity Comprehensive income Kisokoma Common shareholders' equity 12,000 12.360 109,000 109.200 53,000 53,300 1,767,000 1,766 900 12.790 109.400 54,100 1,767 700 13,360 13.500 109,700 109.800 58,400 63 700 1.771,800 1 776.800 b) These are the median analyst calendar year end predictions for Kaimondake and its competitor Kisokoma. Projected Actual 2021 JPY million 2022 2024 2025 Comprehensive income 12,000 12,360 12,790 13,360 13,500 Kaimondake 109,000 109,200 109,400 109,700 109,800 Common shareholders' equity Comprehensive income 53,000 53,300 54,100 58,400 63,700 Kisokoma Common shareholders' equity 1,767,000 1,766,900 1,767,700 1,771,800 1,776,800 Kaimondake's cost of equity capital is estimated to equal 4.5%, Kisokoma's 4.8%. By coincidence, it turns out that the abnormal earnings predicted for Kaimondake's and Kisokoma for 2022 are exactly equal to the abnormal earnings actually realised in 2021. (i) Assume that the median analyst forecast equals the market expectation and that markets are efficient. Using the additional assumption that, after 2025, abnormal earnings remain at their 2025 levels forever, calculate the price to book and price to earnings ratios for Kaimondake and Kisokoma at the end of 2021 (to two decimal places). Use both of the formulae learned in this course. (9 marks) (ii) The industry median trailing PE and PB ratios are 22.5 and 1.80 respectively. Compare these numbers with the PB and PE ratios calculated in (i). Using a strategic taxonomy, briefly explain the market's expectations about future (normal or abnormal) profitability of each of the companies' - past investment projects future investment projects. (4 marks) 2023