P6-44. Incentives for Earnings ManagementHarris Corporation pays senior management an annual bonus from a bonus pool. The size of thebonus pool is determined as follows.Reported net incomeLess than or equal to $10 million....Greater than $10 million,but less than or equal to $20 million..Greater than $20 million.........Bonus pool$010% of income in excess of $10 million$1 millionREQUIREDa. Assume that senior management expects current earnings to be $21 million and next year'searnings to be $18 million. What incentive does management of Harris Corporation have formanaging earnings?C.b. Assume that senior management expects current earnings to be $17 million and next year'searnings to be $24 million. What incentive does management of Harris Corporation have formanaging earnings?Assume that senior management expects current earnings to be $9.5 million and next year'searnings to be $12 million. What incentive does management of Harris Corporation have formanaging earnings?d. How might the bonus plan be structured to minimize the incentives for earnings management?

Only the first three sub-parts has been solved due to our protocol and authorizing limit.There is an…

Answered: a. Assume that senior management…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Consider a company with sales of $18,000.0 million, cost of goods sold of 42% of sales, other expenses including salaries (we usually call this SG&A for selling, general and administrative) of $1,750.0 million, depreciation of $2,250.0 million, and interest expense of $2,300 million. Tax rate=21%. Generate an income statement and show net income. What is the company’s operating cash flow? If there are 775.2 million shares outstanding, what is the EPS? If the company has a payout ratio of 20%, what is the dividends per share?
17 The Manning Company has financial statements as shown next, which are representative of the company's historical average. The firm is expecting a 35 percent increase in sales next year, and management is concerned about the company's need for external funds. The increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset utilization in the existing store. Among liabilities, only current liabilities vary directly with sales. Sales Expenses Earnings before interest and taxes Interest Earnings before taxes Taxes Earnings after taxes Dividends. Income Statement: Cash Accounts receivable. Inventory Fixed assets Assets Current assets Total assets The firm $230,000 168,500 $ 61,500 9,500 $ 52,000 17,500 $ 34,500 $ 13,800 Balance Sheet Liabilities and Stockholders' Equity $6,500 42,000 Accrued wages 55,000 Accrued taxes $ 103,500 90,000 Accounts payable Current liabilities Notes payable Long-term debt Common stock Retained…
BNB bank estimates that its total revenues will amount to $350 million, and its total expenses (including taxes) will equal $220 million this year. Its liabilities total $3,800 million while its equity capital amounts to $110 million. What is the bank's return on assets? Is this ROA high or low? How could you find out?
Read the scenario below and answer the questions that follow. A company is under pressure from influential shareholders to change its dividend policy. The company has always followed the residual dividend policy, but the influential shareholders feel that the company needs to change to a stable pay-out ratio policy. The company just reported earnings of R232m for the year ended 31 March 2024. The company is considering the following investment opportunities for the upcoming financial year: Investment opportunity A BUD C E Cost R72m R62m R110m R96m R48m Internal rate of return 14.28% 13.03% 15.67% 16.01% 13.79% The company's cost of capital is 13.5% and its target capital structure is represented by a debt-to-assets ratio of 40%. The company has 28m ordinary shares outstanding.
You have been asked by your employers to demonstrate your knowledge in business valuation process, by analyzing the value of Best Group Savings and Loans Company (BGSLC). The company paid a dividend of GH¢ 250,000 this year. The current return to shareholders of companies in the same industry as BGSLC is 12%, although it is expected that an additional risk premium of 2% will be applicable to BGSLC, being a smaller and unquoted company. Compute the expected valuation of BGSLC, if: The current level of dividend is expected to continue into the foreseeable future The dividend is expected to grow at a rate 4% par into foreseeable future The dividend is expected to grow at a 3% rate for three years and 2% afterwards
A financial analyst is attempting to assess the future dividend policy of Environmental Systems by examining its life cycle. She anticipates no payout of earnings in the form of cash dividends during the development stage (1). During the growth stage (II), she anticipates 14 percent of earnings will be distributed as dividends. As the firm progresses to the expansion stage (III), the payout ratio will go up to 40 percent and will eventually reach 53 percent during the maturity stage (IV). a. Assuming earnings per share will be as follows during each of the four stages, indicate the cash dividend per share (if any) during each stage. Note: Leave no cells blank - be certain to enter "O" wherever required. Do not round intermediate calculations and round your answers to 2 decimal places. Stage I Stage II Stage III $ 0.25 1.65 2.40 Stage IV 3.90 Dividends Stage I Stage II Stage III Stage IV b. Assume in Stage IV that an investor owns 325 shares and is in a 15 percent tax bracket. What will…
Problem 2. Last year Jullan Corp. had sales of P303,225, operating costs of P267,500, and year end assets of P195,000. The debt-to-total-assets ratio was 27%, the interest rate on the debt was 8.2%, and the firm's tax rate was 37%. The new CFO wants to see how the Return on Equity (ROE) would have been affected if the firm had used a 45% debt ratio. Assume that sales and total assets would not be affected, and that the interest rate and tax rate would both remain constant. By how much would the ROE change (increase or decrease in percentage) in response to the change in the capital structure?
Subject :- Accounting
Suppose a company has profits (NOPAT) of $150,000. ¾ of their capital is supplied by shareholders. This equity expects a 10% return on investment. ¼ of the capital comes from a bank at a charge of 5%. The company employs total capital of $1 million. What are WACC, cost of capital, and economic profit? Suppose a company is considering an email marketing campaign that is expected to cost $2500 and to increase revenue from $40,000 to $50,000. Baseline revenues (no marketing) are estimated at $20,000. The email marketing campaign is in addition to regular advertising costing $5000. The firm uses contribution to assess financial value which averages 50%. What is the financial value with advertising and email marketing, just advertising, and no marketing? What is the financial value attributable to marketing? What is MROI?
32
Can a firm have negative residual income (i.e., abnormal earnings)? What does this mean? Suppose you are valuing a growing firm and you forecast that it will have negative abnormal earnings for the next five years. Can you use the abnormal earnings valuation approach when abnormal earnings are negative?
If you owned a company, would you prefer the market value of its assets to rise $10million or the market value of its liabilities to fall $10million?

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