BFIN332 Final 14 Problems

Problem-1: (4 points) A particular security's default risk premium is 6 percent. For all securities, the inflation risk premium is 3 percent and the real interest rate is 2.5 percent. The security's liquidity risk premium is 1 percent and maturity risk premium is 2 percent. The security has no special covenants. What is the security's equilibrium rate of return?

Problem-2  (4 points) Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows:

1R1 = 3.0%, E(2R1) = 4.0%, E(3R1) = 12.0%, E(4R1) = 14.0%, Using the unbiased expectations theory, what is the current (long-term) rate for four-year-maturity Treasury securities (1R4)?

Problem-3 (4 points) HydroTech Corp stock was $50 per share a year ago when it was purchased. Since then, it paid a $4 per share dividend. The stock price is currently $45. If you owned 500 shares of HydroTech, what was your percent return? 

Problem-4: (4 points) Portfolio Return Year-to-date, Company X had earned a -3 percent return. During the same time period, Company Y earned 12 percent and Company Z earned 7 percent. If you have a portfolio made up of 50 percent Company X, 30 percent Company Y, and 20 percent Company Z, what is your portfolio return?

Portfolio return = 50%*(-3%) + 30%*12% + 20%*7% = 3.5%

 

Problem-5: 8 points) You hold the positions in the table below.

COMPANY PRICE # SHARES BETA

Goodmonth $25.00 120 1.5

Icestone $20.00 150 2.5 Bridgerock $40.00 100 – 1.0

A.    What is the beta of your portfolio?

B.      If you expect the market to earn 14 percent and the risk-free rate is 4 percent, what is the required return of the portfolio?

Problem-6: (4 points) TAB Inc. has a $1,000 (face value), 10 year bond issue selling for $1,184 that pays an annual coupon of 8.5 percent. What would be TAB's before-tax component cost of debt?

 Problem-7: (4 points) Team Sports has 6 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 200 thousand bonds ($1,000 par). If the common shares are selling for $24.50 per share, the preferred share are selling for $20 per share, and the bonds are selling for 65 percent of par, what would be the weight used for equity in the computation of Team's WACC?

Problem-8: (4 points) Suppose that TipsNToes, Inc.'s capital structure features 40 percent equity, 60 percent debt, and that its before-tax cost of debt is 9 percent, while its cost of equity is 15 percent. If the appropriate weighted average tax rate is 25 percent, what will be TipsNToes's WACC?

We = 40%,  Ke = 15%

Wd = 60%, After tax Kd = 9%*(1-25%) = 6.75%

WACC = We*Ke + Wd*Kd = 40%*15% + 60%*6.75% = 10.05%

  

Problem-9: (4 points) Suppose you sell a fixed asset for $50,000 when its book value is $60,000. If your company's marginal tax rate is 40%, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?

 

Problem-10: (7 points) Your company has spent $500,000 on research to develop a new computer game. The firm is planning to spend $100,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $5,000. The machine has an expected life of 3 years, a $100,000 estimated resale value, and falls under the MACRS 5-Year class life. Revenue from the new game is expected to be $500,000 per year, with costs of $200,000 per year. The firm has a tax rate of 35 percent, an opportunity cost of capital of 10 percent, and it expects net working capital to increase by $100,000 at the beginning of the project. What will be the net cash flow for year one of this project?

Problem-11: (4 points) Compute the NPV for Project Y and accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent.

TIME: 0 1 2 3 4 5

CASH FLOW: -1000 -2,000 3,000 0 1,000 2,500

Problem-12: (5 points) Compute the Payback statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent and the maximum allowable payback is 5 years.

TIME: 0 1 2 3 4 5

CASH FLOW: - 75 - 75 0 100 75 90

Problem-13: (4 points) Compute the IRR statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent.

TIME:                        0 1 2 3 4 5

CASH FLOW: - 75 - 75 0 100 75 90

 

Problem-14:  (8 points) Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 8 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years, respectively.

TIME: 0 1 2 3

Project A CF: $ - 10,000 $ 10,000 $ 30,000 $ 3,000

Project B CF: $ - 30,000 $ 10,000 $ 20,000 $ 50,000

Use the Profitability Index (PI) decision rule to evaluate these projects; what is the PI for each project, and which one(s) should it be accepted or rejected?

 

 

BAM560 Unit-4 Forces leading companies to pursue international operations

Explain some of the forces leading companies to pursue international operations.

BAM560 Unit-4 Examination

Q1) A code of business ethics is:
sorely needed in light of a new wave of ethical issues including product safety, employee  health, and sexual harassment
concerned with what responsibilities the firm has to employees, consumers,  environmentalists, minorities, communities, and other groups
a report that reveals how the firm's operations impact the natural environment
a set of strict regulations requiring firms to conserve energy
a series of voluntary standards in the environmental field

Q2) Simply having a code of ethics:
will ensure ethical business behavior
eliminates the need for periodic ethics workshops
is all that is necessary to sensitize people to workplace circumstances in which ethics issues may arise
is insufficient to guarantee that employees behave in an ethical manner
secures an ethics culture in the workplace

Q3) Which of the following is NOT a way that companies can help create an ethical culture in their organization?
outlining ethical expectations
giving examples of ethical situations that commonly occur in their businesses
providing code-of-conduct manuals
creating interactive exercises that pose hypothetical ethical dilemmas
discouraging whistle-blowing

Q4) ________ refers to policies that require employees to report any unethical violations they discover or see in the firm.
whistle-blowing
bribery
adultery
sustainability
stewardship

Q5) Responsibility for encouraging ethical decision making and ensuring ethical behavior in a firm  lies with:
only a firm's strategists
only a firm's managers
only a firm's shareholders
both a firm's strategists and its managers
neither a firm's strategists nor its managers

Q6) More and more firms believe that ethics training and an ethics culture:
are socially irresponsible
are admirable but damage a firm's competitive positioning
are costly and provide no practical benefit to the company
create strategic advantage
can tarnish the reputation of a firm

Q7) Ethics training programs should contain which of the following?
messages from the CEO or business owner emphasizing ethical business practices
the development and discussion of codes of ethics
rocedures for discussing unethical behavior
procedures for reporting unethical behavior
all of the above

Q8) Firms can align ethical and strategic decision making by:
omitting ethical considerations from long-term planning
excluding ethical decision making from the performance appraisal process
discouraging whistle-blowing
monitoring departmental and corporate performance regarding ethical issues
all of the above

Q9) Bribery involves:
bestowing a gift to influence the recipient's conduct
requiring employees to report any unethical violations they discover or see in the firm
prohibiting love affairs between bosses and their subordinates
encouraging firms to play a role in curing society of its ills
forcing companies to take responsibility for the impact their actions have on society

Q10) The U.S. Foreign Corrupt Practices Act and a new provision in the Dodd-Frank financial regulation-law allows company employees who bring cases of financial fraud, such as bribery, to the government's attention to receive ________ percent of any sum recovered.
less than 10
exactly 20
up to 30
about 40
at least 50

Q11) The United Kingdom's new bribery law:
is less stringent than the similar U.S. FCPA
carries a minimum 10-year prison sentence for those convicted of bribery
allows foreign companies doing business in the UK to bribe officials if that is their national convention
stipulates that failure to prevent bribery is an offense
all of the above

Q12) According to a recent Wall Street Journal article, ________ percent of all firms sampled had no restrictions on boss-subordinate love affairs at work.
5
13
24
39
80

Q13) According to the text, the first social responsibility of any business is to:
make enough profit to cover the costs of the future, because if this is not achieved then no other social responsibility can be met
avoid laying off employees so as to protect the employees' livelihood, even if that decision  may force the firm to liquidate
engage in social activities that have no economic benefits, to avoid the appearance of a public relations gimmick
offer courses and training in environmental management
none of the above

Q14) Social policy can best be defined as:
The responsibilities a firm has to employees, consumers, environmentalists, minorities, communities, shareholders, and other groups.
A document providing behavioral guidelines that cover daily activities and decisions within a firm.
An SEC mandate to report any unethical behavior.
The legal requirement to reveal how a firm's operations impact the natural environment.
Mandatory technical standards that result in an environmental management system.

Q15) Which of the following was among the most admired companies for social responsibility in  2012 according to Fortune magazine?
GDF Suez
China Railway Group
China Railway Construction
China State Construction Engineering
Kirin Holdings

Q16) ________ was socially responsible in the wake of the earthquake and tsunami that devastated Japan in 2011; it also was able to get supplies to people who needed them following Hurricane Katrina.
China Railway Group
GDF Suez
Walmart
RWE
Marquard & Bahls

Q17) Firms should strive to engage in social activities that:
have economic benefits
have no economic benefits
are detrimental to economic growth
drain financial resources
garner goodwill only, not profits

Q18) The U.S. government's OPIC
offers insurance to offset some risks of doing business internationally
provides insurance to eliminate all of the risks of doing business internationally
gives informational seminars about the risks associated with doing business internationally
requires that paperwork be filed by U.S. companies desiring to do business internationally
discourages foreign companies from doing business in the United States
Q19) All of the following are potential advantages to initiating, continuing, and/or expanding international operations EXCEPT:
firms can gain new customers for their products
foreign operations can absorb excess capacity, reduce unit costs, and spread economic risks over a wider number of markets
foreign operations can allow firms to establish low-cost production facilities in locations  close to raw materials and/or cheap labor
foreign operations could be seized by nationalistic factions
foreign operations may result in reduced tariffs, lower taxes, and favorable political  treatment

Q20) Which of the following is a potential advantage of conducting international operations?
competitors in foreign markets may not exist, or competition may be less intense than in  domestic markets
dealing with two or more monetary systems can complicate international business operations
differing language, culture, and value systems can make communication difficult
gaining an understanding of regional organizations is difficult but is often required in doing business internationally
all of the above

Q21) ________ can enable firms to learn the technology, culture, and business practices of other people and to make contacts with potential customers, suppliers, creditors, and distributors in foreign countries.
economies of scale
joint ventures
low-cost production facilities
reduced tariffs
domestic operations

Q22) A firm's power and prestige in domestic markets may be significantly enhanced if the firm  competes globally:
which can translate into improved negotiating power among important groups
though this rarely results in a practical advantage
but this can hurt its bargaining power with suppliers and distributors
yet this does nothing to improve its position with creditors
which can alienate the firm from its domestic creditors, suppliers, and distributors

Q23) All of the following are potential disadvantages to initiating, continuing, or expanding business across national borders EXCEPT:
Firms confront different social, cultural, and political forces when doing business  internationally, which can make communication in the firm difficult.
Keeping informed about the number and nature of competitors is more difficult when doing business internationally.
Foreign operations can absorb excess capacity, reduce unit costs, and spread economic  risks over a wider number of markets.
Dealing with two or more monetary systems can complicate international business  operations.
Foreign operations could be seized by nationalistic forces.e.

Q24) Strengths of competitors in foreign lands are often ________, and weaknesses are often ________.
overestimated; overestimated
overestimated; underestimated
underestimated; underestimated
underestimated; overestimated
none of the above

Q25) In 2012, ________ African countries held democratic elections.
3
13
23
31
43

BAM560 Unit-3 Examination

Q1) Conflict in an organization is:
always bad
always good
not always bad
a sign of bankruptcy
completely avoidable

Q2) What are the three categories of approaches for managing and resolving conflict?
avoidance, defusion, and confrontation
avoidance, apathy, and defusion
ignorance, indifference, and apathy
defusion, apathy, and avoidance
indifference, avoidance, and role-playing

Q3) Which approach for managing and resolving conflict involves exchanging members of conflicting parties so that each can gain an appreciation of the other's point of view?
avoidance
resistance
compliance
defusion
confrontation

Q4) Which approach for managing and resolving conflict involves ignoring the problem in hopes that the conflict will resolve itself?
avoidance
resistance
compliance
defusion
confrontation

Q5) Which approach for managing and resolving conflict involves playing down differences between conflicting parties, while accentuating similarities and common interests?
avoidance
resistance
compliance
defusion
confrontation

Q6) Why do changes in company strategy often require changes in the way an organization is structured?
Structure dictates how goals and objectives will be established.
Structure dictates how resources will be allocated.
Structure should be designed to facilitate the strategic pursuit of a firm.
all of the above
none of the above

Q7) What type of organizational structure promotes specialization of labor and allows rapid decision making?
divisional structure by product
functional structure
divisional structure by customer
strategic business unit
matrix structure

Q8) Which organizational structure is the most widely used?
departmental
strategic business unit
functional
decentralized
matrix

Q9) Medium-sized firms tend to use which type of structure?
divisional
matrix
SBU
functional
centralized

Q10) Which statement is NOT true?
Improved quality and service often result from an improved management information system.
In many firms, information technology is doing away with the workplace and allowing  employees to work at home or anywhere, anytime.
Like inventory and human resources, information is now recognized as a valuable organizational asset that can be controlled and managed.
Having an effective management information system may be the most important factor in differentiating successful from unsuccessful firms.
Computer vulnerability has been eradicated by recent innovations, and it is now possible to secure and safeguard all corporate communications, files, and business conducted over the Internet.

Q11) The first step in performing projected financial analysis is to:
estimate increases in debt.
take an inventory of goods.
calculate the projected net income.
prepare the projected balance sheet.
prepare the projected income statement.

Q12) Which element in the projected income statement CANNOT be forecasted using the percentage-of-sales method?
Interest expense
Cost of goods sold
Administrative expense
Selling expense
All of these items can be forecasted using the percentage-of-sales method.

Q13) Which of these is the most common type of budgeting time frame?
Annual
Monthly
Quarterly
Every decade
Daily

Q14) What entails developing schematic representations that reflect how your products or services compare to competitors' on dimensions most important to success in the industry?
perceptual mapping
market segmentation
market penetration
unrelated diversification
capital budgeting

Q15) Which is NOT a required step in perceptual mapping?
Select key criteria that effectively differentiate products or services in the industry.
Serve two segments with the same strategy.
Plot major competitors' products or services in the resultant matrix.
Identify areas in the positioning map where the company's products or services could be most competitive in the given target market.
Develop a marketing plan to position the company's products and services appropriately
Q16) An area on a perceptual map without ideal points indicates a:
market segment
demand void
vacant niche
multidimensional scale
product reposition

Q17) Multidimensional scaling is used to determine:
the size of a new building
the size of a new department
the amount of high-tech equipment a firm needs
perceptual mapping
market segmentation

Q18) If success for one organizational department means failure for another department, then strategies may be:
synergistic.
inconsistent.
trendy.
feasible.
advantageous.

Q19) A revised ________ should focus on changes in the organization's management, marketing, finance and accounting, production and operations, research and development (R&D), and management information systems (MIS) strengths and weaknesses.
EPM matrix
vision
IFE matrix
mission
EFE matrix

Q20) What corrective actions might a firm take during strategy evaluation?
Revise objectives.
Sell a division.
Revise the business mission.
Issue stock.
all of the above

Q21) Research suggests that which of the following is one of the best ways to overcome individuals' resistance to change in strategy evaluation?
Participation
Rational argument
Emotional reactions
Laissez-faire system
Command-and-control

Q22) Which of the following is NOT a key attribute that serves as one of the evaluative criteria for Fortune's "America's Most Admired Companies"?
Amount of physical resources
People management
Innovativeness
Social responsibility
Financial soundness

Q23) Corrective action should do all of the following EXCEPT:
improve internal weaknesses.
avoid external opportunities.
strengthen an organization's competitive position.
capitalize upon internal strengths.
avoid external threats.

Q24) Which of the following is true regarding the design of a firm's strategy-evaluation system?
It should be determined based on the unique characteristics of a company.
It does not need to take into account the organization's size.
There is one ideal system.
The management style of a firm has no bearing on the design.
There is a one-size-fits-all system that works for all companies.

Q25) All of the following are reasons to be completely open as opposed to secretive with the strategy process EXCEPT:
Openness limits rival firms from imitating or duplicating the firm's strategies.
All levels of today's workforce exhibit increased education and diversity, making such contributions valuable.
Stakeholders have greater basis for understanding and committing to a firm that is open.
Managers, employees and other stakeholders can readily contribute to the process.
Participation and openness enhance understanding, commitment and communication within the firm.

BAM560 Unit-3 Company strategy evaluation

Describe each of the activities that comprise strategy evaluation.

BAM560 Unit-2 Examination

Q1) Any object, act, event, quality, or relation used to convey meaning is known as a:
myth
rite
value
symbol
metaphor

Q2) Metaphors are:
several rites connected together
shorthand of words used to capture a vision or to reinforce old or new values
narratives based on true events
fictional stories
any objects, acts, events, qualities, or relations used to convey meaning

Q3) What is the essential bridge between the present and the future that increases the likelihood of . achieving desired results?
motivating
planning
controlling
staffing
organizing

Q4) All of the following are basic duties of management EXCEPT:
staffing
planning
consolidating
organizing
motivating

Q5) Which of the following does the text call an up-front investment in success?
planning
organizing
motivating
staffing
controlling.

Q6) Which function of management includes areas such as job design, job specifications, job analysis, and unity of command?
planning
organizing
motivating
staffing
controlling

Q7) Who does a planning horizon of two to five years apply to?
top-level management
general management
middle-level management
lower-level management
aAll levels of management

Q8) Synergy:
is the 2 + 2 = 5 effect
can result in powerful competitive advantages
can be developed by an organization through planning
exists when everyone pulls together as a team that knows what it wants to achieve
all of the above

Q9) Which management function includes breaking tasks into jobs, combining jobs to form departments, and delegating authority?
motivating
staffing
organizing
controlling
planning

Q10) Which function of management is concerned with span of control and chain of command?
planning
organizing
controlling
staffing
motivating

Q11) Which of the following is the process of influencing people to accomplish specific objectives?
staffing
motivating
planning
controlling
organizing

Q12) Integration strategies are sometimes collectively referred to as which of the following categories of strategies?
horizontal integration
diversification
vertical integration
stuck-in-the-middle
hierarchical integration

Q13) Websites that sell products directly to consumers are examples of which type of strategy?
backward integration
product development
forward integration
horizontal integration
conglomerate diversification

Q14) Today McDonald's owns about ________ percent of its restaurants.
9
20
50
67
89

Q15) Which of these strategies is effective when the number of suppliers is small and the number of  competitors is large?
conglomerate diversification
forward integration
concentric diversification
backward integration
horizontal diversification

Q16) Backward integration is effective in all of these cases EXCEPT:
when an organization competes in an industry that is growing rapidly
when an organization has both capital and human resources to manage the new business of supplying its own raw materials
when an organization needs to acquire a needed resource quickly
when the advantages of stable prices are not important
when present suppliers have high profit margins

Q17) What refers to a strategy of seeking ownership of, or increased control over a firm's competitors?
forward integration
conglomerate diversification
backward integration
horizontal integration
concentric diversification

Q18) In which situation would horizontal integration be an especially effective strategy?
when an organization can gain monopolistic characteristics in a particular area or region without being challenged by the federal government for "tending substantially" to reduce competition
when an organization competes in a slowing industry
when decreased economies of scale provide major competitive advantages
when an organization has neither the capital nor human talent needed to successfully manage an expanded organization
when competitors are succeeding due to managerial expertise or having particular resources an organization possesses

Q19) The two internal dimensions represented on the axes of the SPACE Matrix are:
competitive position and financial position.
financial position and stability position.
stability position and industry position.
industry position and internationalization.
internationalization and competitive position

Q20) In the BCG Matrix, which element represents the industry growth rate in sales, measured in  percentage terms?
second quadrant
third quadrant
x-axis
first quadrant
y-axis

Q21) Forward integration would be an appropriate strategy for which of the following types of  divisions in the BCG Matrix?
Cat
Dogs
Failures
Star
Question Marks

Q22) Firms located in which quadrant of the Grand Strategy Matrix are in an excellent strategic  position?
I
II
III
IV
V

Q23) According to the Grand Strategy Matrix, which strategy is recommended for a firm with rapid  market growth and a strong competitive position?
Joint venture
Market penetration
Unrelated diversification
Liquidation
Retrenchment

Q24) Which of these is a limitation of QSPM?
It makes it more likely that key factors will be overlooked or weighted inappropriately.
It requires intuitive judgments and educated assumptions.
It is prohibitively expensive.
Strategies cannot be examined sequentially.
Only a few strategies can be evaluated at once

Q25) How many cells are in a SWOT matrix?
two
four
six
eight
nine

BAM560 Unit-2 Effective financial ratio analysis

Discuss what needs to be completed, besides the calculation and interpretation of ratios, to complete an effective financial ratio analysis