Caso 3 Y 4

The Molex Corporation is an electronic connector manufacturing firm, which is based in Illinois. This company is facing a financial reporting problem in which the financial statements were overstated. Joe King ,the CEO of the company, was appointed in July of 2001, and was responsible for managing and inventory control, among other very important duties. Diane Bullock was hired in 2003, to replace the previous CFO. Both Bullock and King were being accused of what? by the external auditors, Deloitte & Touche, for not disclosing an 8 million pre-tax inventory valuation error.

Billy’s Beats Inc., an SEC registrant, is a new audit client with a fiscal year-end of December 31, 2010. Billy’s is a manufacturer of musical instruments. Billy’s acquired Little Drummer Boy Inc. in 2010 for $575 million in cash. Significant assets acquired included property, plant, and equipment totaling $865 million and other assets totaling $145 million. The useful lives assigned to the property, plant, and equipment acquired were 30 years for the plant and 15 years for the equipment. The useful lives for the plant and equipment already owned by Billy’s are 20 years and 10 years. Other included assets of acquired customer lists, were

John Atherley is the owner of Atherley Furniture Company located near Orillia, Ontario. In recent years the progression of his chair division has had mediocre results and profits have been declining steadily each year. From the years 1995 to 1998 Atherley Furniture’s total profits have suffered a 24% loss within that time span. In the company’s chair division there are three models of chairs that have quite the reputation the “Caledonia”, “Atherley”, and lastly the “Parkdale”. Growing concern for the company’s performance led the executive team to analyze income statements for each model to determine the attributed expenses and revenues. With a decline in profits for the Atherley Company, it is crucial that they

In estimating the weighted average cost of capital, we used the cost of equity of 11.63% and the cost of debt of 2.25%. We calculated the weight of debt to be 2% and the weight of equity to be 98%. For the weight of debt we divided debt by the sum of debt and equity, and for the weight of equity we divided equity by the sum of debt and equity. Our estimated Company’s cost of capital is 11.44%, or 12%. The calculations for the cost of capital are shown in Appendix E.

4. The controversy surrounding Sarbanes §404 and its application to corporate accounting. (In re Buca Inc. Secs. Litig, 2006)

Like several companies, Nortel stipendiary their executives with stock choices (Collins, 2011). This compensation solely inspired the tendency to be but honest regarding the company’s finances. author closely-held stock choices that solely inspired his actions to fulfill or beat the benchmark set by analysts. If Nortel’s earnings showed to be higher than the benchmark, Nortel’s stock costs would rise creating the stock closely-held by management to be even a lot of valuable. By tweaking the books to indicate the road earnings price as critical the allowable accumulation price he created the stakeholders assume that the corporate was creating extra money than it had been. “Nortel ne'er incomprehensible a benchmark over the sixteen quarters (Collins, 2011).” it had been too tempting to bump the numbers up so the stocks gave the impression to be value over they were. “Nortel’s accounting practices junction rectifier to AN investigation by AN freelance review committee, that found that insubordination with accumulation and accounting fraud were undertaken to fulfill internally obligatory earnings targets (Collins, 2011).”

“Blake Romney became Chief Executive Officer of Peters Inc. two years ago. At the time, the company was reporting lagging profits, and Blake was brought in to "stir things up." The company has three divisions, electronics, fiber optics, and plumbing supplies. Blake has no interest in plumbing supplies, and one of the first things he did was to put pressure on his accountants to reallocate some of the company’s fixed costs away from the other two divisions to the plumbing division. This had the effect of causing the plumbing division to report losses during the last two years; in the past it had always reported low, but acceptable,

Case Exhibit 8 gives a template for your analysis. This compares the status quo EPS (assuming no recapitalization) with an EPS after the addition of $3 billion in debt and draws on data in case Exhibits 2 and 3. The focal point for this analysis is the operating income of $514 million, which is the value for the year 2001 (see case Exhibit 2). The pro forma interest expense assumes $390 million at an interest rate of 13%. No adjustment is made for any possible amortization of the debt.

5. (TCO G) Based on the corporate valuation model, Bernile Inc.'s value of operations is $750 million. Its balance sheet shows $50 million of short-term investments that are unrelated to operations, $100 million of accounts payable, $100 million of notes payable, $200 million of long-term debt, $40 million of common stock (par plus paid-in-capital), and $160 million of retained earnings. What is the best estimate for the firm's value of equity, in millions? a. $429

6. (TCO A) At December 31, 2010, Sager Co. had 1,200,000 shares of common stock outstanding. In addition, Sager had 450,000 shares of preferred stock which were convertible into 750,000 shares of common stock. During 2011, Sager paid $600,000 cash dividends on the common stock and $400,000 cash dividends on the preferred stock. Net income for 2011 was $3,400,000 and the income tax rate was 40%. What would be the diluted earnings per share for 2011 (rounded to the nearest penny)? Please show all computations.

It was Friday, June 5, 1998, and Bob O’Connor was headed home for the weekend. He knew it would be a busy one, for he had many decisions to make. He had been trying to raise capital for his Company – the RBS Group, a software firm – for almost a year. He felt like he was finally nearing the end of this process, but now more issues had arisen. First, his prospective investors wanted to increase the amount of their investment. While he would be happy to have the extra money, he felt that the valuation on RBS was already lower than he had hoped, and he was reluctant to take more money at this price. Second, he had received a draft

In 1997, the Kosta Bros could be identified as a large proprietary company. Under CA 2001 s45A (1)*, a proprietary company could be defined when there are less than 51 non-employee shareholders. By 1990, there were 30 shareholders existing in the company. Also, it did not raise funds from the public since most of the capital was obtained from the interest bearing debt provided by major banks. Thus, the company was a proprietary company. When we are evaluating the size of a company using CA 2001 s45A (2)*, Kosta Bros employed 85 EFT staffs, which were greater than 50*; the gross assets obtained were $19m, which were greater than $12.5m; the gross operating revenue was $20m, which was less than $25. When two of three thresholds are achieved, the proprietary company is regarded as large*.

In March 1995, Fred Aldrich, a summer trainee with the First Investments, Inc., was called into the office of the head of investment analysis section of the trust department. The following conversation took place: Fred, here are the 1994, 1993, and 1985 Basic Industries Company’s financials (Exhibit 1) and a 10-year summary (Exhibit 2 ). Our trust department has owned this stock since the early 1980s. As you know, our portfolio people place a lot of emphasis on the quality of a company’s earnings and the return on owners’ equity in making stock selections. Well, they are worried. The 1994 Basic Industries annual report

Financially transparent by definition, public corporations accompany straightforward access to a myriad of financial reporting required by the United States Securities and Exchange Commission (SEC). As a result, the relative financial health of these entities emerges through an examination of their historical financial statements reported to the federal government, stockholders of record and the public at large. Official Form 10-K, an annual report submitted to the SEC, help formulate the backbone of the company’s financial performance. And while alternative sources like a company’s annual report contain the same fundamental information, the derivatives hail from the same 10-K. Although not difficult to comprehend, those possessing limited knowledge will require some basic understanding of corporate finance to establish a reasonable picture of the company’s fiscal health. Fortunately, a wealth of free information now serves as guidance and commonly exists all across the Internet from online brokerages and financial self-help websites just to name a few.

Carmen Diaz, with a ten thousand dollar loan from two of her cousins, and one thousand dollars that she invested in equity, was able to open a specialty store called Ribbons an’ Bows, Inc, which was located in Coconut Grove, Miami, Florida. Four months after opening the business, Carmen’s relatives requested a financial report, which was part of the original business arrangement. Within a short time, Carmen had expanded the business, purchased small equipment, paid wages to a part-time employee, and by all outward indicators, had been running a flourishing business. As Carmen gathered the necessary information to prepare financial statements, she started to scrutinize the transactions and was somewhat perplexed. Carmen