Jenkins advice is correct with respect to:A) Comments 1 and 2.

to the following three audits of financial statements for the year ending 31 December 2006:

(a) Blythe Co is a new audit client. This private company is a local manufacturer and distributor of sportswear. The

company’s finance director, Peter, sees little value in the audit and put it out to tender last year as a cost-cutting

exercise. In accordance with the requirements of the invitation to tender your firm indicated that there would not

be an interim audit.

(b) Huggins Co, a long-standing client, operates a national supermarket chain. Your firm provided Huggins Co with

corporate financial advice on obtaining a listing on a recognised stock exchange in 2005. Senior management

expects a thorough examination of the company’s computerised systems, and are also seeking assurance that

the annual report will not attract adverse criticism.

(c) Gray Co has been an audit client since 1999 after your firm advised management on a successful buyout. Gray

provides communication services and software solutions. Your firm provides Gray with technical advice on

financial reporting and tax services. Most recently you have been asked to conduct due diligence reviews on

potential acquisitions.

Required:

For these assignments, compare and contrast:

(i) the threats to independence;

(ii) the other professional and practical matters that arise; and

(iii) the implications for allocating staff.

(15 marks)

(b) The chief executive of Xalam Co, an exporter of specialist equipment, has asked for advice on the accounting

treatment and disclosure of payments made for security consultancy services. The payments, which aim to

ensure that consignments are not impounded in the destination country of a major customer, may be material to

the financial statements for the year ending 30 June 2006. Xalam does not treat these payments as tax

deductible. (4 marks)

Required:

Identify and comment on the ethical and other professional issues raised by each of these matters and state what

action, if any, Dedza should now take.

NOTE: The mark allocation is shown against each of the three situations.

which were recently discussed at the monthly audit managers’ meeting:

(1) Nate & Co has recently been approached by a potential new audit client, Fisher Co. Your firm is keen to take the

appointment and is currently carrying out client acceptance procedures. Fisher Co was recently incorporated by

Marcellus Fisher, with its main trade being the retailing of wooden storage boxes.

(2) Nate & Co provides the audit service to CF Co, a national financial services organisation. Due to a number of

errors in the recording of cash deposits from new customers that have been discovered by CF Co’s internal audit

team, the directors of CF Co have requested that your firm carry out a review of the financial information

technology systems. It has come to your attention that while working on the audit planning of CF Co, Jin Sayed,

one of the juniors on the audit team, who is a recent information technology graduate, spent three hours

providing advice to the internal audit team about how to improve the system. As far as you know, this advice has

not been used by the internal audit team.

(3) LA Shots Co is a manufacturer of bottled drinks, and has been an audit client of Nate & Co for five years. Two

audit juniors attended the annual inventory count last Monday. They reported that Brenda Mangle, the new

production manager of LA Shots Co, wanted the inventory count and audit procedures performed as quickly as

possible. As an incentive she offered the two juniors ten free bottles of ‘Super Juice’ from the end of the

production line. Brenda also invited them to join the LA Shots Co office party, which commenced at the end of

the inventory count. The inventory count and audit procedures were completed within two hours (the previous

year’s procedures lasted a full day), and the juniors then spent four hours at the office party.

Required:

(a) Define ‘money laundering’ and state the procedures specific to money laundering that should be considered

before, and on the acceptance of, the audit appointment of Fisher Co. (5 marks)

Zelda Haggerty was recently promoted to project manager at Verban Automation, a maker of industrial machinery. Haggerty’s first task as project manager is to analyze capital-spending proposals.

The first project under review is a proposal for a new factory. Verban wants to build the plant on land it already owns in India. Below are details included on a fact sheet regarding the factory project:

§ The initial outlay to the builder would be $85 million for the building. Verban would spend another $20 million on specialized equipment in the first year.

§ The factory would open up new markets for Verban’s products. Production should begin July 1 of the second year.

§ Verban’s tax rate is 34 percent.

§ Verban expects the factory to generate $205 million in annual sales starting in the third year, with half of that amount in the second year.

§ At the end of the sixth year, Verban expects the market value and the book value of the building to be worth $35 million, and the market value and the book value of the equipment to be worth $3.25 million.

§ Fixed operating costs are expected to be $65 million a year once the factory starts production.

§ Variable operating costs should be 40 percent of sales.

§ Verban uses straight-line depreciation.

§ New inventories are likely to boost working capital by $7.5 million in the first year of production.

§ Verban’s cost of capital for the factory project is 14.3 percent.

Verban’s chief of operations, Max Jenkins, attached a note containing some of his thoughts about the project. His comments are listed below:

§ Comment 1: “We spent $5 million up front on an exclusive, 10-year maintenance contract for all of our equipment in Asia two years ago, before an earlier project was canceled. Your budget should reflect that.”

§ Comment 2: “Some Asian clients are likely to switch over to the equipment from the new factory. They account for about $5 million a year in sales for the U.S. division. Your budget should reflect that.”

§ Comment 3: “I expect variable costs to take a one-time hit in Year 1, as we should plan for about $1.5 million in installation expense for the manufacturing equipment.”

§ Comment 4: “We bought the land allocated for this factory for $30 million in 1998. That money is long spent, so don’t worry about including it in the budget analysis.”

Haggerty is unimpressed with the advice she received from Jenkins and calculates cash flows and net present values using numbers from the fact sheet without taking any of the advice. She assumes all inflows and outflows take place at the end of the year.

Verban is also considering upgrading two smaller, outdated factories, projects for which the cost of capital is 14.3 percent. Both of the remodeled factories would have a three-year life and cash flows as follows:

Initial outlayYear 1Year 2Year 3

-$30 million$15 million$17 million$28 million

Verban is willing to pursue the new factory or the renovations, but not both projects. Haggerty decides which project makes the most sense and prepares models and recommendations for Verban’s executives. Haggerty is concerned that her budgeting calculations do not accurately affect inflation, so she attempts to tweak her models to reflect the 2.5 percent inflation expected annually over the next five years.

Part 1)

If Haggerty decides to properly allocate the maintenance, land-purchase, and equipment-installation expenses Jenkins claimed were connected with the new factory project, which of the followingnumbers on the capital-budgeting model will be least likely to change？

A) The accept/reject recommendation.

B) The initial outlay.

C) Year 4 depreciation.

D) Working capital.

A.Jenkins，原名Hudson

B.Jenkins是收费的

C.Jenkins能实时监控集成中存在的错误

D.Jenkins是持续集成工具

Zelda Haggerty was recently promoted to project manager at Verban Automation, a maker of industrial machinery. Haggerty’s first task as project manager is to analyze capital-spending proposals.

The first project under review is a proposal for a new factory. Verban wants to build the plant on land it already owns in India. Below are details included on a fact sheet regarding the factory project:

§ The initial outlay to the builder would be $85 million for the building. Verban would spend another $20 million on specialized equipment in the first year.

§ The factory would open up new markets for Verban’s products. Production should begin July 1 of the second year.

§ Verban’s tax rate is 34 percent.

§ Verban expects the factory to generate $205 million in annual sales starting in the third year, with half of that amount in the second year.

§ At the end of the sixth year, Verban expects the market value and the book value of the building to be worth $35 million, and the market value and the book value of the equipment to be worth $3.25 million.

§ Fixed operating costs are expected to be $65 million a year once the factory starts production.

§ Variable operating costs should be 40 percent of sales.

§ Verban uses straight-line depreciation.

§ New inventories are likely to boost working capital by $7.5 million in the first year of production.

§ Verban’s cost of capital for the factory project is 14.3 percent.

Verban’s chief of operations, Max Jenkins, attached a note containing some of his thoughts about the project. His comments are listed below:

§ Comment 1: “We spent $5 million up front on an exclusive, 10-year maintenance contract for all of our equipment in Asia two years ago, before an earlier project was canceled. Your budget should reflect that.”

§ Comment 2: “Some Asian clients are likely to switch over to the equipment from the new factory. They account for about $5 million a year in sales for the U.S. division. Your budget should reflect that.”

§ Comment 3: “I expect variable costs to take a one-time hit in Year 1, as we should plan for about $1.5 million in installation expense for the manufacturing equipment.”

§ Comment 4: “We bought the land allocated for this factory for $30 million in 1998. That money is long spent, so don’t worry about including it in the budget analysis.”

Haggerty is unimpressed with the advice she received from Jenkins and calculates cash flows and net present values using numbers from the fact sheet without taking any of the advice. She assumes all inflows and outflows take place at the end of the year.

Verban is also considering upgrading two smaller, outdated factories, projects for which the cost of capital is 14.3 percent. Both of the remodeled factories would have a three-year life and cash flows as follows:

Initial outlayYear 1Year 2Year 3

-$30 million$15 million$17 million$28 million

Verban is willing to pursue the new factory or the renovations, but not both projects. Haggerty decides which project makes the most sense and prepares models and recommendations for Verban’s executives. Haggerty is concerned that her budgeting calculations do not accurately affect inflation, so she attempts to tweak her models to reflect the 2.5 percent inflation expected annually over the next five years.

Part 2)

In the last year of the new factory project, cash flows will be closest to:

A) $95.71 million.

B) $91.74 million.

C) $90.21 million.

D) $88.00 million.

A.Jenkins

B.GitLab

C.DockerRegistry

D.Chef

Zelda Haggerty was recently promoted to project manager at Verban Automation, a maker of industrial machinery. Haggerty’s first task as project manager is to analyze capital-spending proposals.

The first project under review is a proposal for a new factory. Verban wants to build the plant on land it already owns in India. Below are details included on a fact sheet regarding the factory project:

§ The initial outlay to the builder would be $85 million for the building. Verban would spend another $20 million on specialized equipment in the first year.

§ The factory would open up new markets for Verban’s products. Production should begin July 1 of the second year.

§ Verban’s tax rate is 34 percent.

§ Verban expects the factory to generate $205 million in annual sales starting in the third year, with half of that amount in the second year.

§ At the end of the sixth year, Verban expects the market value and the book value of the building to be worth $35 million, and the market value and the book value of the equipment to be worth $3.25 million.

§ Fixed operating costs are expected to be $65 million a year once the factory starts production.

§ Variable operating costs should be 40 percent of sales.

§ Verban uses straight-line depreciation.

§ New inventories are likely to boost working capital by $7.5 million in the first year of production.

§ Verban’s cost of capital for the factory project is 14.3 percent.

Verban’s chief of operations, Max Jenkins, attached a note containing some of his thoughts about the project. His comments are listed below:

§ Comment 1: “We spent $5 million up front on an exclusive, 10-year maintenance contract for all of our equipment in Asia two years ago, before an earlier project was canceled. Your budget should reflect that.”

§ Comment 2: “Some Asian clients are likely to switch over to the equipment from the new factory. They account for about $5 million a year in sales for the U.S. division. Your budget should reflect that.”

§ Comment 3: “I expect variable costs to take a one-time hit in Year 1, as we should plan for about $1.5 million in installation expense for the manufacturing equipment.”

§ Comment 4: “We bought the land allocated for this factory for $30 million in 1998. That money is long spent, so don’t worry about including it in the budget analysis.”

Haggerty is unimpressed with the advice she received from Jenkins and calculates cash flows and net present values using numbers from the fact sheet without taking any of the advice. She assumes all inflows and outflows take place at the end of the year.

Verban is also considering upgrading two smaller, outdated factories, projects for which the cost of capital is 14.3 percent. Both of the remodeled factories would have a three-year life and cash flows as follows:

Initial outlayYear 1Year 2Year 3

-$30 million$15 million$17 million$28 million

Verban is willing to pursue the new factory or the renovations, but not both projects. Haggerty decides which project makes the most sense and prepares models and recommendations for Verban’s executives. Haggerty is concerned that her budgeting calculations do not accurately affect inflation, so she attempts to tweak her models to reflect the 2.5 percent inflation expected annually over the next five years.

Part 6)

Haggerty is using the replacement-chain method, depending only on data from the new factory fact sheet and the cash-flow estimate for the remodeling projects. Which strategy should Haggerty recommend, and what is the difference between that project’s NPV and that of the other project？

Project NPV difference

A) New Factory $1.09 million

B) Remodeling $3.69 million

C) New Factory $1.24 million

D) Remodeling $11.20 million