Economics

/in /by

Conceptual questions

  1. Suppose you own a television factory and at your current level of output you have average total cost of $800 per television, average variable costs of $700 per television, and a marginal cost of $400.  If the price your buyers are willing to pay is $500, should you decrease or increase production?  Explain your reasoning, and make sure to cite at least one of the required readings in your answer.
  2. You are the owner of a restaurant, and currently you have only one waiter.  While this keeps costs down, many of your customers go home because they are tired of waiting in line or waiting for their order.  You hire four more waiters and waitresses, and you are now able to serve a dramatically higher number of customers.  Seeing the huge productivity gains from hiring more staff, you then hire 20 more waiters and waitresses.  However, you are not able to serve any more customers than you were able to when your staff size was only four.  In fact, your restaurant has become overly crowded because there is not enough room in your restaurant for all of your staff.  You are confused as to why hiring four more staff members increased your productivity, but hiring 20 more did not.  What concept from the background readings best describes what happened in this case?  Explain your reasoning.

Quantitative problems:  for computational problems, make sure to show your work and explain your steps.

The following table gives the total weekly output of bicycles at Al’s Bicycle Town.

TABLE 1

Labor Total Product (TP) Average Product of labor (AP) Marginal Product of labor (MP)
0 0 na na
1 100 100 100
2 300    
3 450    
4     110
5 630    
6   110  

Complete the above table.

Draw the graphs of the marginal product (MP) and the average product (AP).

To learn how to plot the data in Excel, see https://www.youtube.com/watch?v=B3U9tDcoNeI

Where do the AP and MP curve cross?

The cost of 1 worker is $2000 per month. Total fixed cost is $4000 per month.

Complete Table 2 using your answers from Table 1 and by computing total variable cost (TVC) and total cost (TC).

Labor Total Product (TP) Total variable cost (TVC) Total cost (TC)
0 0 na 4000
1 100 2000  
2 300    
3 450    
4     12000
5 630    
6   12000  

Draw the graphs of the TC and TVC curves. What is the relationship between these two curves?

Complete Table 3 by using your answers from the previous Tables and calculating the AVC, ATC, and MC.

Table 3

 Total Product (TP) Average variable cost (AVC) Average total cost (ATC)   Marginal cost (MC)

Total Product (TP) Average variable cost (AVC) Average total cost (ATC) Marginal cost (MC)
0 na na na
100 20   20
300      
450      
    21.43  
630      
      66.67
       

Draw the graphs of the ATC, AVC, and MC curves. What is the relationship between the ATC and AVC curves? Between the MC and AVC curves?

 
"Looking for a Similar Assignment? Order now and Get 10% Discount! Use Code "GET10" in your order"

Journal Article Summary Instructions

/in /by

For each Journal Article Summary, you will choose an article to review and use the Journal Article Summary Form to complete the assignment. The article you select must be a peer-reviewed journal article in the field of cognitive psychology. The article must also be a primary source, meaning that the authors are discussing their own research, not others’ research (e.g. review articles). Do not use an article that conducted a meta-analysis. It is ideal to select an article that you will be using in your paper; however, this is not a requirement. If you use an article that does not meet these criteria, you will not receive credit for this assignment. See the example below for detailed explanation of the required material for each question. Submit the completed form and a PDF of the article being reviewed. All material must be in current APA format.

Journal Article Summary Example:

  1. APA reference of article being reviewed

Write the reference for the article as if it were in the reference section of your paper.

  • What is the research problem that is being investigated? What is the purpose of the research being conducted?

Provide the “why” behind the paper. Why have they conducted this experiment? For example: “These experiments were designed to explore the role of second order conditioning in anxiety disorders.”

  • What is the research question?

The research question is more specific. What is the specific question or questions the article will answer as a result of the study or experiment? For example: “Are adolescents more sensitive to the memory imparting effects of alcohol?”

  • What are 2 or more theories that are discussed in the Introduction? How are they used to motivate (or set up) the research question? Do the authors agree or disagree with these theories?

Simply restate the theories discussed in the introduction in your own words. State how these theories are driving the research questions. If the authors’ hypothesis is correct, will it support the theory or be inconsistent with the theory? You should have good idea of where the authors stand based on the evidence presented and the arguments they are making.

  • How is the research question operationalized? First, identify the abstract constructs being studied. Next identify the concrete way these are being observed or measured. This should include your IV and DV.

A construct is an abstract explanatory variable that this not directly observable (e.g. memory). The concrete way the construct is measured will point you to the dependent variable (DV). For example, if the paper is concerned with memory, the DV may be the number of items recalled. The independent variable (IV) could be the amount of sleep each participant was allowed the night before the test. Remember that we cannot directly measure many of the constructs that are studied in psychology, so it is important that we identify how they are being operationalize in each research study.

  • What is the research design (i.e. between or within subjects, what type of statistical tests were used, what were the levels of each variable)?

This information will be in the methods section of your paper. Be sure to provide enough detail to describe how the study was designed.

  • Describe the results (but not their broader implications). Were the results significant? Which ones? Do these support or not support the hypothesis?

Describe the result in your own words. For example: Group X were able to recall significantly more words than Group Y. This finding supports the hypothesis that manipulation Y would reduce recall.

  • What limitations are mentioned? Why are these limitations theoretically interesting?

Limitations can be found in the discussion section of the paper. If a limitation is that they didn’t have X control group, then explain in your own words why that is important. Does it change the interpretation of the findings?

Submit each Journal Article Summary by 11:59 p.m. (ET) on Sunday of the assigned module/week.

 
"Looking for a Similar Assignment? Order now and Get 10% Discount! Use Code "GET10" in your order"

BUS520 SLP 1

/in /by

Scenario: You work for a private investment company that currently has numerous business investments in real estate development, restaurant franchises, and retail chains. Following an exhaustive search for new investment opportunities, you have found three possible alternatives, each of which will pay off in exactly 10 years from the date of initial investment. Because you only have enough money to invest in one of the three options, you recognize that you will need to complete a quantitative comparison of the three alternatives:

Option A: Real estate development.

Option B: Investment in the retail franchise “Just Hats,” a boutique that sells hats for men and women.

Option C: Investment in “Cupcakes and so forth,” a franchise that sells a wide variety of cupcakes and a variety other desserts.

Download the raw data for the three investments in this Excel document: Raw data for BUS520 SLP 1.

Assignment

Develop an analysis of these three investments in Excel. Use expected value to determine which of the three alternatives you should choose.

Write a report to your private investment company, explaining your Excel analysis, giving your recommendation, and justifying your decision.

SLP Assignment Expectations

Excel Analysis

Using Excel, make an accurate and complete analysis of the three investment alternatives. Let Excel do the work for you.  Instead of typing the formula in a separate line, just enter it in the cell.  Refer to the following link for more info on doing calculations in Excel: https://support.office.com/en-us/article/Use-Excel-as-your-calculator-a1abc057-ed11-443a-a635-68216555ad0a

Written Report

  • Length requirements: 2–3 pages minimum (not including Cover and Reference pages). NOTE: You must submit 2–3 pages of written discussion and analysis. This means that you should avoid use of tables and charts as “space fillers.”
  • Provide a brief introduction to/background of the problem.
  • Discuss the steps you used in completion of your Excel analysis.
  • Based on your Excel analysis, give your recommendation as to which of the three investment alternatives should be pursued.
  • Write clearly, simply, and logically. Use double-spaced, black Verdana or Times Roman font in 12 pt. type size.
  • Have an introduction at the beginning to introduce the topics and use keywords as headings to organize the report.
  • Avoid redundancy and general statements such as “All organizations exist to make a profit.” Make every sentence count.
  • Paraphrase the facts using your own words and ideas, employing quotes sparingly. Quotes, if absolutely necessary, should rarely exceed five words.
  • Upload both your written report and Excel file to the SLP1 Dropbox.
 
"Looking for a Similar Assignment? Order now and Get 10% Discount! Use Code "GET10" in your order"

Multiple Regression Models Case Study

/in /by

Multiple Regression Models Case Study: Web Video on Demand

Web Video on Demand (WVOD) is an Internet video-on-demand streaming service. The company offers a subscription service for $5.99/month, which includes access to all programming and 30-second commercial intervals.

In the last year, the company has recently begun producing its own programming, including 30-, 60-, and 120-minute television shows, specials, and films. Programming has been developed for teen audiences as well as adults.

The following data represent the amount of money brought in through advertising sales, the average number of viewers, length of the program, and the average viewer age per program.

Advertising Sales ($) Average # of Viewers (Millions) Length of Program (Minutes) Average Viewer Age (Years)
28,000 10.1 60 30
25,500 11.4 60 25
31,000 19.9 120 30
29,000 13.6 60 38
20,500 12.5 30 20
14,500 3.5 30 25
27,000 15.1 60 24
23,500 3.7 60 17
19,500 4.3 30 19
23,000 12.2 30 45
18,000 5.1 30 19
29,500 15.9 60 28
31,000 16.8 120 28
25,000 8.5 60 37
22,500 9.1 60 43

The WVOD executives are in the process of evaluating a partnership with several independent filmmakers to fund and distribute socially conscious and diverse programming. The executives have asked for regression models to be developed based on specific needs. The regression model requests and programming details are included below.

The WVOD executives would like to see a regression model that predicts the amount of advertising sales based on the number of viewers and the length of the program. Develop and evaluate the significance of this regression model (“Regression Model A”).   Web Video on Demand would like to acquire a 60-minute documentary special about social media and bullying. The special is aimed at teen viewers and is estimated to bring in 3.2 million viewers. Based on the regression model, predict the advertising sales that could be generated by the special and evaluate the significance of your findings.

The WVOD executives would also like to see a regression model that predicts the amount of advertising sales based on the number of viewers, the length of the program, and the average viewer age. Develop and evaluate the significance of this regression model (“Regression Model B”). Web Video on Demand may acquire a 2-hour film that was a hit with critics and audiences at several international film festivals. Initial customer surveys indicate that the film could bring in 14.1 viewers and the average viewer age would be 32. Should you use the regression equation with three independent variables that you just developed?  If not, what should you use to answer the executives’ question?  Please explain your answer.

 
"Looking for a Similar Assignment? Order now and Get 10% Discount! Use Code "GET10" in your order"

Transfer Pricing and Responsibility Centers

/in /by

Assignment Overview

Coffee Maker’s Incorporated (CMI)

Three divisions of a CMI are involved in a dispute. Division A purchases Part 101 and Division B purchases Part 201 from a third division, C. Both divisions need the parts for products that they assemble. The intercompany transactions have remained constant for several years.

Recently, outside suppliers have lowered their prices, but Division C refuses to do so. In addition, all division managers are feeling the pressure to increase profit. Managers of divisions A and B would like the flexibility to purchase the parts they need from external parties at a lower cost and increase profitability.

The current pattern is that

  • Division A purchases 2,700 units of product part 101 from Division C (the supplying division) and another 1,300 units from an external supplier.
  • Division B purchases 1,100 units of Part 201 from Division C and another 700 units from an external supplier.
  • Note that both divisions A and B purchase the needed supplies from both the internal source and an external source at the same time.

The managers for divisions A and B are preparing a new proposal for consideration.

  • Division C will continue to produce Parts 101 and 201. All of its production will be sold to Divisions A and B. No other customers are likely to be found for these products in the short term, given that supply is greater than demand in the market.
  • Division A will buy 2,000 units of Part 101 from Division C at the existing transfer price; and
  • 2,000 units from an external supplier at the market price of $900 per unit.
  • Division B will buy 900 units of Part 201 from Division C at the existing transfer price; and
  • 900 units from an external supplier at $1,800 per unit.

Division C Data Based on the Current Agreement

Part 101 201
Annual volume (units) 2,700 1,100
Transfer price/unit $1,000 $2,000
Variable expenses/unit $700 $1,200

The fixed overhead for Division C is $1,200,000.

Case Assignment

Required:

Computations (use Excel)

  • Set up a table similar the one below to compute the difference between the current situation and the proposal for Divisions A and B. 
Division A
Current Situation Proposal
No. of Units Purchase Price Total Purchases No. of Units Purchase Price Total Purchases
Internal purchases 2,700 $ 2,000 $
External purchases 1,300 2,000
Total cost for Part 101 $ $
Savings to Div. A $
  • Compute the operating income for Division C under the current agreement and the proposed agreement.
  • Is the revised agreement a good idea? Support your answer with computations.

Memo (use Word)

Write a 4- or 5-paragraph memo to the division manager explaining the analysis performed. Start with an introduction and end with a recommendation. Each of the four or five paragraphs should have a heading.

Short Essay (use Word)

Start with an introduction and end with a summary or conclusion. Use headings.

Evaluate and discuss the implications of the following transfer pricing policies:

  • Transfer price = cost plus a mark-up for the selling division
  • Transfer price = fair market value
  • Transfer price = price negotiated by the managers

Why is transfer pricing such a significant issue both from a financial and managerial perspective?

Assignment Expectations

Each submission should include two files: (1) An Excel file and (2) a Word document. The Word document shows the memo first and short essay last. Assume a knowledgeable business audience and use required format and length. Individuals in business are busy and want information presented in an organized and concise manner. 

 
"Looking for a Similar Assignment? Order now and Get 10% Discount! Use Code "GET10" in your order"

Capital Budgeting and the Cost of Capital

/in /by

Assignment Overview

Before starting on this assignment, make sure to thoroughly review the required background materials. Make sure you fully understand both the basic concepts as well as how to calculate payback period, NPV, IRR, and WACC. Submit your answers in a Word document. Make sure to show your work for all quantitative questions and fully explain your answers using references to the background readings for any conceptual questions. Questions 1 and 2 will require Excel. Attach an Excel file to show your computations for Questions 1 and 2.  

Case Assignment

  1. The table below gives the initial investment and expected cash flows over the next five years for two different projects. Assume that the industry you are in expects a return of 10%, which you use as the discount rate in net present value (NPV) calculations and as the required rate of return for purposes of deciding on projects. Also, assume that management only wants to invest in projects that pay off within four years.

For each project, compute the payback period, NPV, and internal rate of return (IRR). Then explain whether each project should be accepted based on these three criteria.

  Project A Project B
Initial Investment $40,000 $28,000
Year Cash Flows
1 $10,000 $10,000
2 $10,000 $13,000
3 $10,000 $5,000
4 $10,000 $5,000
5 $10,000 $6,000
  • Suppose you are planning on becoming a vendor at the arena where your favorite sports team plays. You are trying to decide between opening up a souvenir stand selling T-shirts, caps, etc., with your sports team’s logo or opening up a hot dog and beer stand. It is more expensive to open up the hot dog and beer stand because you need to purchase a license to serve alcohol and you need to spend money to comply with health department regulations. Revenue from the souvenir stand is likely to be unpredictable because fans of your favorite team tend to want to purchase hats and T-shirts only when the team is winning. Revenue from hot dogs and beer seem to be a little more steady since fans want to eat and drink regardless of whether the team is winning.

    Below is a table with the initial investment cost of each type of stand and the annual payments you expect over the next five years. The annual payments will be different depending on how well your team does. Therefore, you will estimate how much cash flow you will get depending on whether your team does better than expected (optimistic), the same as the past few years (most likely), and worse than expected (pessimistic). Use a discount rate of 8%.

Based on the table below, answer the following items:

  1. Calculate the net present value (NPV) for each type of stand under each of the three scenarios. Calculate the range of possible NPV values for each type of stand.
  2. Based on your answer to A) above and your own guesses about how well you think your favorite team will do over the next five years, which type of stand would you rather invest in?
  Souvenir Stand Hot Dog and Beer Stand
Initial Investment $100,000 $150,000
   Annual Cash Inflows (5 Years)
Outcome    
 Pessimistic $30,000 $50,000
 Most likely $50,000 $60,000
 Optimistic $70,000 $70,000
  • Suppose you are a corn farmer in your home state. You have to decide between two projects. One project is to purchase new equipment for your farm that will help boost your profits for the next 10 years. You also find out that you can purchase a large banana farm in Brazil for the same price as the equipment, and at the current market price for bananas you will make a lot more profit than you would from purchasing new corn farming equipment.

    After asking around, you find out that the standard discount rate for evaluating the NPV of the farming project is 6%. Most farmers in your home state seem to use this rate successfully. However, you don’t know any other banana farmers and you don’t know too much about farming in Brazil, so you have to make a guess on an appropriate discount rate for the Brazilian banana farm. Based on the concepts from the background readings, would you say the Brazilian banana farm will need a lower or higher discount rate? A lot larger or smaller, or only a little?
  • Calculate the following:
    • The cost of equity if the risk-free rate is 2%, the market risk premium is 8%, and the beta for the company is 1.3.
    • The cost of equity if the company paid a dividend of $2 last year and is expected to grow at a constant rate of 7%. The stock price is currently $40.
    • The weighted average cost of capital (WACC) if the company has a total value of $1 million with a market value of its debt at $600,000 and a market value of its equity at $400,000. Its cost of debt is 6% and its cost of equity is 15%. The tax rate it pays is 25%.
  • Suppose you own a chain of dry cleaners and the WACC you’ve been using to make decisions on new purchases of dry cleaning equipment is a steady 9%. Recently, gambling has been made legal in your home town so you decide to expand and open up a casino. Should you use the same WACC to evaluate purchases of casino equipment? Why or why not? What are some alternatives to using the same WACC to make decisions on casino equipment? Explain your reasoning, and make references to concepts from the background readings.  

Assignment Expectations

  • Answer the assignment questions directly.
  • Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials.
  • For computational problems, make sure to show your work and explain your steps.
  • For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations. See the Student Guide to Writing a High-Quality Academic Paper, including pages 11-14 on in-text citations. Another resource is the “Writing Style Guide,” which is found under “My Resources” in the TLC Portal.

Privacy Policy | Contact

 
"Looking for a Similar Assignment? Order now and Get 10% Discount! Use Code "GET10" in your order"

Capital Budgeting and the Cost of Capital

/in /by

For your Module 3 SLP assignment, continue to do research on the company that you wrote about for Modules 1 and 2. For this assignment, you will be estimating the weighted average cost of capital (WACC) for your chosen company. The final calculation will be fairly straightforward, as it involves just plugging in some numbers into an equation. However, the more challenging task will be finding the necessary numbers to plug into the formulas. You will need information such as the beta for your company, the bond-rating, and various information from its balance sheet. Links to some suggested Web pages for finding this kind of information is included in the instructions, but you might be able to find other sources of information. Go step by step and present your information for Steps 1-4 below in a Word document. Make sure to show all of your steps one by one and include the sources of your information:

  1. Find out your chosen company’s credit rating. Rating agencies such as Moody’s and Standard and Poor’s assign ratings to companies. AAA is high, AA is lower, BBB is even lower, etc. The higher the rating, the lower the cost of debt capital. Explain what your company’s credit rating is and the reasons for the high or low rating based on your research. Also, use the Fidelity Fixed Income Web page to find out what the current return is for a 30-year bond for a corporation with the rating that your company has. This yield will be the approximate cost of debt capital for your company. We will call the cost of debt RD.
  2. Now estimate the cost of equity for your company. First you will need the beta; you already found this for your Module 1 SLP. You will also need the three-month treasury bill yield, which we will use as our measure of the risk-free rate. This rate should be listed on the Fidelity Fixed Income Web page linked above. Finally, you will need the equity risk premium. You can find estimates of this on many Web pages including Fidelity Fixed Income or Gutenberg Research. It is usually around 5%. Once you have this information, you can estimate the cost of equity as the 30-year treasury bill yield rate plus beta multiplied by the equity premium:

    Cost of Equity = risk-free rate + Beta * (Equity Premium).

    Show your calculations. We will call the cost of equity RE.
  3. Now find out how much of the firm’s capital is equity and how much is debt. For the total value, look at the balance sheet for your company as found on Google Finance or a similar Web page. The total value of your company will be “total liabilities and shareholder’s equity.” The proportion of debt will be total liabilities divided by total value, which we will call D/V. The proportion of equity will be shareholder’s equity divided by total value, or E/V. If you calculate them correctly, the proportions will add up to one.
  4. Now we have all the information we need to get at least a rough ballpark estimate of WACC. Let’s assume a corporate tax rate of 35%. So the formula we will use is WACC = (E/V)* RE +(D/V)* RD *(1-.35)

    Calculate WACC and show your computations. As a “reality check” on your calculations, the WACC should likely be in the single digits and positive. Compare what you found to the average WACC in your company’s industry, which should be available on Web pages such as Cost of Capital by Sector (US). Note that 35% is the official corporate tax rate, but many corporations find tax breaks. If your WACC is too low, try computing it with a lower tax rate such as 25% or 10%.  

SLP Assignment Expectations

  • Answer the assignment questions directly.
  • Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials.
  • For computational problems, make sure to show your work and explain your steps.
  • For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations. See the Student Guide to Writing a High-Quality Academic Paper, including pages 11-14 on in-text citations. Another resource is the “Writing Style Guide,” which is found under “My Resources” in the TLC Portal.
 
"Looking for a Similar Assignment? Order now and Get 10% Discount! Use Code "GET10" in your order"

Budget Variance Analysis, And Performance Evaluations

/in /by

Assignment Overview

T&P Fashion Shops

T&P Fashion Shops is a new chain that operates 10 stores in major malls throughout the United States. Each store manager is responsible for preparing a flexible budget for the store. T&P headquarters accumulates and analyzes the information for each store and in the aggregate.

Below is the forecast (budgeted income statement) for the Houston store showing the breakdown of fixed and variable expenses in columns two through four. The last column shows the actual results. 

T&P Fashions – Houston Store
Breakdown of Expenses (Forecast)
Forecast Fixed Variable Actual
Revenues $1,400,000 $1,260,000
Cost of Sales 790,000 790,000 760,000
Gross Profit $610,000 $500,000
Management 182,000 154,700 27,300 182,000
Shop assistants 258,000 154,800 103,200 262,000
Rent 23,200 18,560 4,640 22,000
Utilities 34,800 34,800 31,000
Misc. expenses 24,500 12,250 12,250 29,000
Total expenses $522,500 $526,000
Net income $87,500 $(26,000)
========= =========

Additional Information

  • Variable expenses are based on revenues and we assume that the percentage remains constant for flexible budgeting purposes.
  • Fixed costs are all within the relevant range.
  • Other expenses are all specific to this store. Headquarters pay for marketing and corporate overhead expenses.

Case Assignment

Required:

Computations (use Excel)

  1. Prepare a flexible budget and show variances for the year that passed. Indicate whether the flexible budget variances are favorable or unfavorable.
  2. Headquarters are contemplating charging each store a 5% marketing expense based on sales. How will that affect the operating profit of the store and the money available for managerial bonuses based on actual results for the past year? Summarize the information in a table.

Memo (use Word)

Write a 4- or 5-paragraph memo to the division manager explaining the flexible budget variances; how to interpret the information and what action, if any to take. Comment on the 5% marketing proposal too. Start with an introduction and end with a recommendation. Each of the four or five paragraphs should have a heading.

Short Essay (use Word)

Start with an introduction and end with a summary or conclusion. Use headings.

  • Discuss how to interpret static and flexible budget variances.
  • What are the benefits of variance analysis? How can such analysis be detrimental rather than beneficial to the organization?

Assignment Expectations

Each submission should include two files: (1) An Excel file and (2) a Word document. The Word document shows the memo first and short essay last. Assume a knowledgeable business audience and use required format and length. Individuals in business are busy and want information presented in an organized and concise manner. 

 
"Looking for a Similar Assignment? Order now and Get 10% Discount! Use Code "GET10" in your order"

Leverage, Capital Structure, and Dividend Policy

/in /by

Assignment Overview

Before starting on this assignment, make sure to carefully review the background readings. Part A requires you to make some computations, and Part B requires you to analyze some scenarios using your knowledge of the concepts. So make sure to go through the computational examples in the required readings and also thoroughly review the key concepts before starting on this assignment.

Case Assignment

Part A: Quantitative Problems

  1. Suppose QuickCharge Corporation manufactures phone chargers. They sell their chargers for $20. Their fixed operating costs are $100,000 and their variable operating costs are $10 per charger. Currently they are selling 30,000 chargers per year.
    1. What is QuickCharge’s EBIT (earnings before interest and taxes) at current sales of 30,000?
    1. What is QuickCharge’s breakeven point?
    1. Calculate the EBIT if QuickCharge’s sales increase 50% to 45,000 chargers. What is the percent of change in EBIT under this increase in sales? Also, calculate the EBIT if the company’s sales decrease 50% to 15,000 chargers. What is the percent of change in EBIT under this decrease in sales?
    1. What is QuickCharge’s degree of operating leverage? Based on your computation, what does its operating leverage say about QuickCharge’s business risk?
  2. The StayDry Umbrella Corporation will have an EBIT of $100,000 if there is a normal amount of rain this year. But if there is a drought, they will have an EBIT of only $50,000. The interest rate on debt is 10%, and the tax rate is 35%. The company does not pay any preferred dividends.
    1. If StayDry has zero debt and 50,000 outstanding shares, what will its EPS (earnings per share) be if there is normal rain? What will its EPS be if there is a drought? What is its DFL (degree of financial leverage)?
    1. Now suppose StayDry has decided to take on $300,000 in debt and has used these funds to buy back half of the outstanding shares so now there are only 25,000 outstanding shares. What is the new EPS and DFL for both normal rain and drought?
    1. Based on your answers to a) and b) above, what are the trade-offs management has to make between zero debt or $300,000 in debt? What are the benefits and disadvantages of taking on this debt?

Part B: Conceptual Questions

  1. For each of the following scenarios, explain whether the situation describes financial risk or business risk. Explain your answers to each scenario using at least one of the references from the background readings:
    1. A pharmaceutical company has developed a new cancer treatment drug that has a much higher success rate than other drugs currently in the market. It has the  potential to triple the company’s profits. However, the FDA has expressed concern about some side effects, and it is not clear if the FDA will approve the drug.
    1. An airline has an EBIT of $100 million per year. However, it also has a huge amount of debt and pays $97 million per year in interest. Its EBIT is relatively stable but tends to go up or down by $5 million or so each year depending on the economy.
    1. A basketball franchise earns an EBIT of $50 million a year when its team has a winning year. However, it earns only $10 million when its team has a losing year.
  2. Explain what capital structure theory (or theories) best describes the following situations. Make sure to cite at least one of the required textbook chapters for each answer, and to cite at least two references for this section:
    1. A CEO decides to borrow $50,000 in new debt, and the share prices rise dramatically. He then decides to sell half of his own personal shares, and when this is reported in the Wall Street Journal, the share prices drop dramatically in value.
    1. The corporate tax rate rises from 35% to 45%, and the XYZ Corporation decides to issue more debt. A year later, bankruptcy laws are changed to become much stricter and costlier. XYZ then decides to pay back half of its debt.
    1. A CEO named Joe Bigwig is known for living large with very expensive cars and a huge mansion. Joe is seeking a large loan from a bank to finance some new projects for his corporation. However, the bank becomes concerned when they find out that he recently used company funds to buy a brand-new company jet and also schedules numerous business trips to Hawaii and stays in five-star hotels. The bank tells Joe he will receive the loan only if he agrees to scale back on his personal expenses and not give himself or any other executives a raise until the loan is paid back.

Assignment Expectations

  • Answer the assignment questions directly.
  • Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials.
  • For computational problems, make sure to show your work and explain your steps.
  • For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations. See the Student Guide to Writing a High-Quality Academic Paper, including pages 11-14 on in-text citations. Another resource is the “Writing Style Guide,” which is found under “My Resources” in the TLC Portal.

Privacy Policy | Contact

Obi, P. (2014). Capital structure and financial leverage. Purdue University. Retrieved from:https://www.youtube.com/watch?v=xKBdJX-rHMg

Ahmad, A. (n.d.) Firm debt part 1: Calculating how much to borrow. Coursera. Retrieved from:https://www.coursera.org/learn/finance-debt/lecture/0P8l0/firm-debt-part-1-calculating-how-much-to-borrow

Sexton, N. (2010). Introduction to dividend policy. LSBF Global MBA. Retrieved from:https://www.youtube.com/watch?v=wPVdxCJ2iCI

Boundless. (n.d.). Chapter 13: Capital Structure. Boundless Finance. Retrieved from:https://www.boundless.com/finance/textbooks/boundless-finance-textbook/

Boundless. (n.d.). Chapter 15: Dividends. Boundless Finance. Retrieved from:https://www.boundless.com/finance/textbooks/boundless-finance-textbook/dividends-15/

 Gitman, L. (2005). Chapter 11: Leverage and capital structure.Principles of Managerial Finance. Pearson Education. Retrieved from:wps.aw.com/wps/media/objects/222/227412/ebook/ch11/chapter11.pdf If the link is down, clickLeverage and Capital Structure or Managerial Finance for an alternative link] 

 
"Looking for a Similar Assignment? Order now and Get 10% Discount! Use Code "GET10" in your order"

Leverage Capital Structure, And Dividend Policy

/in /by

Module 4 – SLP

  

Leverage, Capital Structure, and Dividend Policy

Review the 1) dividends for the past three years and 2) capital structure of the company you have been researching for your SLP assignment. Then answer the following questions in a Word document (except for the Excel portion specifically noted). The paper should be 2 pages in length.

  1. What has occurred with your selected company’s dividend payout, dividend yield, and dividend per share over the past three years? Do you have any explanations for what has occurred? Also, has this company had any stock splits or stock repurchases in recent years?
  2. How does your selected company’s dividend payout, dividend yield, and dividend per share compare with other companies in its industry? Has the company’s dividend strategy been similar to other companies in its industry?
  3. Use Excel to plot your selected company’s earnings and dividends over the past three years. Do you notice any patterns? What dividend policies from the background readings best match these patterns?

SLP Assignment Expectations

  • Answer the assignment questions directly.
  • Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials.
  • For computational problems, make sure to show your work and explain your steps.
  • For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations. See the Student Guide to Writing a High-Quality Academic Paper, including pages 11-14 on in-text citations. Another resource is the “Writing Style Guide,” which is found under “My Resources” in the TLC Portal.
 
"Looking for a Similar Assignment? Order now and Get 10% Discount! Use Code "GET10" in your order"