Question: oster Inc. is trying to decide whether to lease or purchase a piece of equipment needed for the next ten years. The equipment would cost $45,000 to purchase, and maintenance costs would be $5,400 per year. After ten years, Foster estimates it could sell the equipment for $26,000. If Foster leases the equipment, it would pay $16,000 each year, which would include all maintenance costs. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) If the hurdle rate for Foster is 11%, Foster should:(Use appropriate factor from the PV tables. Do not round intermediate calculations. Round your final answer to the nearest hundred.)

Case 1-8 A Faulty Budget

Jackson Daniels graduated from Lynchberg State College two years ago. Since graduating from the college, he has worked in the accounting department of Lynchberg Manufacturing. Daniels was recently asked to prepare a sales budget for the year 2011. He conducted a thorough analysis and came out with projected sales of 250,000 units of product. That represents a 25 percent increase over 2010.

Daniels went to lunch with his best friend, Jonathan Walker, to celebrate the completion of his first solo job. Walker noticed Daniels seemed very distant. He asked what the matter was. Daniels stroked his chin, ran his hand through his bushy, black hair, took another drink of scotch, and looked straight into the eyes of his friend of 20 years. A????1Jon, I think I made a mistake with the budget.A????1

A????1What do you mean?A????1 Walker answered.

A????1You know how we developed a new process to manufacture soaking tanks to keep the ingredients fresh?A????1

A????1Yes,A????1 Walker answered.

A????1Well, I projected twice the level of sales for that product than will likely occur.A????1

A????1Are you sure?A????1 Walker asked.

A????1I checked my numbers. I’m sure. It was just a mistake on my part,A????1 Daniels replied.

A????1So, what are you going to do about it?A????1 asked Walker.

A????1I think I should report it to Pete. He’s the one who acted on the numbers to hire additional workers to produce the soaking tanks,A????1 Daniels said.

A????1Wait a second,A????1 Walker said. A????1How do you know there won’t be extra demand for the product? You and I both know demand is a tricky number to project especially when a new product comes on the market. Why don’t you sit back and wait to see what happens?A????1 A????1But what happens if I’m right and the sales numbers were wrong? What happens if the demand does not increase beyond what I now know to be the correct projected level?A????1 Daniels asks.

A????1Well, you can tell Pete about it at that time. Why raise a red flag now when there may be no need?A????1 Walker states.

As the lunch comes to a conclusion, Walker pulls Daniels aside and says, A????1Jack, this could mean your job. If I were in your position I’d protect my own interests first.A????1

1. What should an employee do when he or she discovers that there is an error in a projection? Why do you suggest that action? Would your answer change if the error was not likely to affect other aspects of the operation such as employment? Why or why not?

2. Identify the stakeholders potentially affected by what Daniels decides to do. How might each stakeholder be affected by Daniels’s action and decision? Use ethical reasoning to support your answer.

3. Assume Daniels is both a CPA and holds the Certified Management Accountant (CMA) certification granted by the IMA. Use the ethical standards of these two organizations to identify what Daniels should do in this situation.

Find an example of (a) a company that has an obstructionist approach to social responsibility and (b) one that has an accommodative approach.

 

BUSINESS LAW A????1 ASSESSMENT 2

LEGAL ANALYSIS/CASE STUDY 2

Your burger establishment has now been running for 6 months.

Part 1 – Leasing and Property

The Mexican Restaurant next door has closed down and the landlord of that premises has approached you to see if you are interested in expanding to this space. You are very keen.   You have been supplied with a standard leasing contract.

1.1          What else does the landlord need to provide to you in relation to the rental property?

The standard lease provided to you by the landlord, James, contains the following clause:

Clause 5.1       Lessee’s Consent

Where, pursuant to any Act or requirement of any relevant authority, the Lessee’s consent is required to any process, step or dealing by the Lessor with its interest in the Land, the Lessee shall give its written consent to such proposed process, step or dealing within seven (7) days of receipt of a written request from the Lessor to do so, provided that such proposed process, step or dealing does not materially detrimentally affect the Lessee’s use of or access to the Premises;

The landlord wants to install an inside wide arch between the two restaurants so he can continue to offer you (and subsequent lessees) A????1doubleA????1 restaurant space. However, the modifications will mean that you cannot trade (other than by take-away) for at least two weeks. You are unhappy. You point out that you are quite happy with the amount of access you have to the second restaurant via the kitchen. You donA????1t want to give James permission to do so.

1.2          What are your obligations and liabilities under Clause 5.1?

The landlord has included in the lease that you must install new extractor (ceiling) fans above the ovens to minimise smoke damage to the ceiling.

1.3          Are the extract (ceiling) fans fixtures and, if they are, can you take them with you if you vacate the premises?  

Part 2 A????1 Contracts

In the signed lease agreement it says that all ovens and installed equipment in the kitchen must be in A????1good working order.A????1   You have now taken over the new premises and found one oven is not working.  

2.1          What can you claim from the landlord?

Part of the expansion has allowed for the business to specialise in gourmet hamburgers.

You have entered into an oral agreement with your brother to buy fish from his fish business for your new gourmet fish burger. On the first delivery you notice the fish is not of good quality and it is not well covered with ice, which raises concerns about whether it can be consumed. You donA????1t want to pay for the fish.

2.2          What contractual issues can you raise in order to avoid paying the money that your brother has asked for?

You have some special t-shirts made with your establishmentA????1s name and logo. At $20.00 each they are not selling very well, so you get Carol to put a sign in your window saying the t-shirts are on sale. You tell her to discount them to $15.00 but she puts A????1$5.00A????1 on the sign. Zena has come into buy 30 t-shirts because she really likes your burgers.  

2.3          Are you obligated to sell the T-shirts to Zena at $5.00 each?

You have decided to sell two old fridges to allow a kitchen upgrade due to the expansion. The Thai restaurant down the road is run by Tina. You know that Tina is looking for second-hand fridges. You send her an email asking her if she is interested in your two fridges for a total of $5,000. Tina responds saying A????1Will only pay $4,800. What say you?A????1    At 9.00am the next morning you send Tina an email saying A????1Okay, good, I can agree on a price of $4,800.A????1 At about the same time Tina sent an email saying A????1Cancel my earlier counter-offer. I will take the fridges for $5,000 as I need them as soon as possible and I cannot bother with haggling over the price.A????1

According to the electronic records

TinaA????1s email A????1inA????1 box received your email accepting the price at $4,800 at 9.40am and she looked at it at 9.45am.

You received TinaA????1s email stating that she was willing to pay $5,000 at 9.30am but you did not look at it until 10.00am.

2.4                   Have the fridges been sold, and, if so, at what price?

George is a second chef you have employed due to the expansion. George has been working with you for six months and thinks he would run a hamburger business much better than you do.   When George tells you he is leaving and is going to open a new Burger Restaurant on Kangaroo Island called A????1GeorgeA????1s Burger RestaurantA????1 you remind him that he signed a letter stating that he would not work A????1in any capacity for another burger establishment anywhere in South Australia for a period of 5 years.A????1

2.5       Is George bound by the A????1restraintA????1 clause in the letter? If so, why? If not, why not?

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