Suppose that in period 0, a referendum is organized to ask Calvin and Hobbes whether they want the government to implement a policy that shuts down payday lending. The policy would require some administrative costs which would result in a tax of $1 levied at the end of period 1. The two options to vote for are Yes and No. What would Calvin vote? What would Hobbes vote? (assuming they are both selfish and only care about improving their own utility). Discuss what this example suggests for the real world problem of regulating payday lending. For the rest of the problem, we consider a world where a shock just hurt Calvin and Hobbes before the time analyzed in the problem, so that their initial wealth is now e0 = $200. Note that the conclusions from question 2 also apply here so it's still correct to simply assume that there is no checking account from period 1 to period 2

no half work, answer all

The Wave Corporation has developed a method for detecting cancer cells called magnetotherapy (MT). This method uses magnetized vector cells to attach to cancer cells. This method allows the magnetic field to detect and isolate cancer cells earlier and more accurately than current methods. The new method improves the accuracy of cancer cell detection from 60% to more than 90%. However, although the company has the medical expertise, it does not have the funds to make capital investments to purchase the highly specialized equipment needed and hire the people to operate it. Additionally, the company has no marketing experience for this endeavor. The company was asking investors for a $5 million startup fund. The current market size with local laboratories is estimated at $100 million. The potential national market is 10 billion dollars. If you are consulting Wave Corp. What is the cooperation option that you recommend to them? why? Explain in as much detail as possible as appropriate.

1.Francine has written a new computer program to help clients manage health records online. It's more efficient than hard copies, using a spreadsheet, or accessing all previous healthcare systems to collect records. She'd like to see her software become the dominant design when it comes to this capability, but in her estimation, the software is only 50% complete. However, this 50% capability is a "stand alone" capability, that is, 50% can operate on its own and can be upgraded in two parts by 25% within the next six months to full functionality. She is confident she can finish the rest of the program on time. Knowing this, and the risks associated with an early release of the program, should Francine launch her program now or should she wait to complete it and risk overtaking the competition? What factors does Francine have to consider? Explain your reasons.

tackle all

1. Jennifer Lawrence, Lawrence & Smithsonian audit partner, has some concerns about accepting the audit engagement. Identify and briefly explain at least two potential ethical issues that may be of concern.

2. Describe the relevant information from the case for each ethical issue identified.

3. Analyze the relevant information for each ethical issue and evaluate the alternatives and any follow-up information that might be needed.

address all

Question 1 On April 1, 20X1, Alpha Inc. acquired 500,000 shares, representing 25% of the outstanding shares of Omega Corp at a price of $2 per share plus transaction costs of $10,000. The acquisition provided Alpha Inc. significant influence over Omega Corp. At this date, Omega Corp's assets and liabilities equaled book values except for inventory, which was overstated by $40,000 and equipment, which was understated by $100,000. Omega's shareholders' equity consisted of common shares, $1,300,000 and retained earnings, 2,450,000. On July 31, 20X1, Omega Corp declared and paid a dividend of $1.20 per share. Omega Corp's net income for 20X1 was $2,850,000, and was earned evenly during the year. Assume that the Omega's inventory from April 1 was sold by the year-end and that its equipment had a remaining life of 5 years on the date of acquisition. On March 31, 20X2, Alpha sold a patent with a book value of $65,000 to Omega for $125,000. The patent had a remaining life of 4.5 years at the date of sale. On July 31, 20X2, Omega Corp declared and paid a dividend of $1.30 per share. Omega Corp's net income for 20X1 was $3,050,000, and was earned evenly during the year. The income tax rate is 20% for both companies. Required: a) Assume that both Alpha and Omega prepare financial statements according to ASPE. Determine how Alpha should report its investment in Omega Corp. Provide specific references from the Handbook to support your recommendation. Discuss any choices that may be available. b) Assume that Alpha prepares its financial statements according to IFRS and decides to account for its investment in Omega under the equity method. Prepare the journal entries it would record for the years 20X1 and 20X2. Show supporting calculations.

/For each one of the computer industry business practices described below, give reasons why each one may both:

(i) realize economic efficiencies

(ii) harm consumers and/or competition.

a) Personal computer software makers bundle several software applications into a "productivity suite."

b) IBM provision of software and service to customers who buy or lease its mainframe computers.

c) True False or Uncertain. Explain intuitively

i) Although a monopolist has a smaller incentive to invest in a cost-reducing innovation than a perfectly competitive firm, at least it reduces the price it charges after the innovation, thereby benefiting consumers.

ii) Large fixed costs and difficulty in selling off capital assets make predation less likely.

iii) Vertical mergers are total-welfare enhancing.

iv) There is no difference in final market outcome between an industry structure with a single vertically integrated monopolist and a structure with an upstream monopolist facing a perfectly competitive downstream

v) Because a horizontal merger reduces the number of firms in an industry, it raises price, thus hurting total welfare.

Oliver has an endowment of $10,000 that he wants to invest. He can either invest in

a bond, which yields 1%,

the stock market, which consist of two firms, Amazon and Toys R Us

Each firm's stock is costs $100 today, and will be worth $400 in one year with probability 1 / 2 or will drop to $0 with probability 1/2 . Assume that the evolution of both stocks is independent: that is, the probability that stock of Amazon rises in value does not vary or depend on what has happened to stock of Toys R Us, and vice-versa. Finally, assume that Oliver's utility function is U(w) = w, and there is no inflation.

1. Suppose that due to institutional regulations, Oliver can invest only in bonds, or only in Amazon. He cannot buy Toys R Us stock and he cannot buy both Amazon stock and bonds. What is Oliver's utility of buying bonds? What if he invests only in Amazon's stock? What does he prefer?

2. Now suppose there is a change in regulations. Oliver can invest in either the stock market or in bonds, but not both. If Oliver decides to invest in the stock market, he can choose how much he wants to invest in each company. Let x denote the fraction of wealth that Oliver puts into Amazon and 1 - x denote the fraction of wealth Oliver puts into Toys R Us. If Oliver maximizes his expected utility, what should be the value of x?

3. What is the expected value of the strategy in the previous question, and Oliver's expected utility? Does Oliver prefer to use this strategy or to invest in bonds? What is the effect at work here?

4. Suppose again that Oliver can only invest in stocks or only invest in bonds. Additionally, now Toys R Us has gone bankrupt, but Oliver could invest in a third company, Walmart, whose stock today is worth $100. Interestingly, the value of the stocks for Amazon and Walmart is negatively correlated, so that with probability 1/2 Amazon goes bankrupt and Walmart's stocks are worth $400, and with probability 1/2 the opposite happens. What is Oliver's optimal investment? Is correlation hurting or helping Oliver?

5. Suppose Oliver works for Amazon and he is investing for his retirement. Is the investment decision you found in last question still optimal? Why, or why not?

Calvin is a fully nave hyperbolic discounter with = 0.5 and = 1 and = 1. Hobbes is a fully sophisticated hyperbolic discounter with belta = 0.5 and delta = 1 and = = 0.5. They lives for three periods: t = 0, 1, and 2. They derive utility from consumption in each period. They have the same instantaneous CRRA utility from consuming an amount ct 0 (i.e. ct < 0 is not possible) in period t : u(ct) = ct for t = 0, 1, 2

Accordingly, their discounted lifetime utility from the perspective of period t = 0, 1 is given by Ut(c0, c1, c2) = ct + s=2s=t+1 cs and their discounted lifetime utility at t = 2 is simply c2. We also defne their long-term lifetime utility as W(c0, c1, c2) = c0 + c1 + c2 which for instance captures their discounted lifetime utility from a period preceding 0, without distortion from present bias. Calvin and Hobbes start with wealth of e0 = $1500 at t = 0. They can keep their wealth in a checking account, which has no interest and would allow them to withdraw money at any time. That is, if they put $x into their account in period 0, they could withdraw up to $x at period 1. Similarly, if they put $x into their account in period 1, they could withdraw up to $x at period 2. They receive a paycheck of y = $1200 at t = 2, which is known and perfectly anticipated by both of them at all times. Finally, they have access to a payday lending service: they can borrow up to $600 in period 1, but they have to repay twice the borrowed amount on their payday in period 2 (i.e., they can borrow with an interest rate of 100% between these two periods).

1. Let's first consider a third fictional character, Susie, who is not present biased, and does not discount the s=2 p future. Her utility at any period t = 0, 1, 2 is cs Susie also starts with $1500 at t = 0, has access to s=t the checking account, and anticipates receiving $1200 in period 2, but has no access to payday lending. Derive Susie's consumption in period 0, 1 and 2. In particular, show that Susie does not use the checking account from period 1 to period 2.

2. Explain (with no formal derivation) why this means that neither Calvin nor Hobbes would use the checking account from period 1 to period 2. Given this result, we will now work under the (non-binding) assumption that the checking account is only available from period 0 to period 1, for simplicity.

3. Let e1 0 denote the amount of money in Calvin's (or Hobbes') checking account when he enters period 1. Assume e1 y. Derive the amount that he decides to borrow from the payday lending service, b, as a function of e1. Show that he will consume an equal amount in periods 1 and 2, i.e. c1 = c2.

4. Using the result from the previous question, derive the amount of money e that Hobbes, who is fully sophisticated, decides to put in his checking account in period 0. Hint: Do not worry about checking corner solutions, i.e. assume that eS y in order to use the answer to the previous question, and just verify that the value obtained 1 indeed verifies this inequality.

5. How much will Hobbes end up borrowing from the payday lending service and consuming in each period?

6. Now, let's consider Calvin, who is fully naive ( = 1). In period 0, how much does Calvin predict he will borrow from the payday lending service in period 1 if he were to leave e1 in his checking account?

7. Derive the amount eN1 that Calvin decides to leave in his checking account in period 0. Hint: Do not worry about checking corner solutions, i.e. assume that 4eN1 y in order to use the answer to the previous question, 1 and just verify that the value obtained indeed verifies this inequality.