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Saint MBA
570 Full Course-Latest November 2016
Question
Saint MBA570 Module 1 Discussion Latest November
2016
Module 1 Discussion
This discussion question for this module has two parts. Respond to both parts to receive full credit for this assignment.
Part 1: What is a hostile takeover and what generally happens to the
stock price of the firm being acquired in a hostile takeover?
Part 2: How does a hostile takeover affect the company’s stakeholders
(shareholders, executives, employees, and society in general)? Is it usually
beneficial or detrimental to these stakeholders? Why?
Include some news that is less than a year old that discusses an
in-process or recently completed merger in your answer. Briefly discuss the main issues in that merger and whom the merger is
likely to benefit or hurt.
The ProQuest database at the Saint Leo University Library website can be
a useful tool for completing this assignment. Click here for instructions on accessing ProQuest.
Hint: One way to find merger news is to use the library’s database for
the Wall Street Journal and search for a recent article with the word “merger”
in the title of the article.
Saint MBA570 Module 2 Discussion Latest November
2016
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Module 2 Discussion
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The Law of One Price states that equivalent investment opportunities
trading in different competitive markets will have the same price. Yet, one can find examples where that rule seems to be violated. It is a well-known fact that Americans pay a much higher price for most
prescription drugs than people in most other countries. Also, the price (when adjusted for exchange rates) for the same make and
model of automobile varies greatly across different countries. Furthermore, the price of a barrel of crude oil varies between locations. For example, on October 12, 2012, the price for Brent crude oil produced
in Europe was $114.21 and the price for
West Texas Intermediate (WTI) crude oil produced in Texas was $91.86.
Do these three cases demonstrate that the Law of One Price is false? Why or why not?
Do these three cases demonstrate that the Law of One Price is false? Why or why not?
Saint MBA570 Module 3 Discussion Latest November
2016
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Module 3 Discussion
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Respond to all of the questions to receive full credit for this
assignment.
The capital budgeting process is important, but is it the most important process that a firm undertakes. Why or why not? If you believe there is a more important process, what is it and why do you think it is more important?
The capital budgeting process is important, but is it the most important process that a firm undertakes. Why or why not? If you believe there is a more important process, what is it and why do you think it is more important?
Saint MBA570 Module 4 Discussion Latest November
2016
Module 4 Discussion
This discussion question for this module has two parts. Please follow the directions carefully to receive full credit for this
assignment.
Every year, Fortune magazine publishes a list of the "World's Most
Admired Companies" and Barron’s magazine publishes a list of the “World's
Most Respected Companies." Choose one
company from the top twenty on either of these lists from the most recent year
available that you also admire or respect and one company that you admire or
respect little.
Part 1: What criteria does the magazine use to evaluate companies for
the list? Do you agree with these criteria? Why or why not?
Part 2: Why do you admire the company you chose as a favorite? Why do
you not respect the company you chose as not admirable?
Both Barron’s and Fortune are available at the Saint Leo University
Library website via the ProQuest database. Keep in mind that the most recent list available may be from last year.Click here for instructions on accessing ProQuest.
Saint MBA570 Module 5 Discussion Latest November
2016
Module 5 Discussion
This discussion question for this module has two parts. Respond to both parts to receive full credit for this assignment.
Part 1: There is evidence that small stocks and value stocks perform
better over the long term than the market averages. What are some logical reasons for this phenomenon?
Part 2: There is strong evidence that many investors suffer from
familiarity bias and overconfidence bias. Can you explain why these biases might exist? Can you think of a
situation in which you might make these mistakes (if you hadn’t learned about
these biases in this module)?
Include some news that is less than a year old that is applicable to
this discussion.
The ProQuest database at the Saint Leo University Library website can be
a useful tool for completing this assignment. Click here for instructions on accessing ProQuest.
Saint MBA570 Module 6 Discussion Latest November
2016
Module 6 Discussion
This discussion question has two parts. Respond to both parts to receive full credit for this assignment.
Part 1: Your friend is asking for advice. She is planning to retire in 40 years and wants to know what investments
she should choose. She also wants
to know if she should use an IRA or 401k or some other sort of retirement
vehicle. Please advise her.
Part 2: You have another friend that already has a sizable amount saved
for his retirement, but he wants to retire in 10 years. What type of advice would you give him about what type of investment to
make and as to whether or not to use a retirement plan?
Include some news or advice from an article that is less than a year old
that is applicable to this discussion.
The ProQuest database at the Saint Leo University Library website can be
a useful tool for completing this assignment. Click here for instructions on accessing ProQuest.
Saint MBA570 Module 7 Discussion Latest November
2016
Module 7 Discussion
This discussion question has two parts. Use Figure 15.7 in your textbook
which shows the net debt-to-enterprise value ratio for some select industries
to answer both parts of the question. Respond to both
parts to receive full credit for this assignment.
Part 1: Firms in the real estate investment trusts (REITs), airlines,
electric utilities, and paper products industries tend to have high leverage. Explain why firms in these industries would prefer to have high leverage.
Part 2: Firms in the computer hardware, footwear, apparel and luxury
goods, and data processing industries tend to have low leverage. Explain why firms in these industries would prefer to have low leverage.
Include some news from an article that is less than a year old that is
applicable to this discussion.
The ProQuest database at the Saint Leo University Library website can be
a useful tool for completing this assignment. Click here for instructions on accessing ProQuest.
Saint MBA570 Module 8 Discussion Latest November
2016
Module 8 Discussion
This discussion question has two parts. Respond to both parts to receive full credit for this assignment.
Part 1: Why do firms choose to make large increases in their dividends
or start a stock repurchase program? Why would they choose one of these payout
methods over another?
Part 2: Why do firms choose to cut or eliminate their dividends? What
usually happens to the stock price of a company that does this?
Include some news or advice from an article that is less than a year old
that is applicable to this discussion.
The ProQuest database at the Saint Leo University Library website can be
a useful tool for completing this assignment. Click here for instructions on accessing ProQuest.
Saint MBA570 Module 3 Writing Assignment 1 Latest November 2016
MBA 570
Writing Assignment 1 Instructions and Rubric
Instructions
The first writing assignment is due at the end of Module 3. You are advised to begin working on the first writing assignment during
Module 1.
This writing assignment should be in an essay format. It should use two or more published news or academic articles which are
less than a year old as cited references. In your essay, you should answer the following questions:
• What are value stocks?
• What are growth stocks?
• What is the reasoning that investors use for purchasing value or
growth stocks?
• Has value or growth investing worked best over the long term?
• Do you prefer one of these investment methods? Justify your response.
• Find recent examples of news articles in which someone is described as
a value or growth investor. How successful
have they been with this method?
The essay will be in APA format and be 500-1,000 words in length (this
range includes everything in the assignment including your name, title, and
citations). Turnitin.com software will be
used to ensure that submitted assignments are original works. See the rubric on the next page for complete grading criteria.
The ProQuest database at the Saint Leo University Library website can be
a useful tool for completing this assignment. Click here for instructions on accessing ProQuest.
Hint: One way to find information for this assignment is to use the
library’s database for the Wall Street Journal or Barron’s and search for a
recent article with the words “value investor” or “growth investor” in the text
of the article.
Saint MBA570 Module 6 Writing Assignment 2 Latest November 2016
MBA 570
Writing Assignment 2 Instructions and Rubric
Instructions
The second writing assignment is due at the end of Module 6. You are advised to begin working on the second writing assignment during
Module 4.
This writing assignment should be in an essay format. It should use two or more published news or academic articles which are
less than a year old as cited references. This writing assignment addresses the values learning outcome (LO7) as
detailed in the syllabus.
For this assignment, assume that you are a corporate manager that needs
to make an important decision. Your company
currently has its largest factory (700 employees) located in the Midwestern
United States. This factory is currently not competitive in international markets and
its poor results are threatening to force the entire company into bankruptcy. The company employs 3,000 in other areas of the U.S.
You have to decide whether to keep the factory where it is or move it to
Canada or Ireland. You can only
keep one factory open. The corporate
tax rates of Canada (20%) and Ireland (15%) are much lower than the U.S. (35%). Labor costs will not change significantly because the cost of training
new employees will be offset by the replacement of highly paid senior employees
with younger employees in the other countries. The old factory needs extensive renovation which will still not leave it
as efficient as the new factories planned for the new countries. Therefore, the NPV of the capital investments involved are equal for all
three countries.
You have calculated the NPV of each choice. The NPV of keeping the U.S. factory open is $1,000,000. The NPV of
moving the factory to Canada or Ireland is $10,000,000 and $35,000,000
respectively.
In this writing assignment, you should answer the following questions:
• Where should your factory be located? Why?
• Who are the stakeholders in this decision? How did you take the
stakeholders into account when making your decision?
• How does your decision support responsible stewardship and integrity
in the context of financial management?
The essay will be in APA format and be 500-1,000 words in length (this
range includes everything in the assignment including your name, title, and
citations). Turnitin.com software will be
used to ensure that submitted assignments are original works. See the rubric on the next page for complete grading criteria.
Recent published news or academic articles are available in the ProQuest
database at the Saint Leo University Library website. Click here for instructions on accessing ProQuest.
Saint MBA570 Module 1 Quiz Latest November 2016
You own 100 shares of a Sub Chapter "S" corporation. The corporation earns $5.00 per share before
taxes. Once the corporation has paid any corporate taxes that are due, it will
distribute the rest of its earnings to its shareholders in the form of a
dividend. If the corporate tax rate is 40% and your personal tax rate on (both
dividend and non-dividend) income is 30%, then how much money is left for you
after all taxes have been paid?
$210
$300
$350
$500
EPS × number of shares × (1 - Individual Tax Rate) = $5.00 per share × 100 shares × (1 - .30) = $350
A sole proprietorship is owned by:
one person.
two or more persons.
shareholders.
bankers.
The most senior financial manager in a corporation is usually called
the:
chief executive officer.
chief financial officer.
chief operating officer.
chairman of the board
If you buy shares of Coca-Cola on the secondary market:
Coca-Cola receives the money because the company has issued new shares.
you buy the shares from another investor who decided to sell the shares.
you buy the shares from the New York Stock Exchange.
you buy the shares from the Federal Reserve.
Which of the following is not a financial statement that every public
company is required to produce?
Income Statement
Statement of Sources and Uses of Cash
Balance Sheet
Statement of Stockholders' Equity
Cash is a:
long-term asset.
current asset.
current liability.
long-term liability.
If ECE's stock is currently trading at $24.00 and ECE has 25 million shares outstanding and $100
million in shareholder equity, then ECE's market-to-book ratio is closest to
__________.
24
4
6
30
Market to Book = (MV Equity)/(BV Equity) = ($24 x 25 million)/$100
million = 6.0
Which of the following statements regarding the income statement is
incorrect?
The income statement shows the earnings and expenses at a given point in
time.
The income statement shows the flow of earnings and expenses generated
by the firm between two dates.
The last or "bottom" line of the income statement shows the
firm's net income.
The first line of an income statement lists the revenues from the sales
of products or services.
The DuPont Identity expresses the firm's ROE in terms of:
profitability, asset efficiency, and leverage.
valuation, leverage, and interest coverage.
profitability, margins, and valuation.
equity, assets, and liabilities.
Wyatt Oil has a net profit margin of 4.0%, a total asset turnover of 2.2, total assets of $525 million, and a book value of
equity of $220 million. Wyatt Oil's
current return-on-assets (ROA. is closest to
__________.
8.8%
9.5%
21.0%
22.8%
Saint MBA570 Module 2 Quiz Latest November 2016
Due to a pre-existing contract, Recycle America Inc. has the opportunity to acquire 10,000 pounds of scrap aluminum and 2,500
pounds of scrap lead for $10,750. If the current
market price for scrap aluminum is $0.83 per pound and the
current market price for lead is $1.06 per pound, then the
added benefit (cost) to you if you acquire this metal is __________.
($200)
$200
($1,925)
$1,925
If the risk-free rate of interest (rf) is 6%, then you should be
indifferent between receiving $250 in one year or:
none of these.
If the risk-free rate of interest (rf) is 3.5%, then you should be indifferent between receiving
$1,000 in one-year or:
Which of the following statements regarding Net Present Value (NPV) is
incorrect?
The NPV represents the value of the project in terms of cash today.
Good projects will have a positive NPV.
The NPV of a project is the difference between the present value of its
benefits and the present value of its costs.
When faced with a set of alternatives, choose the one with the lowest
NPV in order to minimize the preset value of costs.
Suppose that Bondi Inc. is a holding
company that owns both Pizza Hut and Kentucky Fried Chicken franchised
restaurants. If the value of Bondi is $130 million, and the Pizza Hut franchises are
worth $70 million, then what is the value of the Kentucky Fried Chicken
franchises?
$60 million
$70 million
$130 million
Unable to determine with the information provided
Suppose a security with a risk-free cash flow of $1,000 in one year
trades for $909 today. If there are no
arbitrage opportunities, then the current risk-free interest rate is closest to
__________.
8%
10%
11%
12%
Which of the following statements is false?
The process of moving a value or cash flow forward in time is known as
compounding.
The effect of earning interest on interest is known as compound interest.
It is only possible to compare or combine values at the same point in
time.
A dollar in the future is worth more than a dollar today.
Nielson Motors is considering an opportunity that requires an investment
of $1,000,000 today and will provide $250,000 one year from now, $450,000 two
years from now, and $650,000 three years from now. If the appropriate interest rate is 10%, then Nielson Motors should:
invest in this opportunity since the NPV is positive.
not invest in this opportunity since the NPV is positive.
invest in this opportunity since the NPV is negative.
not invest in this opportunity since the NPV is negative.
You are interested in purchasing a new automobile that costs $35,000. The dealership offers you a special financing rate of 6% APR (0.5%) per month for 48 months. Assuming that you do not make a down payment on the auto and you take the
dealer's financing deal, then your monthly car payments would be closest to
__________.
$729
$822
$842
$647
Which of the following statements is false?
The difference between an annuity and a perpetuity is that an annuity
ends after some fixed number of payments.
Most car loans, mortgages, and some bonds are annuities.
A growing perpetuity is a cash flow stream that occurs at regular
intervals and grows at a constant rate forever.
An annuity is a stream of N equal cash flows paid at irregular intervals.
Saint MBA570 Module 4 Quiz Latest November 2016
Consider a zero-coupon bond with a $1,000 face value and 10 years left
until maturity. If the bond is currently trading for $459, then the yield to maturity on
this bond is closest to __________.
7.5%
10.4%
9.7%
8.1%
The Sisyphean Company has a bond outstanding with a face value of $1,000
that reaches maturity in 15 years. The bond
certificate indicates that the stated coupon rate for this bond is 8% and that
the coupon payments are to be made semiannually. How much will each semiannual coupon payment be?
$60
$40
$120
$80
Which of the following statements is false?
Bond prices converge to the bond's face value due to the time effect,
but simultaneously move up and down due to unpredictable changes in bond yields.
As interest rates and bond yields fall, bond prices will rise.
Bonds with higher coupon rates are more sensitive to interest rate
changes.
Shorter maturity zero coupon bonds are less sensitive to changes in
interest rates than are longer-term zero coupon bonds.
Instructor Explanation: CH8.2
Points Received: 10 of 10
Comments:
Which of the following statements is false?
Investors pay less for bonds with credit risk than they would for an
otherwise identical default-free bond.
The yield to maturity of a defaultable bond is equal to the expected
return of investing in the bond.
The risk of default, which is known as the credit risk of the bond,
means that the bond's cash flows are not known with certainty.
For corporate bonds, the issuer may default; that is, it might not pay
back the full amount promised in the bond certificate.
Which of the following statements is false?
A common approximation is to assume that in the long run, dividends will
grow at a constant rate.
The dividend each year is the firm's earnings per share (EPS) multiplied
by its dividend payout rate.
There is a tremendous amount of uncertainty associated with any forecast
of a firm's future dividends.
During periods of high growth, it is not unusual for firms to pay out
100% of their earnings to shareholders in the form of dividends.
Von Bora Corporation (VBC) is expected to pay a $2.00 dividend at the end of this year. If you expect VBC's dividend to grow by 5% per year forever and VBC's
equity cost of capital is 13%, then the value of a share of VBS stock is
closest to __________.
$25.00
$40.00
$15.40
$11.10
When discounting dividends you should use:
the weighted average cost of capital.
the after tax weighted average cost of capital.
the equity cost of capital.
the before tax cost of debt.
Which of the following statements is false?
The total payout model allows us to ignore the firm's choice between
dividends and share repurchases.
By repurchasing shares, the firm increases its share count, which
decreases its earning and dividends on a per-share basis.
The total payout model discounts the total payouts that the firm makes
to shareholders, which is the total amount spent on both dividends and share
repurchases.
In the dividend discount model we implicitly assume that any cash paid
out to the shareholders takes the form of a dividend.
Which of the following statements is false?
The fact that a firm has an exceptional management team, has developed
an efficient manufacturing process, or has just secured a patient on a new
technology is ignored when we apply a valuation multiple.
Valuation multiples have the advantage that they allow us to incorporate
specific information about the firm's cost of capital or future growth.
For firms with substantial tangible assets, the ratio of price to book
value of equity per share is sometimes used.
Using multiples will not help us determine if an entire industry is
overvalued.
Which of the following statements is false?
The most common valuation multiple is the price-earnings (P/E) ratio.
You should be willing to pay proportionally more for a stock with lower
current earnings.
A firm's P/E ratio is equal to the share price divided by its earnings
per share.
The intuition behind the use of the P/E ratio is that when you buy a
stock, you are in sense buying the rights to the firm's future earnings and
differences in the scale of firms' earnings are likely to persist.
Saint MBA570 Module 5 Quiz Latest November 2016
You are considering purchasing a new automobile that will cost you
$28,000. The dealer offers you 4.9% APR financing for
60 months (with payments made at the end of the month). Assuming you finance the entire $28,000 and finance through the dealer,
your monthly payments will be closest to __________.
$1,454
$527
$467
$457
The effective annual rate for a credit card that charges a 19.9% APR compounded daily is closest to __________.
18.15%
19.9%
22.0%
24.2%
If the current inflation rate is 4.2% and you are earning a real rate of return on an
investment of 3.8%, then the nominal
rate on this investment is closest to __________.
3.8%
4.2%
8.0%
8.2%
Instructor Explanation: (1 + real)(1 + inf) = (1 + nom) so (1 + real)(1
+ inf) - 1 = nom; (1.038)(1.042) - 1 = .081596
If the current inflation rate is 4% and you have an investment
opportunity that pays 10%, then the real rate of interest on your investment is
closest to __________.
10.0%
14.0%
6.0%
5.8%
Which of the following statements is false?
U.S. Treasury
securities are widely regarded to be risk-free because there is virtually no
chance the government will default on these bonds.
In general, if the interest rate is r
and the tax rate is Ï„, then for each $1 invested you will earn interest
equal to r and owe taxes of Ï„ × r on the interest.
Investors may receive less than the stated interest rate if the borrowing
company has financial difficulties and is unable to fully repay the loan.
Taxes reduce the amount of interest the investor can keep, and we refer
to this reduced amount as the tax effective interest rate.
When all investors correctly interpret and use their own information, as
well as information that can be inferred from market prices or the trades of
others, they are said to have:
sensation seeking expectations.
positive expectations.
rational expectations.
confident expectations.
If investors believe that others have superior information which they
can take advantage of by copying their trades, this can lead to:
an informational cascade effect.
a disposition effect.
a sensation seeking effect.
an overconfidence bias.
The tendency to hang on to losers and sell winners is known as the:
cascade effect.
disposition effect.
overconfidence bias.
systematic behavior bias.
According to a survey of 392 CFOs conducted by John Graham and Campbell
Harvey, the most common method used in corporate America to estimate the cost
of capital is:
the CAPM.
multifactor models.
characteristic models.
the dividend discount model.
Which of the following statements is false?
If the market portfolio is efficient, then all securities and portfolios
must plot on the SML, not just individual stocks.
For most stocks the standard errors of the alpha estimates are large, so
it is impossible to conclude that the alphas are statistically different from
zero.
It is not difficult to find individual stocks that, in the past have not
plotted on the SML.
Small stocks (those with lower market capitalization) have lower average
returns.
Saint MBA570 Module 7 Quiz Latest November 2016
Nielson Motors (NM) has no debt. Its assets will
be worth $600 million in one year if the economy is strong, but only $300
million if the economy is weak. Both events are
equally likely. The market value today of Nielson's assets is $400 million. The expected return for Nielson Motors stock without leverage is closest
to __________.
-25.0%
-17.5%
-12.5%
12.5%
Which of the following is not one of Modigliani and Miller's sets of conditions
referred to as perfect capital markets?
All investors hold the efficient portfolio of assets.
There are no taxes, transaction costs, or issuance costs associated with
security trading.
A firm's financing decisions do not change the cash flows generated by
its investments, nor do they reveal new information about them.
Investors and firms can trade the same set of securities at competitive
market prices equal to the present value of their future cash flows.
the value of the firm's equity.
the market value of the firm's assets.
the value of the firm's unlevered equity.
the value of the firm's debt.
Which of the following statements is false?
Since the publication of their original paper, Modigliani and Miller’s
ideas have greatly influenced finance research and practice.
Modigliani and Miller’s Proposition I was one of the first arguments to
show that the Law of One Price could have strong implications for security
prices and firm values in a competitive market; it marks the beginning of the
modern theory of corporate finance.
Modigliani and Miller’s Proposition I holds even with taxes and
transaction costs.
The conservation of value principle for financial markets states that
with perfect capital markets, financial transactions neither add nor destroy
value, but instead represent a repackaging of risk (and therefore return).
Kroger has EBIT of $2,035 million, interest expense of $510 million, and
a 35% tax rate. The interest rate tax shield for Kroger is closest to __________.
$187 million
$332 million
$534 million
$179 million
Which of the following statements is false?
Given a 35% corporate tax rate, for every $1 in new permanent debt that
the firm issues, the value of the firm increases by $0.65.
The firm’s marginal tax rate may fluctuate due to changes in the tax
code and changes in the firm’s income bracket.
Many large firms have a policy of maintaining a certain amount of debt
on their balance sheets.
Typically, the level of future interest payments varies due to changes
the firm makes in the amount of debt outstanding, changes in the interest rate
on that debt, and the risk that the firm may default and fail to make an
interest payment.
KD Industries has 30 million shares outstanding with a market price of
$20 per share and no debt. KD has had
consistently stable earnings, and pays a 35% tax rate. Management plans to borrow $200 million on a permanent basis through a
leveraged recapitalization in which they would use the borrowed funds to
repurchase outstanding shares. The present
value of KD's interest tax shield is closest to __________.
$130 million
$200 million
$400 million
$70 million
Which of the following statements regarding recapitalizations is false?
With a recapitalization, even though leverage reduces the total value of
equity, shareholders capture the benefits of the interest tax shield up front.
Some of the original shareholders, those that sell their shares, do not
benefit from the interest tax shield involved in a recapitalization.
Leveraged recaps were especially popular in the mid- to late-1980s, when
many firms found that these transactions could reduce their tax payments.
When a firm makes a significant change to its capital structure, the
transaction is called a recapitalization.
Which of the following statements is false?
The value of a firm is equal to the amount of money the firm can raise
by issuing securities.
By reducing a firm's corporate tax liability, debt allows the firm to
pay more of its cash flows to investors.
Equity investors must pay taxes on dividends but not capital gains.
For individuals, interest payments received from debt are taxed as
income.
Which of the following statements is false?
A biotech firm might be developing drugs with tremendous potential, but
it has yet to receive any revenue from these drugs. Such a firm will not have taxable earnings. In that case, a tax-optimal capital structure does not include debt.
No corporate tax benefit arises from incurring interest payments that
regularly exceed EBIT.
The optimal level of leverage from a tax saving perspective is the level
such that interest equals EBIT.
In general, as a firm's interest expense approaches its expected taxable
earnings, the marginal tax advantage of debt increases, limiting the amount of
equity the firm should use.
Saint MBA570 Module 8 Quiz Latest November 2016
Which of the following statements is false?
The U.S. bankruptcy code
was created to organize this process so that creditors are treated fairly and
the value of the assets is not needlessly destroyed.
Because the assets of the firm might be more valuable if kept together,
creditors seizing assets in a piecemeal fashion might destroy much of the
remaining value of the firm.
Debt holders can then take legal action against the firm to collect
payment by seizing the firm’s assets.
The direct costs of bankruptcy are usually low because experienced
professionals handle the process in an efficient manner.
Instructor Explanation: CH16.2
Points Received: 10 of 10
Comments:
Which of the following statements is false?
The direct costs of bankruptcy are likely to be higher for firms with
more complicated business operations and for firms with larger numbers of
creditors, because it may be more difficult to reach agreement among many
creditors regarding the final disposition of the firm’s assets.
A prepackaged bankruptcy is an attempt by management to seize control of
the firm at the expense of creditors through the bankruptcy process.
A study of Chapter 7 liquidations of small businesses found that the
average direct costs of bankruptcy were 12% of the value of the firm’s assets.
Studies typically report that the average direct costs of bankruptcy are
approximately 3% to 4% of the pre-bankruptcy market value of total assets.
Which of the following statements is false?
Calculating the precise present value of financial distress costs is a
relatively straightforward process.
Two key qualitative factors determine the present value of financial
distress costs: the probability of financial distress and the magnitude of the
costs after a firm is in distress.
Technology firms are likely to incur high costs when they are in
financial distress, due to the potential for loss of customers and key
personnel, as well as a lack of tangible assets that can be easily liquidated.
The magnitude of the financial distress costs will depend on the
relative importance of the sources of these costs and is likely to vary by
industry.
A type of agency problem that results in shareholders gaining from
decisions that increase the risk of the firm sufficiently, even if they have
negative NPV is:
asset substitution.
debt overhang.
underinvestment.
cashing out.
Which of the following statements is false?
One disadvantage of using leverage is that it does not allow the
original owners of the firm to maintain their equity stake.
The separation of ownership and control creates the possibility of management
entrenchment; facing little threat of being fired and replaced, managers are
free to run the firm in their own best interests.
Managers also have their own personal interests, which may differ from
those of both equity holders and debt holders.
The costs of reduced effort and excessive spending on perks are another
form of agency cost.
The idea that when a seller has private information about the value of
good, buyers will discount the price they are willing to pay due to adverse
selection is known as the:
pecking order hypothesis.
signaling theory of debt.
lemons principle.
credibility principle.
Anyone who purchases the stock on or after the __________ date will not
receive the dividend.
distribution
record
CORRECT ex-dividend
declaration
Which of the following statements is false?
When a firm pays a dividend, shareholders are taxed according to the
dividend tax rate. If the firm
repurchases shares instead, and shareholders sell shares to create a homemade
dividend, the homemade dividend will be taxed according to the capital gains
tax rate.
When the tax rate on dividends exceeds the tax rate on capital gains,
shareholders will pay lower taxes if a firm uses share repurchases for all
payouts rather than dividends.
Firms that use share repurchases will have to pay a higher pre-tax
return to offer their investors the same after-tax return as firms that use
dividends.
The optimal dividend policy when the dividend tax rate exceeds the
capital gain tax rate is to pay no dividends at all.
Which of the following statements is false?
Tax rates vary by income, by jurisdiction, and by whether the stock is
held in a retirement account. Because of
these differences, firms may attract different groups of investors depending on
their dividend policy.
While many investors have a tax preference for share repurchases rather
than dividends, the strength of that preference depends on the difference
between the dividend tax rate and the capital gains tax rate that they face.
Long-term investors are more heavily taxed on capital gains, so they
would prefer dividend payments to share repurchases.
One-year investors, pension funds, and other non-taxed investors have no
tax preference for share repurchases over dividends; they would prefer a payout
policy that most closely matches their cash needs.
Which of the following statements is false?
Managers are much less committed to dividend payments than to share
repurchases.
Share repurchases are a credible signal that the shares are
under-priced, because if they are over-priced a share repurchase is costly for
current shareholders.
While an increase of a firm’s dividend may signal management’s optimism
regarding its future cash flows, it might also signal a lack of investment
opportunities.
Managers will be more likely to repurchase shares if they believe the
stock to be under-valued.
Saint MBA570 Module 1 Homework Latest November 2016
Q 1.
You are a shareholder in a C corporation. The corporation earns $ 1.72$1.72 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 35 %35%, and your personal tax rate on (both dividend
and
non-dividend) income is 30 %30%. How much is left for you after all taxes are paid?
Q 2
You are a shareholder in an S corporation. The corporation earns $ 2.06$2.06 per share before taxes. As a pass through
entity, you will receive $ 2.06$2.06 for each share that
you own. Your marginal tax rate is 30 %30%. How much per share is left for you after all taxes are paid?
Q 3
You are the CEO of a company and you are considering entering into an
agreement to have your company buy another company. You think the price might be toohigh, but you will be the CEO of thecombined, much
larger company. You know that
when the company getsbigger,
your pay and prestige will increase. What is the nature of the agency conflict here and how is it related to
ethicalconsiderations?
Q 4
What four financial statements can be found in a firm's 10-K filing? What
checks are there on the accuracy of these statements?
What four financial statements can be found in a firm's 10-K filing? (Select the
best choice below.)
A.
Balance sheet,
income
statement, statement of cash flows, and Statement of income and expenses
B.
Balance sheet,
cash budget, earnings
statement, and statement of stockholders' equity
C.
Balance sheet,
income
statement, statement of cash flows, and statement of stockholders'
equity
D.Balance sheet, asset and liability statement,
statement of cash flows,
and statement of
stockholders' equity
A.Financial statements in form 10-K are
required to be audited by a neutral third party, who checks them and ensures that the
financial statements are prepared according to GAAP and
that the information contained is reliable.
B. The accuracy of the firm's
financial statements is certified by the firm's board of directors, which is the only required check.
Q 5
Consider a project that requires an initial investment of $ 100 comma
000$100,000 and will produce a single cash flow of $ 153 comma 000$153,000 in
44 years.
Q 6
CBS's five-year
borrowing rate is 1.73 %1.73% and JPMorgan Chases' is 2.83 %2.83%. Which would you
prefer? $ 500$500 from CBS paid today or a promise that the firm will pay you $
550$550 in five years?
Which would you choose if JPMorgan Chase offered you the same alternative?
A.
$ 550$550 from JPMorgan Chase 55 years and $ 500$500 from CBS today.
B.
$ 550$550 from JPMorgan Chase 55 years and $ 550$550 from CBS in 55
years.
C.
$ 500$500 from JPMorgan Chase today and $ 500$500 from CBS today.
D.
$ 500$500 from JPMorgan Chase today and $ 550$550 from CBS in 55 years.
Q 7
Your best taxable investment opportunity has an EAR of 6.3 %6.3%. Your best
tax-free investment opportunity has an EAR of 2.7 %2.7%. If your tax rate is 25 %25%, which opportunity provides the higher after-tax
interest rate?
Q 8
Consider the price paths of the following two stocks over six time periods:
|
1
|
2
|
3
|
4
|
5
|
6
|
|
|
Stock 1
|
$ 7$7
|
$ 9$9
|
$ 11$11
|
$ 9$9
|
$ 10$10
|
$ 13$13
|
|
Stock 2
|
$ 14$14
|
$ 10$10
|
$ 7$7
|
$ 15$15
|
$ 14$14
|
$ 17$17
|
Neither stock pays dividends. Assume you are
an investor with the disposition effect and you bought at time 1 and right now
it is time 3. Assume throughout this question that you do no trading (other than
what is
specified) in these stocks.
Q 9
Each of the six firms in the table below is expected to pay the listed
dividend payment every year in perpetuity.
|
Firm
|
Dividend ($ million)
|
Cost of Capital (%/year)
|
|
S1
|
||
|
S2
|
||
|
S3
|
||
|
B1
|
||
|
B2
|
||
|
B3
|
b. Rank the three S firms by their market values and
look at how their cost of capital is ordered. What would be the expected return for a self-financing portfolio that went long on
the firm with the largest market value and shorted the firm with the lowest
market value?
Repeat using the B firms.
c. Rank all six firms by their market values. How does this ranking order the cost of capital? What would be the
expected return for a
self-financing portfolio that went long on the firm with the largest market
value and shorted the firm with the lowest market value?
(c)
but rank the firms by the dividend yield instead of the market value. What can you conclude about the dividend yield ranking compared to the
market value
ranking?
Q 10
Consider the following stocks, all of which will pay a liquidating dividend one year from now and nothing in the interim:
|
Market Capitalization
($ million)
|
Expected Liquidating Dividend ($ million)
|
Beta
|
|
|
Stock A
|
807807
|
1 comma
0001,000
|
|
|
Stock B
|
801801
|
1 comma
0001,000
|
|
|
Stock C
|
898898
|
1 comma
0001,000
|
|
|
Stock D
|
888888
|
1 comma
0001,000
|
Saint MBA570 Module 2 Homework Latest November 2016
Q 1
Honda Motor Company is considering offering a $ 2 comma 200$2,200 rebate
on its
minivan, lowering the
vehicle's price from $ 28 comma 000$28,000 to $ 25 comma 800$25,800. The marketing group estimates that this rebate will increase sales over
the next year from 49 comma 00049,000 to 67 comma 00067,000 vehicles. Suppose
Honda's profit margin with the rebate is $ 6 comma 600$6,600 per vehicle. If the change in sales is the only consequence of this decision, what
are its benefits and costs?
Is it a good idea?
Q 2
Suppose the current market price of corn is $ 3.64$3.64 per bushel. Your firm has a technology that can convert 1 bushel of corn to 3
gallons of ethanol. If the cost of
conversion is $ 1.72$1.72 per bushel, at what market price of ethanol does conversion become attractive?
Q 3
c. Which would you
prefer, $ 500$500 today or $ 500$500 in one year? Does your answer depend on when you
need the money?
Why or why not?
A.$ 500$500 today
$ 500$500 in one year
Does your answer depend on when you need the money? Why or
why not? (Select the
best choice below.)
D.No, because if you didn't need it then the $ 500$500 can be
invested and you could have more than $ 500$500 in one year.
Q 4
Your firm has a
risk-free investment opportunity with an initial investment of $ 162 comma 000$162,000 today and receipts of $ 178 comma 000$178,000 in one year. For what level of interest rates is this project attractive?
Q 5
Your firm has identified three potential investment projects. The projects and their cash flows are shown here: (Click on the
icon located on the
top-right corner of the data table below in order to copy its contents into a spreadsheet.)
Project
Cash Flow Today
(millions)
Cash Flow in One Year
(millions)
A
negative $ 14−$14
$ 25$25
B
$ 6$6
$ 5$5
C $ 25$25
negative $ 8−$8
b. If the firm can choose only one of these projects, which should it choose based on the NPV decision rule?
c. If the firm can choose any two of these projects, which should it choose based on
the NPV decision rule?
A.
Project Upper CC
Your answer is correct.
B.
Project Upper AA
C.
Project Upper BB
D.
Cannot tell
c. If the firm can choose any two of these projects, which should it choose
based on the NPV decision rule? (Select the best choice below.)
A.Project
Upper CC
project Upper AA
B.Project
Upper CC
and project Upper BB
C.Project
Upper AA
project Upper BB
D.Cannot tell
Q 6
What is the present value of $ 3 , 000$3,000 received
Q 7
Your daughter is currently 1212 years old. You anticipate that she will be going to college in 66 years. You would like to have $ 141 comma 000$141,000 in a savings account to fund
her education at that time. If the account
promises to pay a fixed interest rate of 5 %5% per year, how much
money do you need to put into the account today to
ensure that you will have $ 141 comma 000$141,000 in 66 years?
Q 8
Suppose you receive $ 160$160 at the end of each year for the next three
years.
c. Suppose you deposit the cash flows in a bank account that pays 6 %6%
interest per year. What is the
balance in the account at the end of each of the next three years (after your
deposit is made)?
How does the final bank balance compare with your answer in (b)?
Q 9
You have just received a windfall from an investment you made in a friend's
business. He will be
paying you $ 49 comma 287$49,287 at the end of this year, $ 98
comma 574$98,574 at the end of the following year, and $ 147
comma 861$147,861 at the end of the year after that (three years
from today). The interest rate is 14.8 .8% per year.
Q 10
You have just turned 30 years old, have just received your MBA, and have
accepted your first job. Now you must
decide how much money to put into your retirement plan. The plan works as
follows: Every dollar in the plan earns 9 %9% per year. You cannot make withdrawals until you retire on your 60 th60th birthday. After that point,
you can make withdrawals as you see fit. You decide that you will plan to live to 100 and work until you turn
6060. You estimate that to live comfortably in retirement, you will need $ 93 comma
000$93,000 per year starting at the end of the first year of retirement and
ending on your one hundredth birthday. You will contribute the same amount to the plan at the end of every year
that you work. How much do you need to contribute each year to fund your retirement?
Saint MBA570 Module 3 Homework Latest November 2016
Q 1
You have been offered a very long-term investment opportunity to increase
your money one hundredfold. You can invest
$ 1 comma 600$1,600 today and expect to receive $ 160 comma 000$160,000 in 4040
years. Your cost of capital for this (very risky) opportunity is 15 %. What does the IRR rule say about whether the investment should be undertaken?
What about the NPV rule?
Do they agree?
Q 2
You are a real estate agent thinking of placing a sign advertising your
services at a local bus stop. The sign will
cost $ 10 comma 000$10,000 and will be posted for one year. You expect that it will generate additional revenue of $ 1 comma
500$1,500 a month. What is the
payback
period?
Q 3
You are considering making a movie. The movie is expected to cost $ 10.2$10.2 million upfront and
take a year to make. After that, it is
expected to make $ 4.8$4.8 million in the first year it is released (end of year 2) and $ 1.8$1.8 million for the
following four years (end
of years 3 through 6) . What is the payback period of this investment? If you require a payback period
of two years,
will you make the movie?
What is the NPV of the movie if the cost of capital is 10.2 .2%? According to the NPV rule, should
you make this movie?
Q 4
AOL is considering two proposals to overhaul its network infrastructure. They have received two bids. The first bid
from Huawei will require a $ 22$22 million upfront investment and will generate
$ 20$20 million in savings for AOL each year for the next 33 years. The second bid from Cisco requires a $ 96$96 million upfront investment
and will generate $ 60$60 million in savings each year for the next 33 years.
b. If the cost of capital for each investment is 13 %, what is the
net present value (NPV) of each bid?
Suppose Cisco modifies its bid by offering a lease contract instead. Under the terms of the lease, AOL will pay $ 25$25 million upfront, and $
35$35 million per year for the next 33 years. AOL's
savings will be the same as with Cisco's original bid.
A.Cisco with lease
B.Huawei
C.Cisco without the lease
D.Take none of the bids
Q 5
Natasha's
Flowers, a local
florist, purchases fresh flowers each day at the
local flower market. The buyer has a
budget of
$ 1 comma 230$1,230
per day to spend. Different
flowers have different profit margins, and also a maximum amount the shop
can sell. Based on past
experience the shop has estimated the following NPV of purchasing each type:
|
NPV per
bunch
|
Cost per
bunch
|
Max.
Bunches
|
|
|
Roses
|
$ 3$3
|
$ 23$23
|
25
|
|
Lilies
|
$ 9$9
|
$ 25$25
|
10
|
|
Pansies
|
$ 4$4
|
$ 32$32
|
10
|
|
Orchids
|
$ 21$21
|
$ 81$81
|
5
|
What combination of flowers should the shop purchase each day?
Q 6
Pisa Pizza,
a seller of frozen pizza,
is considering introducing a healthier version of its pizza that will be low in
cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $ 15$15 million per
year. While many of these sales will be to new customers, Pisa Pizza estimates that 44 %44%
will come from customers who switch to the new, healthier pizza instead of buying the
original version.
a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza?
b. Suppose that 62 %62% of the customers who will switch from Pisa Pizza's
original pizza to its healthier pizza will switch to another brand
if Pisa Pizza does not introduce a healthier pizza. What level of incremental sales is associated with introducing the new
pizza in this case?
Q 7
Cellular Access Inc., is a cellular telephone service provider that
reported net operating profit after tax (NOPAT) of $ 257$257 million for the most
recent fiscal year. The firm had
depreciation expenses of $ 125$125 million, capital expenditures of $ 183$183 million, and no
interest expenses. Working capital
increased by $ 14$14 million. Calculate the
free cash flow for Cellular Access for the most recent fiscal year.
Q 8
Castle View Games would like to invest in a division to develop software
for video games. To evaluate
this
decision, the firm first attempts to project the working capital needs for this
operation. Its chief
financial officer has developed the following estimates (in millions
of
dollars):
(Click on the Icon located on the top-right corner of the data table below in
order to copy its contents into a spreadsheet.)
|
Year 1
|
Year 2
|
Year 3
|
Year 4
|
Year 5
|
||
|
Cash
|
55
|
1111
|
1414
|
1414
|
1414
|
|
|
Accounts
receivable
|
1919
|
2626
|
2323
|
2424
|
2626
|
|
|
Inventory
|
44
|
88
|
1212
|
1212
|
1515
|
|
|
Accounts
payable
|
1717
|
2222
|
2525
|
2626
|
3232
|
Assuming that Castle View currently does not have any working capital
invested in this
division, calculate the cash flows associated with changes in working capital
for the first five years of this investment.
(Note:
Q 9
Markov Manufacturing recently spent $ 18$18 million to purchase some
equipment used in the manufacture of disk drives. The firm expects that this equipment will have a useful life of five years, and its
marginal corporate tax rate is 35 %35%. The company plans to use straight-line depreciation.
c. Rather than
straight-line depreciation, suppose Markov will use the MACRS depreciation
method for
five-year property. Calculate the depreciation
tax shield each year for this equipment under this accelerated depreciation
schedule.
d. If Markov has a choice between straight-line and MACRS depreciation schedules, and
its marginal corporate tax rate is expected to remain constant,
which should it
choose? Why?
e. How might your answer to part (d) change if Markov anticipates that its
marginal corporate tax rate will change substantially over the next five years?
Q 10
Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will
manufacture lightweight trucks. Bauer plans to
use a cost of capital of 12.4 .4% to evaluate this project. Based on extensive
research, it has prepared the following incremental free cash flow projections (in millions
of
dollars): LOADING... .
b. Based on input from the marketing department, Bauer is uncertain about its
revenue forecast. In particular,
management would like to examine the sensitivity of the NPV to the revenue
assumptions. What is the NPV
of this project if revenues
are 10 % higher than forecast? What is the NPV if revenues are 10 % lower than
forecast?
c. Rather than assuming that cash flows for this project are constant,
management would like to explore the sensitivity of its analysis to possible
growth in revenues and operating expenses.
Specifically, management would like to assume that revenues,
manufacturing
expenses, and marketing expenses are as given in the table for year 1 and grow
by 2 %2% per year every year starting in year 2. Management also plans to assume that the initial capital expenditures (and therefore depreciation),
additions to working
capital, and continuation value remain as initially specified in the table. What is the NPV of this project under these alternative assumptions?
How does the NPV change if the revenues and operating expenses grow by 6 %6%
per year rather than by 2 %2%?
d. To examine the sensitivity of this project to the discount rate,
management would like to compute the NPV for different discount rates. Create a graph,
with the discount rate on the x-axis and the
NPV on the y-axis,
for discount rates ranging
Saint MBA570 Module 4 Homework Latest November 2016
Q 1
A 1010-year
bond with a face v
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