(ISSN 2229-6891)Since 2010
Cost of Capital Analysis and Implications: Case of Agthia Group
The food and beverage sector in the UAE is a cost driven sector where a firm can get a clear competitive advantage on its rivals if it has lower financing costs. Many stakeholders recently expressed their concerns regarding the management efficiency of Agthia Group and openly criticized some of the recent decisions taken by the executives, namely the acquisition of Al Bayan Water Company in October 2015. The acquisition was justified by the possibility to support Agthia’s growth strategy and to enhance its distribution and warehousing capacities. A second concern expressed by the company’s stakeholders is related to the corporate governance of the firm. The approval and communication channels have necessarily to pass through the CEO’s office, including important committees’ decisions, hence giving an unduly higher control on firm’s activities to the CEO. A third and final concern is related to the government subsidy of Agthia’s operations and to the expected monitoring role supposedly played by the government as a major shareholder.
Arthur L. Centonze (Lubin School of Business, Pace University, USA)
Mario Draghi, as president of the European Central Bank (ECB), had steered the Eurozone economy through the post global financial crisis, presiding over a euro area marked by a deep recession, falling prices, a debt crisis, banking crises and rescues, fiscal tightening, and a destabilizing Brexit vote. These forces and others had profound implications for ECB monetary policy and financial stability. Draghi had committed to do “whatever it takes” to safeguard the euro. He used both conventional and unconventional monetary policies, including the first ever major central bank foray into negative interest rates. But with an increasingly frustrated German Bundesbank, and mixed signals coming from the Eurozone economy, Draghi knew that the time was approaching when he would need an exit strategy to normalize Eurozone monetary policy. If he acted too early, growth would be stifled. If he waited too long, inflationary pressures could lead to economic and financial instability. Draghi needed to act wisely.
Millennials Buying a Home with a Mortgage or Renting a Home
Seung Hee Choi* and Thomas Patrick (The College of New Jersey, USA)
This case required the student to analyze three different housing options for a couple who have outgrown their apartment. The Shillers are considering purchasing one of two houses on the market. They are also not averse to moving into a new larger condo. A student is to perform a financial analysis of all three options. In addition, the student is asked to compose a list of non-financial considerations for the Shillers to mull over.
An Application of the Residual Earnings Model in Valuation
Halil D. Kaya and Julia S. Kwok (Northeastern State University, USA)
From February to November 2014, PepsiCo’s shares rose an incredible 28% (around 40% in annualized terms) while its main rival Coke was almost flat (only 7% increase) and the S&P500 was also almost flat (only 10% increase). This case focuses on this sudden increase in the company’s share price and encourages an examination of the company’s stock value using the residual earnings model of valuation. The students will learn how to use earnings to value a target company’s common shares. They will learn about this method’s advantages and disadvantages when valuing a company. In their calculations, they will use different assumptions regarding the company’s future growth rate. Based on their calculations, they will make an investment decision: “Buy”, “Hold”, or “Sell”. It is a hands-on application for investment, financial statement analysis, and financial management undergraduate and graduate students who want to learn how to value a company.
Using Net Present Value in Decision Making
Kenneth George (California Baptist University, USA) & Randi George (Western Governors University, USA)
This study explores the decision procedures of the cost of projects and the use of Net Present Value (NPV) to document a comparison of the different costs of projects that will lead to a green solution for a local powerplant. Students will learn which projects are cheaper, but ask if they are ethical and identify if they should analyze how the weighted cost of capital (WACC) and the time value of money plays an important role in choosing between different projects.
Effectively Marketing a Tax Practice: A Case Study - What do H&R Block of Jackson Hewitt and Liberty Tax Service Have in Common?
Dr. Valeriya Avdeev (Cotsakos College of Business, William Paterson University, NJ, USA)
There are many tax return preparation offices in every town. Any tax return preparer who wishes to attract the best clients’ needs to consider several important factors. First, it is crucial to have a true strategy behind the office’s marketing strategy. Second, tax return preparer needs to carefully evaluate the need to distinguish himself or herself from the next office down the block. Finally, tax return preparer needs to evaluate after-service satisfaction of clients and adjust the services provided in accordance with the responses. This paper will discuss various marketing technics and will evaluate a real-life example of customer satisfaction based on a Volunteer Income Tax Assistance office exit satisfaction survey.
Dividend Policy Case Study: Q&H Consumer Products, Inc
Arthur S. Guarino and Ronald Richter (Rutgers University, USA)
This case study focuses on dividend policy for a company in regards to its capital structure, future growth prospects, and relationship with the shareholders. While the firm has regularly paid dividends to its shareholders in the past decade exhibiting consistent growth, it faces a crucial decision. It must decide on whether to reduce its dividends in order have profit retention for investment in product development and long-term growth or continue to pay dividends at the same rate and at the same growth rate. Other major concerns for the company in deciding on a dividend policy include the impact on the stock price and the firm’s relationship with its banks.
A Case Analysis of Licensing Revenue Recognition in the Pharmaceutical Industry under ASC 606
Loren Margheim, Timothy Kelley* and Judith A. Hora (University of San Diego, USA)
In this case, students are required to review a license agreement made between two Pharmaceutical companies and to assess the revenue recognition implications that would be required under Generally Accepted Accounting Principles (GAAP) ASC 606. Students are required to prepare a memo based on the five-step revenue recognition model discussed in ASC 606. The case will require research into the revenue recognition requirements and critical thinking to determine how the facts of the license agreement in the case should be applied to the various steps of the revenue recognition model. The case also requires students to utilize their writing skills by preparing a memo with their analysis of the case. Students will need access to the FASB’s GAAP codification to complete this case.
Employees’ Annuity Corporation: Funding Request for a Public/Private Mixed-Use Project
Thomas Patrick* (The College of New Jersey, USA) and Julie M. Patrick
CRP Campus Centers, LLC has been awarded a contract to build and operate a mixed-use project. This construction company will build a combination of college housing apartments and commercial establishments on the campus of The College of New Jersey (TCNJ). It has approached Employees’ Annuity Corporation (EAC) for $60 million of the $90 million that this undertaking will cost. Students are asked to assume the role of a financial analyst and to make a recommendation to EAC as whether it should fund the private developer of this project. Students are also to develop a list of due diligence questions that EAC should consider.
Campus Town: A Potential Public / Private Partnership
Thomas Patrick* (The College of New Jersey) and Michael Patrick
The College of New Jersey is considering the development of a piece of land on the edge of its campus to provide for both living facilities and retail establishments for its students. Due to its already level of high per-student debt outstanding, the college is considering entering into a public/private partnership with a developer. This case requires the student to make a recommendation supported by a list of pros and cons to the college’s board of trustees as to whether such a proposed partnership should be formed.
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Fringe Benefits Rate and Facilities & Administrative Rate: Methodologies applied as a real case study on a large university
Eyad Fetyan* (Qatar University, Doha, Qatar) and Osama Fetyan
The purpose of this case study is to provide reliable methodologies to accurately calculate the fringe benefits (FB) and facilities & administrative (F&A) rates, and subsequently estimates the two components of the indirect costs, fringe benefits and facilities & administrative costs. It is based on a real need for a university located in one of the Gulf Corporation Countries (GCC) to estimate and be fairly reimbursed for the indirect cost it bears while conducting externally funded research projects. The study conducted a detailed analysis on the university’s accounting standards and chart of accounts to explains the methodologies and accurately calculate the FB and F&A rates. It has been designed to provide students practical experience in cost accounting, managerial accounting and accounting consultation. The annexed information assists students to practically apply the methodologies and determine the desired rates.
Charlotte Convenience Store: A Case for Accounting Estimate, Inventory and Income Tax
Tony Ka Fung CHAN Tommy Chi Kin LEUNG* Eden Yi Hang CHOW
Charlotte Convenience Store (CCS) is a fictitious start-up business in its first year, selling fast-moving consumer goods to retail customers in a single shop. It is now April 2018. CCS is going to prepare the financial statements for its first five-month reporting period ended 31 March 2018 in accordance with the International Financial Reporting Standards (IFRSs). In this case, you will apply the relevant accounting knowledge and skills to account for various types of transactions and to prepare the financial statements. You will start by applying the basic principle of accrual basis of accounting for some simple transactions, and then handle some more advanced issues involving accounting estimate, inventory costing, as well as deferred tax. You will also practice critical thinking and other generic skills by extracting relevant information from raw data, determining appropriate accounting treatments, and providing sensible financial recommendations in a teamwork environment.
A Case Study on Equity Valuation for High Growth Firms
Judson W. Russell(University of North Carolina Charlotte, USA)
Brooks Hamilton recently completed his third year in college and has just started a summer internship at a prestigious Wall Street investment firm. The investment firm is very selective in hiring interns, but even more selective in extending full-time employment offers to students upon completion of their last year of studies. Brooks is eager to make a good impression at work and wants to be one of the few selected to join the firm after his last year in college. The Program Manager for the interns gives each a time-sensitive assignment to value a fast-growing company’s stock. Each intern is given one day to complete the assignment. Brooks decides to use a three-stage dividend discount model to provide for fast growth, transition, and a slower terminal growth period.
Gerald and Etienne Idowu: A Case in Financial Planning Fundamentals
James Philpot (Missouri State University, USA)
This case presents a married couple in their early thirties, who have many of the typical financial goals of persons in their life situation. The case information and following structured question items focus on several basic topics in the fundamentals of financial planning, including: financial planning process, information collection, planner professional and ethical conduct, personal financial statement analysis, debt management, and time value of money math. Structured question items appear at the end of the case, organized by topic area.
Akzo Nobel and PPG: Takeover Bid and Shareholder Value
Ryan J. Rogala Allen B. Atkins* (Northern Arizona University, USA)
Akzo Nobel is a headquartered in Amsterdam, Netherlands and currently stands at a 19.97 Billion Euros market cap. Akzo Nobel’s portfolio includes 48 subsidiary companies that focus on three main product segments; performance coatings, specialty chemicals, and decorative paints. Akzo Nobel is the world’s largest paint manufacturer and prides itself on being the world leader in performance based coatings. Akzo Nobel is also one of the world’s largest chemical manufacturers.
Investing in Tax-Free versus Taxable Bonds
Halil D. Kaya and Julia S. Kwok (Northeastern State University, USA)
This case deals with the comparison of tax-free and taxable bonds. Students will learn which bonds are tax-free and which are not. They will first analyze a hypothetical situation. Then, they will analyze a real-world situation. This is a hands-on experience for students who want to learn different types of bonds and the tax issues related to bonds.
Living within a Pegged Currency Exchange Rate Regime: An In-Class Simulation Exercise
Todd Erkis and Karen Hogan* (Saint Joseph's University, USA)
This exercise is an in-class simulation about a fictitious country known as Hawkville. Hawkville has a currency, known as “Eyas”, that is pegged to a much more established and well regarded currency; the United States Dollar ($ and USD). The students are randomly assigned to teams in the Hawkville economy (grocery store, household, and currency exchange) with the Instructor playing the part of the Hawkville Central Bank. The simulation is run three times (covering three hypothetical days) where the market economic environment changes due to Hawkville Federal Bank (the central bank) running out of foreign currency reserves. The lack of foreign currency reserves leads to inflation, which works its way into the economy. The teams see firsthand some of the possible consequences and challenges consumers and businesses in a pegged currency regime face. At the conclusion of the exercise a real-life example of a failed pegged currency regime is discussed.