Question:

Investment Decisions for Big Spenders Inc.

Background

You are an Analyst for the professional service firm, BUSI 1043 LLP. Your firm specializes in providing a wide variety of internal business solutions for different clients. It is your first day on the job and a Manager in the Consulting area asks you for some help with an investment decision for one of your large clients, Big Spenders Inc. Ready to make an impression on your first day, you start reading the background information provided by the Manager.

Additional Information

Big Spenders Inc. has been working on diversifying its portfolio of investments and requires accounting advice for a decision between two car cleaning and detailing companies. Your responsibility is to perform a comparative analysis of the profitability of two potential equity investments. Your engagement manager on this job has given you a brief background on the operations of the two companies:

Auto Wash Bot Ltd. (AWBL) has recently completed the research and development of a new touch screen app for all mobile devices. This new technology is more user friendly than the current technology on the market. Auto Wash Bot Ltd has just signed a major contract to provide the Auto Wash Bot terminal to a major producer of mobile devices. The founder of the business would like to sell a 50% interest in the business for $100,000 to finance further expansion of operations.

Popeye's Muscle Wash Ltd (PMWL) is a self-service, coin-operated car wash located in a busy residential area. The company provides all of the services of a typical car wash, including soap, wax, vacuuming as well as pressure washing. PMWL has been long established and enjoys the loyalty and repeat business of many residents. The current owner is getting up in age and would like to sell 100% ownership interest in the business for $100,000 to pursue retirement. The current year's income statement is consistent with prior years.

One of the first tasks in the analysis of the potential equity acquisition is an assessment of each company's current and future profitability. Your manager has provided you with copies of each company's income statement (see below). Next, you are to calculate the expected return on the investment for each company. You have been asked to discuss any other issues that you believe are relevant to the investment decision.

The Consulting Manager would like you to prepare the report and have it on his desk for review first thing tomorrow morning. Once reviewed, this report will be submitted to Big Spenders Inc. to support their decision.

Auto Wash Bot Ltd.Revenue$375,000Cost of Goods Sold86,250Gross Profit288,750Other Expenses

Advertising35,400Office Expense22,750Research195,000Wages and Salaries40,000Total Other Expenses293,150Income Before Taxes(4,400)Income Tax0Net Income$(4,400)Popeye's Muscle Wash Ltd

Income Statement

For the Year Ended December 31, 2015Revenue$375,000Cost of Goods Sold163,125Gross Profit211,875Other Expenses

Advertising5,200Office Expense17,400Repairs and Maintenance85,000Wages and Salaries50,000Total Other Expenses157,600Income Before Taxes54,275Income Tax8,413Net Income$45,862

*Tax rate of 15.5% used.

Issues are hidden within the case. It is your responsibility to read the case facts and identify the critical issues required for discussion and analysis.

Identify what you are playing. Assess the financial report landscape considering the users' needs, constraints and business environment, identify the issues, analyze issues qualitatively and quantitatively and provide a recommendation for each issue identified in the case.

Income Statement Current Assets: Balance Sheet Fixed Assets: Balance Sheet Current Liabilities; Balance Sheet Total Liabilities: Balance Sheet Shareholder's Equity: Balance Sheet . w Cash . w Receivables C. Current Liabilities: Balance Sheet Payables D. Debt due for repayment E Shareholder's Equity Balance Sheet F. Income Statement .Property, plant, and equipment G. Net Sales H. Fired Assets: Balance Sheet . v Depreciation Expense . Taxes 1. Current Assets: Balance Sheet K Total Liabilities Balance Sheet - Net Income L Y EDIT Moving to the next question prevents changes to this answer,QUESTION 5 Common stock Balance sheet and asset account Balance sheet and liability account Balance sheet and owners' equity account Income statement account O Statement of retained earnings account QUESTION 6 Notes Payable Balance sheet and asset account Balance sheet and liability account Balance sheet and owners' equity account Income statement account Statement of retained earnings accountQuestion 1What mechanisms could be put in place to motivate management to consider the interests of: (a) the owners? (bl the dsmhaldsm? Question 2 How could accounting regulators use the research conducted by Positive Accounting theorists? Question Home researchers who utilise Legitimacy Theory posit that organisations will attempt to operate within the terms of their 'social contract'. What is a social contract? Question 4ln 2006 the Australian Government established an inquiry into corporate social responsibilities with the aim of decidirg whether the Corporations Act should be amended so as to specically include particular social and environmental responsibilities within the Act. At the completion of the inquiry it was decided that no specic regulations mold be added to the legislation, and that instead, 'market forces' would be relied upon to encourage companies to do the 'right thing' (that is, the View was expressed that if companies did not look after the environment, or did not act in a socially responsible manner, then people would not want to consume the organisations' products, and people would not want to invest in the organisation, work for them, and soforth. Because companies were aware of such market forces they would do the 'right thing' even in the absence of legislation]. You are required to explain the decision of the government that no specic regulation be introduced from the perspective of: 1. Public Interest Theory 2. Capture Theory 3. Economic Interest Group Theory of regulation. D Question 4 3 pts Thornton is easily upset, moody, and aggressive. He does not communicate well with peers or adults. According to Baumrind, it is MOST likely that his parents are engaged in_parenting. O abusive O authoritarian O authoritative O permissive D Question 5 3 pts The police department announces the location where they will be enforcing the speed limit. This announcement is MOST likely to affect the behavior of people at the _level of moral development. O preconventional O postconventional O conventional O social contract D Question 6 3 pts Once a child can perform mental operations on tangible objects and events, and understand the principles of conservation and reversibility, she has reached Piaget's_stage. O post-operational O operational O formal operational O concrete operationalQUESTION 6 "What would be more valuable, receiving $107 today or receiving $120 in 5 years if interest rates are 2 5% and by how much would it be the more valuable alternative?" Both are worth the same amount Insufficient date provided to determine an answer to this question O Receiving $107 / $1 higher Present Value Receiving $120 / $1 higher Present Value Receiving $107 / $106 higher Present Value Receiving $120 / $106 higher Present Value QUESTION 7