Richmond Inc Answer

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Richmond Inc. operates a chain of department stores located in the northwest. The first store began operations in 1965 and the company has steadily grown to its present size of 44 stores. Two years ago, the Board of Directors of Richmond approved a large-scale remodeling of its stores to attract a more upscale clientele. Before finalizing these plans, two stores were remodeled as a test. Linda Perlman, assistant controller, was asked to oversee the financial reporting for these test stores, and she and other management personnel were offered bonuses based on the sales growth and profitability of these stores. Based on the apparent success of the test (sales growth for the two stores was reported at 11%, and profitability showed a 14% increase), the Board is now considering two alternatives for financing the balance of the remodeling effort. Alternative One involves pure debt financing. The company would make a public offering of bonds with a face value of $30 million with a stated interest rate of 11%. Alternative Two is a combination alternative. It would involve $12 million, 9% bonds, common stock of $14.5 million and retained earnings of $4.5 million. The current market value of Richmond’s common stock is $30 per share; the dividends per share have held steady at $3.00 per share for the last year, but investors are expecting growth of 6% in the dividendRead the case of Richmond Inc. in Chapter 14, End of Chapter

Activity 10 (f).

Identify and describe at least three risks.
Specify the risk, then identify the sub-category of Brown’s Taxonomy.
For each risk, suggest two internal controls to address it.
Describe the internal control as Preventive, Detective or Corrective.
Organize your answer in a Risk/Control Matrix.