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  FIN/370 Week 1 Individual Assignment

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  FIN/370
  Week 1 Individual Assignment
  Resource: Financial management: Principles and applications

  Define the following terms and identify their roles in finance:

  • * Finance
  • * Efficient market
  • * Primary market
  • * Secondary market
  • * Risk
  • * Security
  • * Stock
  • * Bond
  • * Capital
  • * Debt
  • * Yield
  • * Return on investment
  • * Rate of return
  • * Cash flow
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  Week 1 Assignment: Mini Case (p.45) Problems (p.79)

  $17.50

  a) Why is corporate finance important to all managers?

  b) Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form.

  c) How do corporations go public and continue to grow? What are agency problems? What is corporate governance?

  d) What should be the primary objective of managers?

  • 1) Do firms have any responsibilities to society at large?
  • 2) Is stock prices maximization good or bad for society?
  • 3) Should firms behave ethically?

  e) What three aspects of cash flows affect the value of any investment?

  f) What are free cash flows?

  g) What is the weighted average cost of capital?

  h) How do free cash flows and the weighted average cost of capital interact to determine a firm’s value?

  i) Who are the providers (savers) and users (borrowers) of capital? How is capital transferred between savers and borrowers?

  j) What do we call the price that a borrower must pay for debt capital? What is the price of equity capital? What are the four most fundamental factors that affect the cost of money, or the general level of interest rates, in the economy?

  k) What are some economic conditions (including international aspects) that affect the cost of money?

  l) What are financial securities?

  m) List some financial institutions.

  n) What are some different types of markets?

  o) How are secondary markets organized?

  • 1) List some physical location markets and some computer/ telephone networks.
  • 2) Explain the differences between open outcry auctions, dealer markets, and electronic communications networks (ECNs).

  p) Briefly explain mortgage securitization and how it contributed to the global economic crisis.

  2-6. In its most recent financial statements, Newhouse Inc. reported $50 million of net income and $810 million of retained earnings. The previous retained earnings were $780 million. How much in dividends was paid to shareholders during the year?

  2-7. The Talley Corporation had a taxable income of $365,000 from operations after all operating costs but before (1) interest charges of $50,000, (2) dividends received of $15,000, (3)dividends paid of $25,000, and (4) income taxes. What are the firm’s income tax liability and its after-tax income? What are the company’s marginal and average tax rates on taxable income?

  2.9 The Shrieves Corporation has $10,000 that it plans to invest in marketable securities. It is choosing amomng AT&T bonds, which yield 7.5%, state of Florida muni bonds, which yield 5% (but are not taxable), and AT&T preferred stock, with a dividend yield of 6%. Shrieves’s corporate tax rate is 35% and 70% of the dividends received are tax exempt. Find the after-tax rates returns on all three securities.
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  FIN 515 Homework #1

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  1-1. What is the most important difference between a corporation and all other organizational forms?

  1-2. What does the phrase limited liability mean in a corporate context?

  1-3. Which organizational forms give their owners limited liability

  1-4. What are the main advantages and disadvantages of organizing a firm as a corporation?

  1-5. Explain the difference between an S corporation and a C corporation.

  1-6. You are a shareholder in a C corporation. The corporation earns $2 per share before taxes. Once it has paid taxes it will distribute the rest of its earnings to you as a dividend. The corporate tax rate is 40% and the personal tax rate on (both dividend and

  non-dividend) income is 30%. How much is left for you after all taxes are paid?

  1-7. Repeat Problem 6 assuming the corporation is an S corporation.

  2.8 In early 2009, General Electric (GE) had a book value of equity of $105 billion, 10.5 billion shares outstanding, and a market price of $10.80 per share. GE also had cash of $48 billion, and total debt of $524 billion. Three years later, in early 2012, GE had a book value of equity of $116 billion, 10.6 billion shares outstanding with a market price of $17 per share, cash of $84 billion, and total debt of $410 billion. Over this period, what was the change in GE’s:

  1. market capitalization?
  2. market-to-book ratio
  3. enterprise value?

  2-11.  Suppose that in 2013, Global launches an aggressive marketing campaign that boosts sales by 15%. However, their operating margin falls from 5.57% to 4.50%. Suppose that they have no other income, interest expenses are unchanged, and taxes are the same percentage of pretax income as in 2012.

  1. What is Global’s EBIT in 2013?
  2. What is Global’s net income in 2013?
  3. If Global’s P/E ratio and number of shares outstanding remains unchanged, what is Global’s share price in 2013?

  2-24.  Suppose your firm receives a $5 million order on the last day of the year. You fill the order with $2 million worth of inventory. The customer picks up the entire order the same day and pays $1 million upfront in cash; you also issue a bill for the customer to pay the remaining balance of $4 million in 30 days. Suppose your firm’s tax rate is 0% (i.e., ignore taxes). Determine the consequences of this transaction for each of the following:

  1. Revenues
  2. .Earnings
  3. Receivables
  4. Inventory
  5. Cash
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  FIN-516 WEEK 1 – HOMEWORK ASSIGNMENT

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  Problem Based on Chapter 14, Residual Dividends
  Middlesex Plastics Manufacturing had 2011 Net Income of $15.0 Million. Its 2012 Net Income is forecast to increase by 8%. The company’s capital structure has been 35% Debt and 65% Equity since 2010, and the company plans to maintain this capital structure in 2012. The company paid $3.0 Million cash dividends in 2011. The company is planning to invest in a major capital project in 2012. The capital budget for this project is $12.0 Million in 2012. Given:

  2011 Net Income = $15,000,000
  2012 Net Income = increased by 8% = ($15,000,000) + ($15,000,000 * 8%) = $16,200,000 2012 Target Equity Ratio = 65%
  2011 Dividend Payout = $3,000,000
  2012 Capital Budget = $12,000,000

  1. If Middlesex increases its cash dividends in 2012 at the same rate of growth as its Net Income rate, what will be the total 2012 dividend payout in Dollars?
  2. What is 2012 dividend payout ratio if the company increases its dividends at 8%?

  3. If the company follows a residual dividend policy, and maintains its 35% Debt level in its capital structure, and invests in the $12.0 Million capital budget in 2012, what would be the Residual Dividend level (in Dollars) in 2012? What would be this Residual Dividend payout ratio?

  4.How much additional capital (Debt and/or Equity) will the company have to raise from outside sources in 2012 if it invests in this capital project, and follows a residual dividend policy?

  5. What would be the prudent dividend policy for 2012?: Pay dividends at the current dividend growth rate of 8%, or pay the residual dividend amount.

  Problem 19-3 (Chapter 19) on Warrants
  This problem is posted on page 781 of the textbook.

  (19–3) What effect does the trend in stock prices (subsequent to issue) have on a firm’s ability to raise funds through (a) convertibles and (b) warrants?
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  Econ Week 1 Assignment

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  Week 1 Assignment

  Chapter 1 – 3 & 7

  3. a. What method is used to ration goods in a market economy? How does this rationing method influence the incentive of individuals to supply goods, services, and resources to others?
  4. 3. How are grades rationed in your economics class?  How does this rationing method influence student behavior?  Suppose the highest grades were rationed to those whom the teachers liked best.  How would this method of rationing influence student behavior?
  5. A restaurant offers an “all you can eat” lunch buffet for $10. Shawn has already eaten three servings, and is trying to decide whether to go back for a fourth. Describe how Shawn can use marginal analysis to make his decision.

  Chapter 2 – 6, 7, 13

  6. If you have a private-ownership right to something, what does that mean? Does private ownership give you the right to do anything you want with the things that you own? Explain. How does private ownership influence the incentive of individuals to a) take care of things, b) conserve resources for the future, and c) develop and modify things in ways that are beneficial to others? Explain.
  7. What is the law of comparative advantage? According to the law of comparative advantage, what should be the distinguishing characteristics of the goods a nation produces?  What should be the distinguishing characteristics of the goods the nation imports?  How will international trade influence people’s production levels and living standards?  Explain.

  13. Two centuries ago, there were more buffalo than cattle in the United States. Even though millions of cattle are killed for beef consumption each year, the cattle population continues to grow while the buffalo are virtually extinct.  Why?
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  Econ545 – Project 1 Neighbor Cindy

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  Situation B

  Your neighbor Cindy wants to start a contracting business for installing solar panels. She has heard of the cost savings that households and businesses can make each year by installing solar panels on their roofs. Cindy has also heard of government incentives for installing solar panels. Being concerned about the environment and wishing to reduce pollution, Cindy thinks installing solar panels also serves a good social purpose. But she does not want to risk her life savings on a venture that might not succeed or become profitable enough. After hearing from you about taking this course in business economics, she decides to ask you for advice.

  At first you are hesitant to give investment advice. Then you read the piece “US boosts ‘game-changer’ solar technology in bid for global market share” on page 374 of the textbook. You realize there are more pieces to the decision than Cindy is considering. You decide to research the market in terms of supply and demand, elasticity, costs of production, pricing, and economic or normal profit or loss. You want to provide Cindy with the most informed advice possible.
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  ECON 545: Microeconomic Analysis – Need for physicians in today’s marketplace

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  ECON545: Project 1—Microeconomic Analysis

  The Microeconomic Paper tests your ability to apply economic principles to a business decision. Select one situation from the items outlined below: A to D. Complete the paper on the selected situation as specified below. The completed paper is a professional report and is due in Week 3 (230 points). See the grading rubric at the end of this document. Be sure to use the DeVry library for finding data; avoid questionable sources, such as Wikipedia.

  The following is a list of the specific required information, research, graphs, and math to be included in each answer regardless of the scenario chosen.

  1. Demand Determinants:
  a. Each individual determinant analyzed for your situation, with examples applicable to your situation (5 points each) and research (3 points each) showing current Demand data or most recent past data, except for the Expectations Determinant in which you need to use data estimating future market conditions.
  b. (20 points) Price Elasticity of Demand facing you in your scenario, including actual calculation of it using the midpoint formula. If you can’t find data, then determine the Price Elasticity from the Characteristics and make up numbers to use. Be sure to identify this if you use this approach. This will help you in deciding the slope of your Demand curve below.
  c. (10 points) Graph the Demand facing your situation. Note that this requires information from the Supply Determinant analysis before deciding how to draw the curve(s), as you may need a separate MR curve.
  2. Supply Determinants:
  a. Each individual determinant analyzed for your situation, with examples applicable to your situation (5 points each) and research (3 points each) showing current Supply data or most recent past data, except for the Expectations Determinant in which you need to use data estimating future market conditions.
  i. (40 points) You need to be very specific in the Cost of Production Determinant to identify Fixed, Variable, and Marginal Cost in order to derive your Supply curve for the graphing component. You will need to explain and show how Profit Maximization or Loss Minimization output and price are determined. You will need to do the math using actual figures [cited] or your own estimated figures [identified as such] and explain why you expect Short Run Economic or Normal Profits, Acceptable Loss or temporary Shut Down and how you will know which it is.
  ii. The Number of Sellers determinant must contain your analysis of the kind of market structure in which your firm or labor service will be sold.
  b. (20 points) Price Elasticity of Supply you have based on the Cost of Production changes as output changes, including actual calculation of it using the midpoint formula. If you can’t find data, then determine the Price Elasticity from the Characteristics and make up numbers to use. Be sure to identify this if you use this approach. This will help you in deciding the slope of your Supply curve.
  c. (10 points) Graph your Supply situation using the numbers from your earlier Cost of Production analysis.
  3. Recommendations—(40 points) what are your recommendations explained by your analysis?
  4. Paper presentation—(10 points) good format, citations, lack of spelling errors, etc.

  Situation A

  Jenny, your niece, is a smart high-school student who wants to make intelligent choices for her future. Hearing of your course in business economics, she has e-mailed you asking for advice on whether to become a doctor and on the best location to practice it. She recognizes the high costs of tuition and the years of study involved in becoming a doctor. She wants to evaluate if that career choice is an optimal decision for her, so she has asked you for advice.

  Having read the piece “Fewer Physicians Move, a Sign of Career Caution” on page 20 of the textbook, you recognize the significance of such a career decision for Jenny. You decide to educate yourself about the market for physicians in terms of supply and demand, elasticity, costs of production, pricing, and economic or normal profit or loss. You want to provide Jenny with the most informed advice possible.
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  ECON 545 Week 3 Course Project 1- Cousin Edgar

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  ECON545: Project 1—Microeconomic Analysis

  The Microeconomic Paper tests your ability to apply economic principles to a business decision. Select one situation from the items outlined below: A to D. Complete the paper on the selected situation as specified below. The completed paper is a professional report and is due in Week 3 (230 points). See the grading rubric at the end of this document. Be sure to use the DeVry library for finding data; avoid questionable sources, such as Wikipedia.

  The following is a list of the specific required information, research, graphs, and math to be included in each answer regardless of the scenario chosen.

  Situation C

  Cousin Edgar is always thinking of the next business idea. This time, he plans to invest in buying two gas stations. He reckons American consumers have come to accept the high gasoline prices, and estimates world prices for gasoline to increase even further with high demand from India and China. Besides, Cousin Edgar thinks he will make a good profit on the sale of convenience items at each station. But before buying the gas stations, he decides to ask for your advice because you are taking this course in business economics.

  You happened to read the piece “$4-a-Gallon Gas Fueling Fears for Recovery” on page 196 of the textbook. Being skeptical of Cousin Edgar’s optimism on the profitability of selling gasoline and convenience items, you decide to research the market in terms of supply and demand, elasticity, costs of production, pricing, and normal or economic profit or loss. You want to provide Cousin Edgar with the most informed advice possible.
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  TCO Economic Questions

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  Question 1:
  (TCO A) There is a decrease in the cost of labor for producing bicycles. (4 pts.) What happens to bicycle supply?
  (6 pts.) What happens to bicycle demand?

  Question 2:
  (TCO A) Ceteris paribus, Brand A Plain potato chips and Brand B Plain potato chips are substitutes in consumption. The price of Brand A Plain potato chips increases. (4 pts.) a. What happens to the demand for Brand B Plain potato chips? (6 pts.) b. What happens to the demand for Brand A Plain potato chips?

  Question 3:
  SA 3. (TCO A) The number of wheat producers decreases.
  (4 pts.) What happens to the supply of wheat?
  (6 pts.) What happens to the demand for wheat?

  Question 4:
  (TCO A) A market is in equilibrium with equilibrium Quantity of MEQ and equilibrium Price of MEP.
  (2 pts.) a. What happens to Market Equilibrium Quantity (MEQ) if there is an increase in Demand?
  (4 pts.) b. What happens to Market Equilibrium Price (MEP) if Supply decreases as Demand increases?
  (4 pts.) c. What happens to Market Equilibrium Quantity (MEQ) after there has been an increase in Supply followed by a decrease in Demand which is followed by another increase in Supply?

  Question 5:
  The following table shows part of the demand function for tickets to an outdoor summer concert by a popular singing group:
  Price (P)…Quantity (Q)
  50……….. 100
  35………. 180
  20…………300
  10…………500
  a. (2 pts.) What is demand elasticity in the $10 – $20 price range? Is demand elastic, inelastic, or of unitary elasticity? Calculate the value and show all of your work. Be sure to use the midpoint equation used to determine elasticity.
  b. (4 pts.) Assume demand elasticity is 1.3 in the $35 – $50 price range. In this range of demand, by what percentage would quantity demanded change if price increases by 9 percent? Show your detailed calculations.
  c. (4 pts.) What is the effect of a price decline from $35 to $20 on total revenue for the event? Does total revenue (TR) increase, decrease, or remain the same? By how much? Show your detailed calculations.

  Question 6:
  (TCO B) Use a hypothetical example to illustrate whether you agree or disagree with the following statement: “Unemployment will go up more if the demand for labor is inelastic because the demand for labor will decrease more when you have inelastic demand than if demand were elastic.” Explain why, using hypothetical numbers to illustrate your case

  Question 7:
  TCO C) You have been hired to manage a small manufacturing facility whose cost and production data are given in the table below.

  No. of workers Total Labor Cost Output Total Revenue 1 $145 100 $190 2 290 105 480 3 435 111 840 4 580 120 1320 5 725 125 1650 6 870 129 1780 7 1015 131 1800 (2 points) What is the marginal product of the third worker? (2 points) What is the marginal revenue product of the fourth worker? (2 points) What is the marginal cost of the sixth worker?
  (4 points) Based on your knowledge of marginal analysis, how many workers should you hire? Explain you answer.

  Question 8:
  (TCO C) Answer the next question on the basis of the following cost data for a purely competitive seller: Total Product TFC TVC
  0 $70 $0
  1 70 70
  2 70 120
  3 70 150
  4 70 220
  5 70 300
  6 70 390
  Refer to the above data. If the product price is $75 at its optimal output, exactly how many units should be produced to maximize profits or minimize losses? How much will the profit or loss be? Show all calculations.

  Question 9:
  (TCO C) Answer the next question on the basis of the following cost data for a purely competitive seller:
  TP TFC TVC
  0 $45 $0
  1 45 170
  2 45 320
  3 45 450
  4 45 620
  5 45 800
  6 45 990
  Refer to the above data. If the product price is $165 at its optimal output, exactly how many units should be produced to maximize profits or minimize losses? How much will the profit or loss be? Show all calculations.

  Question 10:
  (TCO C) A firm has Total Costs (TC) of $12,000 over the next three months (TOTAL for the 3 months – not per month), of which $8,000 are fixed costs (TFC) for rent on its lease that cannot be broken. If it stays in business over those months, then the firm will collect only $6,000 in revenues (TR). So, considering only this information, should they stay in business for those three months or should they close down right now? Provide your reasoning.