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W1 Balance sheet Discussion Question 1 :
Review the fictitious company Balance Sheet in Chapter 2: Table 2.1 in the textbook and Income Statement in Chapter 2: Table 2.2 based on a fictitious company.
● What do you believe the significance of each of these is for financial management?
● Why did you answer the way you did?
W1 Financial Manager Discussion Question 2 :
For this DQ you need to pair up with a classmate. Meet on Zoom (and record the meeting) to discuss the prompt below. Post the recorded discussion question session link with the names of those who participated in your DQ.
● Suppose you were the financial manager of a not-for-profit business (a not-for-profit hospital, perhaps).
○ What kinds of goals do you think would be appropriate? Why?
W2 Return on Investment Discussion Question 1:
A ratio that is widely used is return on investment. Return on investment is calculated as net income divided by the sum of long-term liabilities plus equity.
● What do you think return on investment is intended to measure?
● What is the relationship between return on investment and return on assets?
W3 Mini Case: Planning for Growth at S&S Air” Discussion Question 1 :
Review “Mini Case: Planning for Growth at S&S Air” in your textbook on page 129, also found at the end of Chapter 4 in your textbook. Then, answer the following questions:
● Calculate the internal growth rate and sustainable growth rate for S&S Air. What do these numbers mean? How do you know?
● S&S Air is planning for a growth rate of 12% next year. Calculate the EFN for the company assuming the company is operating at full capacity. Can the company’s sales increase at this growth rate? Explain your reasoning.
● Most assets can be increased as a percentage of sales. For instance, cash can be increased by any amount. However, fixed assets must be increased in specific amounts because it is impossible, as a practical matter, to buy part of a new plant or machine. In this case, a company has a “staircase” or “lumpy” fixed cost structure. Assume S&S Air is currently producing at 100% capacity. As a result, to increase production, the company must set up an entirely new line at a cost of $5,000,000. Calculate the new EFN with this assumption. What does this imply about capacity utilization for the company next year?
W3 Long-Term Financial Planning Discussion Question 2 :
Review the following video about
Silver Foil Surfer
Long term and short term planning animated
Nedoshepa, A. (2016, July 7). Long term and short term planning animated [Video]. YouTube.
● Why is long-term financial planning important for companies and individuals?
● As you begin your career, what are two things that you can do to prepare for your personal, long-term financial goals?
● What is one short-term financial goal you have for yourself as you begin your career?
● What is one long-term financial goal you have for yourself as you begin your career?
W4 TMCC Discussion Question 1 :
Toyota Motor Credit Corporation (TMCC), a subsidiary of Toyota Motor Corporation, offered some securities for sale to the public on March 28, 2008. Under the terms of the deal, TMCC promised to repay the owner of each security $100,000 on March 28, 2038, but investors would receive nothing until then. Investors paid TMCC $24,099 for each of these securities; so they paid $24,099 on March 28, 2008 for the promise of a $100,000 payment 30 years later.
● Why would TMCC be willing to accept such a small amount today ($24,099) in exchange for a promise to repay about four times that amount ($100,000) in the future?
● A feature of this particular deal is that TMCC has the right to buy back the securities on the anniversary date at a price established when the securities were issued. What impact does this feature have on the desirability of this security as an investment?
W4 “Mini Case: The MBA Decision” Discussion Question 2 :
Review “Mini Case: The MBA Decision” in your textbook on page 200, or at the end of Chapter 6 in your textbook. Then, answer the following questions:
● How does Ben’s age affect his decision to get an MBA?
● What other, perhaps non-quantifiable, factors affect Ben’s decision to get an MBA?
● Assuming all salaries are paid at the end of each year, what is the best option for Ben—from a strictly financial standpoint?
● Ben believes that the appropriate analysis is to calculate the future value of each option. How would you evaluate this statement?
● What initial salary would Ben need to receive to make him indifferent between attending Wilton University and staying in his current position?
● Suppose, instead of being able to pay cash for his MBA, Ben must borrow the money. The current borrowing rate is 5.4%. How would this affect his decision?
W6 Dividend Discussion Question 1 :
Four years ago, Bling Diamond, Inc., paid a dividend of $1.65 per share. The company paid a dividend of $2.10 per share yesterday. Dividends will grow over the next five years at the same rate they grew over the last four years. Thereafter, dividends will grow at 5% per year.
● What will the company’s dividend be in seven years?
● Based on the dividend growth model, what are the two components of the total return on a share of stock? Which do you think is typically larger?
W6 The Utah Mining Corporation Discussion Question 2 :
The Utah Mining Corporation is set to open a gold mine near Provo, Utah. According to the treasurer, Monty Goldstein, it is a “golden opportunity.” The mine will cost $3,400,000 to open and will have an economic life of 11 years. It will generate a cash inflow of $575,000 at the end of the first year, and the cash inflows are projected to grow at 8% per year for the next 10 years. After 11 years, the mine will be abandoned. Abandonment costs will be $450,000 at the end of Year 11.
● What is the IRR for the gold mine?
● The Utah Mining Corporation requires a return of 13% on such projects. Should the mine be opened
W7 Capital Markets Discussion Question :
After you graduate from college and start your professional career, you will need to consider investing for your retirement. A 401(k) plan is a retirement plan offered by many companies. Such plans are tax-deferred savings vehicles, meaning that any deposits you make into the plan are deducted from your current pretax income, so no current taxes are paid on the money. For example, assume your salary will be $50,000 per year. If you contribute $3,000 to the 401(k) plan, you will pay taxes on only $47,000 in income. There are also no taxes paid on any capital gains or income while you are invested in the plan, but you do pay taxes when you withdraw money at retirement. As is fairly common, the company also has a 5% match. This means that the company will match your contribution up to 5% of your salary, but you must contribute the amount that you want matched, up to the maximum.
The 401(k) plan has several options for investments, most of which are mutual funds. A mutual fund is a portfolio of assets. When you purchase shares in a mutual fund, you are actually purchasing partial ownership of the fund’s assets. The return of the fund is the weighted average of the return of the assets owned by the fund, minus any expenses. The largest expense is typically the management fee, paid to the fund manager. The management fee is compensation for the manager, who makes all of the investment decisions for the fund.
Consider the following questions based on the history of capital markets.
● What advantages do mutual funds offer compared to the company stock?
● Assume that you invest 5 percent of your salary and receive the full 5 percent match from your employer. What EAR do you earn from the match? What conclusions do you draw about matching plans?
W8 ABC Company Discussion Question :
ABC Company has hired you to explain the criteria for assessing the performance of a security, specifically expected rate of return, standard deviation of rate of return, and coefficient of variation (CV). They also want you to show how, by forming a portfolio, an instrument can be generated that has properties better than each of its constituents in terms of the standard deviation of rate of return and CV. How would you explain and show this information to ABC Company?