Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Jenny is the president of the West division of Courland Inc. In December she reviews the division's projected accounting statements for the year. If she

image text in transcribed
image text in transcribed
Jenny is the president of the West division of Courland Inc. In December she reviews the division's projected accounting statements for the year. If she does nothing, she expects the division to have $5 million in revenue, $2.4 million in variable costs, and $1.6 million in fixed costs, on volume of 100,000 units. The division has $6 million in assets. Courland has a cost of capital of 12%. Calculate the ROI as a number of %. Answer: Calculate the RI as a number of $. Answer: Jenny will receive a $100,000 bonus if she can achieve an ROI of 18%. Clearly, she would like to do that. She considers the following schemes to earn the bonus. First, West division could ship a lot of extra product to customers at year-end (called channel stuffing). Assume the extra products sell at the typical cost and have the typical variable cost. How many extra units would West Jenny will receive a $100,000 bonus if she can achieve an ROI of 18%. Clearly, she would like to do that. She considers the following schemes to earn the bonus. First, West division could ship a lot of extra product to customers at year-end (called channel stuffing). Assume the extra products sell at the typical cost and have the typical variable cost. How many extra units would West division need to sell to reach the ROI target? Answer: Alternatively, West division could defer some of its costs (such as maintenance) until next year. This would decrease fixed costs this year. How much fixed cost would need to be deferred to reach the ROI target? Provide an answer as a number of $. Answer: Instead, West division could hide some of its assets from the year-end balance sheet. There are several ways to do that (e.g., repurchase agreements, special purpose entities, or early pay down of operating liabilities). How much assets would need to be hidden to reach the ROI target? Provide an answer as a number of $

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting The Impact On Decision Makers An Alternative To Debits And Credits

Authors: Gary A. Porter, Curtis L. Norton

3rd Edition

0030335639, 978-0030335631

More Books

Students also viewed these Accounting questions