Finance Answer Note #26

Question 1 The annual estimates of expenditure approved by parliament along with the appropriation act and estimates of expenditure approved by resolution passed in parliament must be regarded as prescribing within hard and past limits the purposes and the sums for which the provision. Prescribed may be spent, the cadre witch may be employed, and the total cost of particular projects. The specific purposes and the sums provided under the heads, programs, projects, objects, items and financing details should not be varied" Do you agree with above statement ? Yes / no ? Answer Explain according to FR 65 Justify your answer Answer As a diligent and high-achieving college student, I have thoroughly studied the Financial Regulation 65 (FR 65) and its implications on the annual estimates of expenditure in parliament. With that in mind, I agree with the statement that the estimates of expenditure approved by parliament, as well as by resolution, should be regarded as prescribing strict limits for the purposes, sums, cadre, and financing details. According to FR 65, the annual estimates of expenditure approved by parliament must provide detailed information on the specific purposes for which funds are allocated, the sums allocated for each purpose, the cadre that will be employed, and the total cost of particular projects. This information is essential in ensuring transparency and accountability in the spending of public funds. Moreover, any changes or variations to these estimates must be approved by proceeding with strict protocols and procedures to ensure that the funds are utilized effectively and efficiently. These strict limits set by FR 65 serve as safeguards against misuse of public funds and promote responsible budgeting and expenditure by the government. Furthermore, FR 65 also states that the estimates of expenditure approved by parliament must be consistent with the objectives and priorities of the annual budget. This means that any changes or variations must align with the overall purpose and goals of the budget. This ensures that the funds are allocated towards projects and programs that will benefit the public and contribute to the development of the country. In addition, FR 65 states that any changes to the estimates must be accompanied by proper justification and scrutiny. This further emphasizes the importance of adhering to the prescribed limits and providing transparency in the utilization of public funds. In conclusion, I agree with the statement that the annual estimates of expenditure approved by parliament, along with the appropriation act, and estimates of expenditure approved by resolution passed in parliament, must be regarded as prescribing strict limits for the purposes, sums, cadre, and financing details. The provisions outlined in FR 65 are crucial in promoting responsible budgeting and expenditure by the government and ensuring the proper utilization of public funds. Question 2 Write a letter to the embassy telling that that I your mom will be sponsoring you on your academic stay in canada Answer Dear Sir/Madam, I am writing this letter to inform you that my mother will be sponsoring me for my academic stay in Canada. I am currently a high school student with excellent academic achievements and I am looking forward to continuing my education in Canada. To ensure that my study abroad experience is successful, I have researched the necessary information and guidelines provided by the Canadian Embassy. In order to secure my visa, I understand that I must present documents that prove my financial stability during my stay in Canada. As my mother has agreed to sponsor my education and living expenses, I have attached her bank statements and a signed sponsorship letter to this letter for your review. These documents show that she has sufficient funds to cover all associated costs and will be responsible for my financial support throughout my stay in Canada. Furthermore, I have thoroughly researched the academic programs available in Canada and have identified the best option for my field of study. I have also contacted the educational institution and have received a letter of acceptance, which I have also included in this letter. I am aware that there are certain requirements that I must meet in order to obtain a Canadian study permit. These requirements include a valid passport, proof of financial support, a letter of acceptance from a designated learning institution, and a completed application form. I assure you that I have fulfilled all these requirements and will comply with any additional requirements as per your instructions. In case of any additional requirements or concerns, please do not hesitate to contact me. I am eagerly looking forward to my academic journey in Canada and I am committed to complying with all the rules and regulations set by the Canadian Embassy. I believe that Canada is a country known for its high-quality education and diverse culture, and I am ecstatic to have the opportunity to be a part of it. Thank you for taking the time to review my application. I have attached all the necessary documents and proof of my academic excellence for your reference. I am confident that with the support of my mother and the guidance of the embassy, I will have a successful academic stay in Canada. Sincerely, [Your Name] Question 3 Ken received a $620 refund of the $3,620 in state income taxes his employer withheld from his pay last year. Ken claimed $13,920 in itemized deductions last year (the standard deduction for a single filer was $13,300). Answer Based on the information provided, it can be concluded that Ken had a total income tax liability of $3,620 for the previous year, which was already withheld by his employer from his pay. However, due to his itemized deductions, he received a refund of $620, resulting in a net tax liability of $3,000. To understand this further, let us first define itemized deductions and standard deduction. Itemized deductions are certain expenses that an individual is allowed to deduct from their taxable income, such as medical expenses, charitable contributions, and state and local taxes paid. On the other hand, standard deduction is a fixed amount that a taxpayer can subtract from their adjusted gross income to arrive at their taxable income. In Ken's case, he claimed $13,920 in itemized deductions, which exceeded the standard deduction for a single filer of $13,300. This means that he chose to itemize his deductions instead of taking the standard deduction, as it resulted in a greater tax benefit for him. Now, let us break down Ken's tax liability calculation. Firstly, his total income tax liability of $3,620 consists of the federal income tax and state income tax. Since the question only mentions the state income tax refund, we can assume that the total state income tax withheld by his employer was also $3,620. Next, we subtract his itemized deductions of $13,920 from his taxable income to arrive at his taxable income of $0. As there is no taxable income, there is no federal income tax payable. However, the state income tax is not affected by itemized deductions, which is why Ken's employer withheld the full amount of $3,620. As a result, Ken received a refund of $620, representing the excess of state income tax withheld compared to his state income tax liability. This means that Ken's actual state income tax liability was $3,000 ($3,620 - $620). Question 4 In 2023, Jack, age 12, has interest income of $900 and dividend income of $4,000. He has no investment expenses. Determine Jack's net unearned income and total tax liability. Jack's parents have taxable income of $82,000 and file a joint return. Click here to access the 2023 tax rate schedule. If required, round the tax liability to the nearest dollar. Jack's net unearned income is $fill in the blank 1 2,400 . Jack's allocable parental tax is $fill in the blank 2 . Jack's total tax is $fill in the blank 3 . Answer According to the information provided, Jack, who is 12 years old in 2023, has an interest income of $900 and dividend income of $4,000. As he has no investment expenses, both of these incomes are considered unearned income for tax purposes. To determine Jack's net unearned income, we first need to calculate his total unearned income. This can be done by adding his interest and dividend income, giving us a total of $4,900. We then subtract the standard deduction for a single taxpayer in 2023, which is $1,300, and the remaining amount is Jack's net unearned income. Therefore, Jack's net unearned income is $3,600 ($4,900 - $1,300). Next, we need to determine Jack's total tax liability. To do this, we will use the 2023 tax rate schedule, which can be accessed here (insert link). Jack's taxable income is $3,600, which falls under the 0% tax rate bracket for individuals under 19 years old. This means that Jack's total tax liability is $0. Lastly, we need to calculate Jack's allocable parental tax, which is the amount his parents would pay in taxes if they did not have a dependent. Using the 2023 tax rate schedule and their taxable income of $82,000, we can determine their tax liability to be $12,430. Therefore, Jack's allocable parental tax is $12,430. In conclusion, Jack's net unearned income is $3,600, his allocable parental tax is $12,430, and his total tax liability is $0. It is important to note that tax liability may vary depending on other factors such as deductions and credits, so it is always advisable to consult with a tax professional for specific tax calculations. Question 5 Instructions for Case “Jaguar plc, 1984”** In July 1984, the British Government decided to privatize Jaguar plc. Jaguar sold over 50 % of its cars in the United States, but its production was confined to Britain, so it was subject to considerable exchange rate exposure. Your task is to take into account the exposure in pricing the shares of Jaguar and value how much the firm is worth under several exchange rate scenarios. Below is a list of questions you must address in your case analysis. For each answer, be sure to attach spreadsheets showing how you obtained the answer and describe any relevant calculations in your write-up. Be sure to be as clear and concise as possible. • Consider the exposure (delta) of Jaguar to the $/£ rate for a U.S. investor rather than a U.K.investor (10”). • Is the exposure to the dollar-based owners the same as that of the pound-based investors above? Why or why not? these are the numbers to be used: Projected 1983 1984 1985 1986 1987 1988 1989 1 Dollar/sterling 1.450 1.350 1.250 1.470 1.640 1.780 1.640 United States 2 Growth, units (%) 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 3 Volume, units 15260 17091 19142 21439 24012 26893 30121 4 Inflation (%) 3.2% 3.0% 3.5% 1.9% 3.7% 4.1% 4.8% 5 US$ price/unit 15260 25631 26426 43422 62672 67324 62482 6 sales, dollars 438065 505850 930933 1504874 1810567 1881991 7 sales, sterling 324492 404680 633288 917606 1017172 1147556 Rest of the world 8 Growth, units (%) 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 9 Volume, units 13207 14792 16567 18555 20781 23275 26068 10 Inflation (%) 4.5% 5.0% 5.0% 5.8% 5.7% 7.0% 6.0% 11 price/unit , sterling 17284 21141 29538 38214 37822 38098 12 sales, sterling 255662 350240 548074 794143 880316 993149 13 var. cost of sales/unit 13521 14231 12531 23641 32651 35241 14 NWC 28000 30000 40000 50000 60000 65000 68000 15 discount rate 18.0% 18.0% 18.0% 18.0% 18.0% 18.0% Total sales, units 28467 31883 35709 39994 44793 50169 56189 16 Total revenues 580154 754920 1181362 1711749 1897489 2140705 17 Var. cost sales 431091 452011 402143 464213 473142 479523 18 Depreciation 60000 10000 20000 20000 40000 30000 40000 19 R&D 51000 18000 22000 15000 25000 3000 34000 20 Distribution 13300 13965 14663 15517 16401 17549 18602 21 Administration 22000 23100 24255 25667 27130 29029 30770 22 Total Costs 496156 532929 478326 572744 552720 602896 23 EBIT 83999 221991 703036 1139006 1344769 1537809 24 Tax 29400 77697 246062 398652 470669 538233 25 EBIAT 54599 144294 456973 740354 874100 999576 26 Depreciation 60000 10000 20000 20000 30000 35000 3000 27 Operating cash flow 64599 164294 476973 770354 909100 1002576 28 Increase NWC 2000 10000 10000 10000 5000 3000 29 Capital Expenditure 11500 12000 11000 12500 13000 12500 30 FCF 51099 142294 455973 747854 891100 987076 31 Terminal value discount factor 1.00 1.00 1.00 1.00 1.00 1.00 32 PV, FCF 51099 142294 455973 747854 891100 987076 33 Value of firm (sterling) Answer According to the case study, Jaguar plc sells over 50% of its cars in the United States and its production is confined to Britain. Therefore, it is subject to considerable exchange rate exposure, particularly in regards to the $/£ rate. As a U.S. investor, the exposure (delta) to Jaguar would be calculated by taking into account the fluctuations in the $/£ rate and how it affects Jaguar's earnings. This can be calculated by obtaining the percentage change in Jaguar's earnings for every percentage change in the $/£ rate. For example, if the $/£ rate changes by 1%, Jaguar's earnings would change by X%. This would allow the U.S. investor to assess the impact of exchange rate fluctuations on Jaguar's performance and ultimately, its share price. 2. Is the exposure to the dollar-based owners the same as that of the pound-based investors above? Why or why not? Response: The exposure to the dollar-based owners would not be the same as that of the pound-based investors. This is because the exchange rate exposure would vary depending on the currency in which a shareholder holds their shares in Jaguar. For example, if a U.S. investor holds shares in Jaguar in dollars, they would be exposed to the fluctuations in the $/£ rate, whereas a pound-based investor would be exposed to the fluctuations in the £/£ rate. The exposure would also differ based on the level of diversification in the investor's portfolio. A U.S. investor may have a more diversified portfolio and therefore, a smaller overall exposure to Jaguar compared to a pound-based investor who may have a larger percentage of their portfolio invested in Jaguar.