Capital Structure Decisions 

Consider the following scenario:

You are the Comptroller for a healthcare organization and you are tasked with analyzing potential scenarios regarding their funding.

Problem #1: Changing Debt & Interest Rates

• They      have an operating income of 1,500,000 SAR (SAUDI RIYAL)
• They      have assets of 7,500,000 SAR
• The      Tax rate is 22.5%
• They      currently do not have any debt but are considering the following      scenarios:

Scenario A

No debt

Scenario B

Interest rate 9.5%

B1 increase debt to 2,500,000 SAR

B2 increase debt to 5,000,000 SAR

Scenario C

Interest rate 12.5%

B1 increase debt to 2,500,000 SAR

B2 increase debt to 5,000,000 SAR

Based on the above information, address the following questions:

Compare Scenario A (no debt) to Scenario B (increasing debt 9.5% interest rate)

• What impact does increasing the debt have on the taxable income?

1. What impact does increasing the      debt have on the net income?
2. What impact does increasing the      debt have on the dollar return to investors?

Compare Scenario B (increasing debt 9.5% interest rate) to Scenario C (increasing debt 12.5% interest rate)

• What impact does the higher interest rate have on the taxable income?

1. What impact does the higher      interest rate have on the net income?
2. What impact does the higher      interest rate have on the dollar return to investors?

Key points

• How does debt financing influence ROE?

1. Increasing debt can have what      impact on the amount of tax paid?
2. A higher interest rate can have      what effect on the level of taxes paid?
3. A higher interest rate can have      what effect on the dollar return to investors?
4. How does a higher interest rate      affect ROE?

Problem #2: Uncertainty

Scenario D

Zero Debt

Calculate:

• The expected net income for each probability

1. The expected dollar return to      investors for each probability
2. The expected ROE for each      probability
3. What the company can expect its      net income to be given these probabilities
4. What the company can expect      dollar return to investors to be given these probabilities
5. What the company can expect its      ROE to be given these probabilities

Scenario E

However, assume the company now has 5,000,000 SAR Debt

Calculate: 

• The expected net income for each probability

1. The expected dollar return to      investors for each probability
2. The expected ROE for each      probability
3. What the company can expect its      net income to be given these probabilities
4. What the company can expect      dollar return to investors to be given these probabilities
5. What the company can expect its      ROE to be given these probabilities

Based upon those calculations answer the following questions: 

• Does the increased leverage offer the potential of an increased ROE?

1. What impact does the increased      leverage have on the risk to stock holders?
2. Is it always a good idea to use      debt financing?

Make recommendations to the organization as to the course of action that they should follow considering all risk factors. Please make certain that you show your calculations. Submit your findings in a proposal to the hospital.

T. M., Saw, Y. M., Khaing, M., Win, E. M., Cho, S. M., Kariya, T., … & Hamajima, N. (2017). Unit cost of healthcare services at 200-bed public hospitals in Myanmar: what plays an important role of hospital budgeting? BMC Health Services Research, 17(1), 669-669. Retrieved from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5605979/Recommended: Chapter 10 PowerPoint slides  SEU_HCM565_Module10_PPT_Ch10&11.pptx – Alternative Formats Chapter 11 PowerPoint slides  SEU_HCM565_Module10_PPT_Ch10&11.pptx – Alternative FormatsWood, B., Williams, O., Baker, P., Nagarajan, V., & Sacks, G. (2021). The influence of corporate market power on health: exploring the structure-conduct-performance model from a public health perspective. Globalization and Health, 1, 1-17.Ermasova, N., & Mikesell, J. (2019). Public capital budgeting and management: The concept and its application in three important federations. Public Finance and Management, 19(3), 175-199.Ghilan, K., Mehmood, A., Ahmed, Z., Almalki, M. J., Jabour, A. M., & Khan, F. (2021, January). Development of unit cost for the health services offered at King FAHD Central hospital Jazan, Saudi Arabia. Saudi Journal of Biological Sciences, 28(1), pp. 643-650.

For each assigned case, analyze the issue based on the following criteria:

Identify the parties involved in the case dispute (who is the plaintiff and who is the defendant).

Identify the facts associated with the case and fact patterns.

Develop the appropriate legal issue(s) in question (i.e., the specific legal issue between the two parties).

Provide a judgment on who should win the case – be clear.

Support your decision with an appropriate rule of law.

Be prepared to defend your decision and to objectively evaluate the other points of view

_______________________________________________________________________________________________________________________

case 1 q1

AES was formed in 1996, hiring eight employees. At a meeting of these employees in 1997, they expressed concern that the company might not sur- vive as it was using outdated equipment. At that meeting, a company executive asked the employees to remain with the firm and stated that the company was likely to merge with another firm, and if it did, the original eight employees would receive 5% of the value of the sale or merger as a reward for stay- ing. In 2001, the firm was bought by another firm, and the seven employees who had stayed sought to collect their 5%. The company refused to pay on grounds there was no contract. Did the company and employees have a bilateral or a unilateral con- tract? Explain. [Vanegas v. American Energy Ser- vices, 302 S.W.3d 299 (2009 WL 4877734, Sup. Ct., Texas, 2009)

case2q2

R-Vision manufactures recreational vehicles (RVs). Representatives of Associated Home met R-Vision’s regional sales manager, Darrell Higgins, and the product manager, Timothy Cunningham, at a con- vention where they discussed the possibility of using Associated Home as a dealer of R-Vision’s RVs in Albuquerque, New Mexico. At the time of the convention, Rocky Mountain RV was R-Vision’s dealer in Albuquerque. Higgins contacted Rocky 10 Mountain and told it that if Rocky Mountain did not make better efforts to represent R-Vision’s product, then R-Vision would find another dealer in Albu- querque. Higgins closed out the conversation by informing Rocky Mountain that R-Vision would “pursue somebody else.” R-Vision faxed Associated Home an application to become R-Vision’s dealer in Albuquerque. Associated Home faxed in return a completed dealer application form. Higgins then called Associated Home to explain that Associated Home needed to submit orders for RVs as part of the dealer application. In response to that telephone call, Associated Home submitted orders for four RV units. Higgins then contacted Rocky Mountain to tell it that R-Vision had “another dealer in your area that wants the product, that has ordered product and is going to represent the product.” Rocky Moun- tain’s owner called Higgins, and Higgins told him that Rocky Mountain would no longer be R-Vision’s dealer in Albuauerque At that point Rocky Moun- tain’s owner informed Higgins that, under New Mexico law, R-Vision had to give Rocky Mountain 90 days’ written notice of its action and that Rocky Mountain could still the dealer by placing orders before the expiration of the 90-day period. Thereaf- ter, Rocky Mountain ordered more RVs. By this point, Higgins had already told Asso- ciated Home that it would be the dealer. Higgins told Associated Home about the 90-day issue with Rocky Mountain but also told Associated Home that they would work it out and that Associated Home would be the dealer. Associated Home did not receive any RVs from R-Vision. Associated Home filed a complaint charging that R-Vision breached a contract with it by not delivering four RVs. Associated Home argues that the order forms confirm the contract. Did the forms meet the requirements of a valid contract? [Associated Home and RV Sales, Inc. v. R-Vision, Inc., 2006 U.S. Dist. LEXIS 95631 (D.N.M. 2006).]

case 3 q3

Sarah and Eddie Hogan wanted to sell 2.5 acres of land through their real estate agent, Darita Richardson. On December 10, 2001, Warren Kent offered to purchase the land for $52,500. An “Agreement to Buy or Sell” was created, which Kent signed right away. One term of the agreement was that the offer would expire on December 11, 2001, at 3 p.m., and it stated additionally, “Time is of the essence and all deadlines are final except where modifica- tions, changes, or extensions are made in writing and signed by all parties.” Although Richardson scheduled a meeting on December 11, 2001, at 2 p.m. with the Hogans, the Hogans failed to appear. However, the parties agreed to a two-day extension, lasting until December 13, 2001, at 3 p.m., and the extension was binding and irrevo- cable according to the “Addendum to Agreement to Purchase or Sell.” The Hogans signed both docu- ments at 9 a.m. on December 13, 2001. At about 11 a.m., Kent also signed the addendum. However, neither Kent’s agent nor Richardson contacted the Hogans before 3 p.m. about Kent’s acceptance. After 3 p.m., Richardson realized that the Hogans had not placed the date and time next to their signa- tures. When she met with the Hogans, the Hogans placed the date and the time as 4:48 p.m., informing Richardson that they, the Hogans, had changed their minds about the sale Kent sued for specific perfor- mance of the contract. What effect, if any, did the failure to communicate the acceptance of the offer before 3 p.m. have in terms of whether a contract was formed? What was the appellate court’s reason- ing? [Kent v. Hogan, 2004 La. App. LEXIS 2539.]

Read this part and summarize it into short and comprehensive main points :

3- Organizational Profile

The Coca-Cola Company was first established in Atlanta, Georgia, in the United States of America in 1892 (Clemons & Row.1988. The intended purposes were so simple is to use the Coca-Cola drink as a refreshment that would ensure that the consumers “refresh the world. Make a difference” The Coca-Cola company was started in the 19th century and was intended to be a company that produces drinks meant to be patient drink and not the soft drink as it is consumed today. Nevertheless, due to the increase in marketing and the growth of the target market for the drink, it was, later on, strategies were changed, and it was no longer the patient medicine as it was previously known. Thus the marketing team began marketing Coca-Cola as a soft drink. . Moreover, in the process, the Coca-Cola company developed into a brand that many customers trust as a result of the branding that is utilized, the marketing strategy that is used by the company, and the packaging that is used in the product(Turlakov,2017). Therefore, for the brand’s acquisition to the Coca-Cola company, the concoction that was used to treat sick people was added sugar syrup and thus was used as a soft drink.

Moreover, in the process of brand creation, the company was not immediately successful. Thus, some efforts were to be made by the company CEO, and the partners that are the shareholders of the company took the part of helping in advertising so that the Coca-Cola brand is renown so that the company could attract clients for the business to grow. Thus, in the process after marketing strategy, the brand grew (Clemons & Row.1988. Also, there was an improvement to how the soft drinks were being processed in the ancient technology of using paddles in stirring the concoction of the Coca-Cola soft drink.

The organizational structure for Coca-Cola is designed in such a way so as to suit the changing needs of the customers. It uses a decentralized system of management, which divided into two operating groups; the Bottling Corporate and Bottling Investment. Also, management system involves a structure where a firm realizes the benefits of its investments through utilizing technology and the interrelations that exist in the firm. Therefore, in the process, the company strategizes the orientation of people in different fields and thus emphasizes the services they intend to offer through the technology they intend to use.

Consequently, the improvement of the manufacturing technology drastically improved to provide the quality of the soft drinks improve so that the brand could be utilized universally.

Coca-cola is a very large company known for being non-alcoholic beverage company, they have a very big consumer in more than 200 countries, they produce their products into different categories such as sparkling soft drink, sport drink, juices, energy drink and so on.

The company achieved their revenue by selling concentrates and syrups to bottling facilities and by selling finished products to retailers and other distributors.

The company also address water quality and supplies, they try to solve the obesity epidemic, climate change, and corporate diversity.

Critical Thinking Case studies:

It came to the attention of the Mr. Faisal Al Qarni, CEO of a Alqarni company (A small Jeddah based company) that there was a difficulty between two employees who had been working together for some time but recently appeared to have major differences that were affecting their entire department.

Two employees Amal and Haifa had been working together for a few years. They were in the same department and reported to the same departmental manager. Amal had been at the company longer and was senior to Haifa.

Mr. Faisal was being approached by both Amal and Haifa at different times. They complaint against each other about the harassment and bullying. Mr. Faisal asked HR Manager to listen their issues and try to resolve as soon as possible. HR Manager has spent increasing amounts of time speaking to them, taking notes of their points and comments, meeting with their department manager.

Haifa had felt under pressure from Amal since she joined the company. She raised the issue with her departmental manager; however, she felt that nothing had changed. Both the parties were accusing the other of bullying and harassment.

Amal had a no-nonsense approach and felt that some aspects of Haifa’s work needed improvement. She had asked for these changes in ways that she felt had been clear and fair. Haifa kept going to management with the allegation of bullying by Amal.

Haifa felt her work performance had been made subject to very public comment in team meetings and she felt embarrassed and singled out. She felt she could do no right as far as Amal was concerned. She liked her job. It was close to her home so she was able to take her children to school and pick them up on her way home.

Both parties were thinking about leaving if the situation could not be worked out. They reluctantly agreed to mediation but neither wanted to change jobs.

Consider yourself as HR Manager and resolve the entire issue.

Questions:

• What are the main problem and subproblems of the case? Based on the following technique, identify the causes of problem?
• What information should you gather, that would be helpful to know before making a decision?[Marks 0.75]
• Develop a mind map to generate several choices of your decision. As HR Manager, what will be your decision to resolve this issue?
• HR Manager may face Ethical dilemma in resolving the issue and finding solutions. What could be possible ethical issues in the above case?

• Cause of the problem- 5 Why Technique
  • Why-1
  • Why-2
  • Why-3
  • Why-4
  • Why-5
• Develop a Cause-and-Effect Diagram

Course Learning Outcomes-Covered

• Demonstrate a solid understanding of the concepts and models for making strategies to face challenges and improve the performance of technology based enterprises. (Lo 1.2)

Assignment 2Marks: 10  

‘Tesla and its flamboyant, and sometimes erratic, innovator Elon Musk have turned the more than a century old industry upside down in a mere 16 years. Traditional automakers are ill prepared to compete in today’s software-centered world. Unlike nimble Tesla, they are big, bureaucratic, slow to respond to customers, dependent on providing customer financing for unit sales growth, and culturally different from a software company. Tesla’s speed in innovation in the market for high-end vehicles is more like a Google or an Amazon than an automaker. And its soaring market valuation is a clear sign to all automakers that they’ll need to develop more innovative, Tesla-like business models in order to survive.’ 

Harvard Business Review. February 28, 2020 

As per your Textbook –  

‘Tesla’s cars had rapidly attracted a large and loyal fan base, and sales were growing at an impressive rate. However, designing and launching multiple major car platforms while building a large-scale battery company, a network of charging stations, and operating Solar City was a lot for a company to take on in its first fifteen years. This left some analysts scratching their heads. Was Tesla trying to do too much too quickly?’   

Students are requested to read Chapter 6 Defining the Organization’s Strategic Direction of their textbooks. With the conceptual knowledge from Chapter 6 and your own research, answer the following questions. 

Q1- How would you characterize competition in the Auto Industry? (3Mark) (200 -300 words)

Q2- What do you think are Tesla’s core competencies? Does it have any sources of sustainable competitive advantage? (3Marks) (300 -500 words)

Q3- What do you think Tesla’s (or Elon Musk’s) strategic intent is? (4Mark) (300 -500 words)

Complete the following three questions using Microsoft Excel. No other submission format is allowed. Review the grading rubric to confirm you are meeting the assignment requirements.

Problem 1
Milwaukee Dairy Company produces cream, whole milk, and 2% milk. The joint cost of producing the three products is SAR 30,000. The split-off quantities and selling prices of each product are as follows:
	Split-off Quantity (Gallons)	Price at Split off (SAR)
Cream	550	19.00
Whole milk	4,000	13.00
2% milk	1,200	6.50

Required: Calculate how much of the joint costs should be allocated to each product using the market value at split off method.

Problem 2
The following information pertains to Delicious Bakery Company:
GIVEN:	Janitorial Dept.	Cafeteria Dept.	Mixing Dept.	Baking Dept.
Square feet	420	820	2800	2500
Number of employees	12	25	65	120
Department cost (SAR)	620,000	1,200,000	3,200,000	4,200,000

Required: Allocate Janitorial and Cafeteria department costs to mixing and baking departments using the Direct method. Use square feet for allocating janitorial costs and number of employees for allocating cafeteria department costs.

Problem 3
	Maintenance Hours	Maintenance Cost (SAR)
January	2,400	33,000
February	1,700	28,000
March	2,700	31,000
April	1,300	17,000
May	1,500	23,000
June	2,150	26,000

Required:

1. Calculate variable cost per unit using the high-low method.
2. Calculate fixed costs.
3. Calculate estimated costs at 2,700 maintenance hours.

Problem 4
Given the following:
	Total (SAR)
Sales (40,000 units)	4,600,000
Variable expenses	2,700,000
Contribution margin	1,900,000
Fixed expenses	1,250,000
Net operating income	650,000

Required:

1. Calculate variable expense ratio
2. Calculate contribution margin ratio
3. Calculate break even sales in Units
4. Calculate break even sales in SAR
5. How many units must be sold to make a profit of 300,000 SAR?

Management is considering increasing the quality of its units by spending SAR 5 more per unit in variable costs and increasing advertising by SAR 80,000. Management believes these changes will increase unit sales by 20% at the same price.

1. Explain whether management should make the change and why or why not.

I’m working on a accounting question and need a reference to help me learn.

Q1. What are the items considered in Capitalization of interests? Describe each item [1 marks]

Q2. Intangible assets have three main characteristics: (1) they are identifiable, (2) they lack physical existence, and (3) they are not monetary assets. 

Instructions

(a) Explain why intangibles are classified as assets if they have no physical existence. [0.5 mark]

(b) Explain why intangibles are not considered monetary assets. [0.25 mark]

(c) And, why does the accounting profession make a distinction between internally created intangible assets and purchased intangible assets?   [0.25 mark] 

Q3. On April 1, Paine Co. began construction of a small building. Payments of SAR 120,000 were made monthly for four months beginning on April 1. The building was completed and ready for occupancy on August 1. For the purpose of determining the amount of interest cost to be capitalized, calculate the weighted-average accumulated expenditures on the building by completing the schedule below: [1 mark]

Answer:

DateExpendituresCapitalization PeriodWeighted-Average Expenditures

Q4. Equipment that cost SAR80,000 and has accumulated depreciation of SAR43,000 is exchanged for equipment with a fair value of SAR32,000 and SAR8,000 cash is received. The exchange has commercial substance.

Instructions

(a)Show the calculation of the gain to be recognized from the exchange. [0.5 mark]

(b)Prepare the entry for the exchange. [0.5 mark]

Q5. Presented below are the components related to an office building that Lockard Company is considering purchasing for SAR10,000,000.

ComponentUseful LifeValue

Building structure60-year life5,400,000

Building engineering30-year life2,400,000

Building external works30-year life900,000

Instructions

Compute depreciation expense for 2010, assuming that Lockard uses component depreciation. [0.5 mark]

Assume that the building engineering was replaced in 20 years at a cost of SAR 2,600,000. Prepare the entry to record the replacement of the old component with the new component.  [0.5 mark]