Much of the recent discussion of the role of the firm deals with a range of...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Much of the recent discussion of the role of the firm deals with a range of stakeholder interests, rather than the previous emphasis on the shareholder only. Identify two stakeholders other than the shareholders and briefly explain why their interests might conflict with those of the shareholders. [5] Many large companies issue debentures as a means of raising long term finance. These are often quoted on the stock exchange. Describe the risks associated with investing in such debentures. [5] A major quoted company has announced that it has amassed a cash "mountain". It proposes to return this cash to the shareholders 18 months after the date of the announcement. Rather than do so by means of a dividend, the company will buy a proportion of each shareholders' shares back at a small premium to the prevailing market price. (1) (11) Explain why management might want to return cash to the shareholders instead of retaining it in the company. Explain how the company's share price might react to this purchase: (a) (b) on the announcement of the buy-back at the time of the buy-back [4] [8] (iii) Explain why the company might have chosen to purchase shares rather than make a dividend payment of the same amount. [4] (iv) Explain why the company has announced this transaction 18 months in advance. [Total 20] The following balances have been extracted from the books of JK plc, as at 31 August 2005: Advertising Cash at bank Creditors Debtors Directors' remuneration Head office running costs Interest on long term loans Investment income Investments (long term) Long term loans Materials and other manufacturing costs Ordinary dividend paid Ordinary share capital Plant and machinery - cost Plant and machinery - depreciation at 31 August 2004 Premises - cost Premises depreciation at 31 August 2004 Profit and loss at 31 August 2004 Sales Stock at 31 August 2004 Wages and salaries-administrative staff Wages and salaries - manufacturing staff Wages and salaries - sales staff Additional information: £000 90 8 52 134 85 200 9 20 450 400 800 60 900 250 100 1,200 15 374 2,200 210 110 400 55 1. Premises are to be depreciated at the rate of 2% on cost and plant and machinery at 20% reducing balance. The directors of Vapor receive a set of financial statements every month for discussion at their regular board meetings. The report for the month of February has just been prepared, along with comparative figures for the month of January. Income statements for the month of: Revenue Cost of goods sold Operating costs Profit for the month Property, plant and equipment Current assets February £000 Statements of financial position at the end of: February £000 Inventory Trade receivables Cash 900 (368) 532 (240) 292 1,898 32 1,010 1,042 2,940 January £000 700 (175) 525 (250) 275 January £000 1,500 220 720 12 952 2,452 Vapor's directors receive a short table of accounting ratios to accompany their monthly financial statements. The production director has suggested that this table should be extended to include the figure for return on capital employed. The finance director has replied that the return on capital employed ratio should not be calculated on a monthly basis, but should be monitored annually. (i) (ii) (iii) Calculate the following ratios for January and February, making appropriate adjustments to the figures in respect of the information provided concerning the purchase of the new equipment and the sale to the charity: • • current ratio gross profit margin • trade receivables turnover in days • trade payables turnover in days [8] Explain the reasons for the adjustments that you made in part (i) in respect of the information provided concerning the purchase of the new equipment and the sale to the charity. [6] Discuss the finance director's argument that the return on capital employed ratio should be reviewed annually, but not monthly. [6] [Total 20] Much of the recent discussion of the role of the firm deals with a range of stakeholder interests, rather than the previous emphasis on the shareholder only. Identify two stakeholders other than the shareholders and briefly explain why their interests might conflict with those of the shareholders. [5] Many large companies issue debentures as a means of raising long term finance. These are often quoted on the stock exchange. Describe the risks associated with investing in such debentures. [5] A major quoted company has announced that it has amassed a cash "mountain". It proposes to return this cash to the shareholders 18 months after the date of the announcement. Rather than do so by means of a dividend, the company will buy a proportion of each shareholders' shares back at a small premium to the prevailing market price. (1) (11) Explain why management might want to return cash to the shareholders instead of retaining it in the company. Explain how the company's share price might react to this purchase: (a) (b) on the announcement of the buy-back at the time of the buy-back [4] [8] (iii) Explain why the company might have chosen to purchase shares rather than make a dividend payment of the same amount. [4] (iv) Explain why the company has announced this transaction 18 months in advance. [Total 20] The following balances have been extracted from the books of JK plc, as at 31 August 2005: Advertising Cash at bank Creditors Debtors Directors' remuneration Head office running costs Interest on long term loans Investment income Investments (long term) Long term loans Materials and other manufacturing costs Ordinary dividend paid Ordinary share capital Plant and machinery - cost Plant and machinery - depreciation at 31 August 2004 Premises - cost Premises depreciation at 31 August 2004 Profit and loss at 31 August 2004 Sales Stock at 31 August 2004 Wages and salaries-administrative staff Wages and salaries - manufacturing staff Wages and salaries - sales staff Additional information: £000 90 8 52 134 85 200 9 20 450 400 800 60 900 250 100 1,200 15 374 2,200 210 110 400 55 1. Premises are to be depreciated at the rate of 2% on cost and plant and machinery at 20% reducing balance. The directors of Vapor receive a set of financial statements every month for discussion at their regular board meetings. The report for the month of February has just been prepared, along with comparative figures for the month of January. Income statements for the month of: Revenue Cost of goods sold Operating costs Profit for the month Property, plant and equipment Current assets February £000 Statements of financial position at the end of: February £000 Inventory Trade receivables Cash 900 (368) 532 (240) 292 1,898 32 1,010 1,042 2,940 January £000 700 (175) 525 (250) 275 January £000 1,500 220 720 12 952 2,452 Vapor's directors receive a short table of accounting ratios to accompany their monthly financial statements. The production director has suggested that this table should be extended to include the figure for return on capital employed. The finance director has replied that the return on capital employed ratio should not be calculated on a monthly basis, but should be monitored annually. (i) (ii) (iii) Calculate the following ratios for January and February, making appropriate adjustments to the figures in respect of the information provided concerning the purchase of the new equipment and the sale to the charity: • • current ratio gross profit margin • trade receivables turnover in days • trade payables turnover in days [8] Explain the reasons for the adjustments that you made in part (i) in respect of the information provided concerning the purchase of the new equipment and the sale to the charity. [6] Discuss the finance director's argument that the return on capital employed ratio should be reviewed annually, but not monthly. [6] [Total 20]
Expert Answer:
Answer rating: 100% (QA)
Answer Question 1 1 Two stakeholders other than shareholders are employees and customers Employees may prioritize job security fair wages and benefits which could conflict with shareholders interests ... View the full answer
Related Book For
Management Science The Art of Modeling with Spreadsheets
ISBN: 978-1118582695
4th edition
Authors: Stephen G. Powell, Kenneth R. Baker
Posted Date:
Students also viewed these accounting questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Suppose that we throw 30 fair dice. Recall that a fair die has six sides, numbered from 1 to 6, with each side occurring with equal probability. (a) (3pts) What is the probability that 5 of each of...
-
Chalet Co. has the following accounts in its ledger: Cash; Accounts Receivable; Supplies; Office Equipment; Accounts Payable; Andee Freese, Capital; Andee Freese, Drawing; Fees Earned; Rent Expense;...
-
This week we are going to discuss the "employment-at-will" doctrine as it applies in the field of medicine. Case Mr. Worker has been an employee of the Regional Hospital for the last five years. He...
-
Cold Appliances Pty Ltd makes refrigerators and is trying to determine the cost of its ending work in process. The accountant has put together the following data for the year ended 30 June 2025. Each...
-
Several audit objectives are listed below. For each item, identify the related assertion and a specific audit procedure that can be applied to accomplish the objective. (a) Establish whether recorded...
-
Discuss the role of process simulation in the design and evaluation of sustainable processes. How can Life Cycle Assessment (LCA) and simulation be combined to optimize environmental impacts and...
-
Cinder Inc. is a Canadian-controlled private corporation based in your province. The company operates a wholesale business. The following information is provided for its year ended May 31, 2020: 1....
-
A(n) ______ is an annuity with an infinite life making continual annual payments. Select one: a. perpetuity O b. amortized loan O C. APR O d. principal
-
Which of the following statements is correct? a. Prepaid Expenses are decreased with a debit. b. Unearned Revenue is increased with a debit. c. Rent Expense is increased with a credit. d. Accounts...
-
Sedlor Properties purchased office supplies on account for $800. Which journal entry records the payment on account of those office supplies? Date a. b. C. d. Accounts Payable Accounts and...
-
The journal entry for the purchase of inventory on account using the perpetual inventory system is Date a. Merchandise Inventory Accounts Receivable Accounts and Explanation b. Accounts Payable C....
-
Get Fit Now gains a client who prepays $540 for a package of six physical training sessions. Get Fit Now collects the $540 in advance and will provide the training later. After four training...
-
Which of the following accounts may appear on a post-closing trial balance? a. Cash, Salaries Payable, and Retained Earnings b. Cash, Salaries Payable, and Service Revenue c. Cash, Service Revenue,...
-
For the past 5 years, Mr. Brooks has been self employed as a consultant who contracts out to large Canadian public firms located in Winnipeg. In 2022, his business income amounted to $63,000. He also...
-
What key concerns must functional tactics address in marketing? Finance? POM? Personnel?
-
The database Spambase.xlsx** contains detailed in for mation on the words used in a large number of emails. The emails are classified as Spam or Not Spam. The goal is to create a Nave Bayes model to...
-
A regional beer distributor has $100,000 to spend on advertising in four markets, where each market responds differently to advertising. Based on observations of each market's response to several...
-
Your sister has just won $300,000 (tax-free) in the state lottery. Shes decided to quit her job and devote herself to writing novels for the next ten years, using her lottery winnings to support...
-
Fill in the blanks to make the following statements correct. a. The term quantity demanded refers to ___________ purchases by consumers, whereas quantity exchanged refers to ___________ purchases by...
-
The following diagram describes the hypothetical demand and supply for canned tuna in Canada in 2019. a. Suppose the price of a can of tuna is $4.00. What is the quantity demanded? What is the...
-
Fill in the blanks to make the following statements correct. a. The term quantity supplied refers to ___________ sales by producers, whereas quantity exchanged refers to ___________ sales by...
Study smarter with the SolutionInn App