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Questions and Answers of
Finance
What do we mean when we say a venture is insolvent?
Compare and contrast (a) Balance sheet insolvency and (b) Cash flow insolvency.
What are some of the basic requirements of a successful turnaround plan?
Define operations restructuring and describe how it can be implemented to escape financial distress.
Define asset restructuring and describe how it can be implemented to escape financial distress.
Define financial restructuring and describe what is meant by debt payments extension and debt composition change.
What is a private workout? Also, describe some of the characteristics of ventures that are likely to engage in private workouts.
What is a private liquidation? What does the process of assignment mean?
Describe a venture bankruptcy. Also, indicate the difference between a voluntary bankruptcy petition and an involuntary bankruptcy petition.
Briefly describe the common pool and holdout problems that often make it necessary for a venture to enter into a court-supervised reorganization.
Briefly define the following terms: cram-down procedure, debtor-in-possession financing, and prepackaged bankruptcy.
Describe the absolute priority rule.
Describe the business model turnaround Necton undertook. Comment on what you think would have been the challenges and your perceptions about the likelihood the new business model will succeed.
It was shown earlier in this chapter that Northland Industries was suffering from balance sheet insolvency. Two scenarios are possible for Northland in Year 3. In scenario 1, Year 3 for Northland is
It was shown earlier in the chapter that Westland Industries was suffering from cash flow insolvency in terms of its earnings before interest, taxes, and depreciation (EBITDA). Two scenarios are
It was shown earlier in the chapter that Eastland Industries was suffering from cash flow insolvency. Assume that scenario 1 projects that Year 3 and following years will be like the results incurred
Following are the financial statements for the Chenhai Manufacturing Corporation for 2009 and 2010. The venture is in financial distress and hopes to turn around its financial performance in the
EnCal is a small, California-based power company specializing in power generation methods that use clean-burning fuels and renewable natural resources. However, due to California’s complex and
Endco is a wireless solutions provider that facilitates wireless Internet access through small remote devices that connect to portable computers. During the past several years, Endco was lavished
The average American home is between 2000 and 2500 square feet in size. Jay Shafer’s hand-crafted 89-square-foot house on wheels is so small he can almost parallel-park it. Ecological concerns have
Most people who start small businesses are aware of the high failure rate and the reasons for it. Why, then, do some take no steps to protect their firms from failure? What steps should they take?
Do average citizens benefit from the activities of the SBA, or is the SBA just another way to spend our tax money?
Would you rather own your own business independently or become a franchisee? Why?
The Chocolate Bar has grown into an international business, thanks to founder Alison Nelson’s deal with Dubai entrepreneur Mary Ghorbial. Nelson chose licensing instead of franchising because she
What information would you need to determine whether a particular business is small according to SBA guidelines?
Which two areas of business generally attract the most small businesses? Why are these areas attractive to small business?
Distinguish among service industries, distribution industries, and production industries.
What kinds of factors encourage certain people to start new businesses?
What are the major causes of small-business failure? Do these causes also apply to larger businesses?
Briefly describe four contributions of small business to the American economy.
What are the major advantages and disadvantages of smallness in business?
What are the major components of a business plan? Why should an individual develop a business plan?
Identify five ways in which the SBA provides management assistance to small businesses.
Identify two ways in which the SBA provides financial assistance to small businesses.
Why does the SBA concentrate on providing management and financial assistance to small businesses?
What is venture capital? How does the SBA help small businesses to obtain it?
Explain the relationships among a franchise, the franchisor, and the franchisee.
What does the franchisor receive in a franchising agreement? What does the franchisee receive? What does each provide?
Cite one major benefit of franchising for the franchisor. Cite one major benefit of franchising for the franchisee.
Finagle A Bagel, a fast-growing small business co-owned by Alan Litchman and Laura Trust, is at the forefront of one of the freshest concepts in the food-service business: fresh food. Each of the
The two college students who started Newbury Comics have become serious business owners. Mike Dreese and John Brusger started Newbury Comics in 1978 with $2,000 and a valuable comic book collection.
Do you agree that it is impossible for a firm to avoid mistakes? Why or why not?
How can a firm speed up its awareness of emerging problems so that it can take corrective action? Be as specific as you can.
Large firms tend to err on the side of conservatism and are slower to take corrective action than smaller ones. Why do you suppose this is?
Which is likely to be more costly to a firm, errors of omission or errors of commission? Why?
So often we see the successful firm eventually losing its pattern of success. Why is success not more enduring?
You are a management consultant and have been asked by Messrs. Schmidt, Page, and Brin to investigate the public perception of Google as unresponsive, self-centered, and dangerously cocky. How would
Google’s customer service has been criticized. How would you improve this situation? Be specific. If you want to make some assumptions, state them clearly and keep them reasonable.
In a previous learning insight regarding fostering innovative thinking in an organization, we noted that top management receptivity was needed. Going beyond top management support for innovative
1. Do you see any downside to these workplace amenities?2. Would these influence your choosing to work for Google despite less money?Employees worked long hours but were treated like family. There
So was the success of Larry and Sergey mostly due to tremendous luck? What do you think?
What is targeted advertising?a. How is it revolutionizing the advertising industry?b. How is this affecting newspapers and TV?c. Is targeted advertising desirable for all firms?
What are the various directions for innovation to take? Can a mature firm in a stagnant industry pursue innovation? How successful is this likely to be?
Would you describe Google as a happy ship? Is a happy ship always the most efficient and innovative? Why or why not?
Do you think Google’s drive for great growth faces serious obstacles? If so, how might it overcome them?
On balance, do you think Google has a serious public relations problem?
What is a strategic window of opportunity? What kind of firms are most likely to discover such a window?
As a Google stockholder, should you be worried if the Microsoft merger with Yahoo goes through? Why or why not? Is there anything Google can do to prevent it?
As a Starbucks senior executive, describe how you would defend against McDonald’s.
You have been given the assignment by Howard Schultz to reevaluate the growth policy. Present your recommendations and rationale as persuasively as possible.
Be a Devil’s Advocate. The decision is being considered of going to TV advertising, as well as drive-through windows, thus becoming more like the successful fast-food restaurants. What arguments
The biggest roadblock to entrepreneurship is financing. Banks usually are not receptive to funding unproven new ventures, especially for someone without a track record. Given that most would-be
How enduring do you think this gourmet coffee and coffeehouse experience will be? Do you think lower-price competitors are going to take many customers from Starbucks? Do you agree from the above
Your prognosis, please, for Schultz’s proposals for turning Starbucks around.
Can Schultz’s business model be challenged?
How would you prove that happy employees lead to greater sales?
Do you see any limits to Starbucks’s growth?
Would drive-through windows make Starbucks more attractive or less attractive? Why?
Several recent surveys have found that Starbucks coffee in blind taste tests is not rated any higher by consumers than McDonald’s, Dunkin’ Donuts, and some local coffee houses. Yet Starbucks
“Starbucks’s unspoken strategy for repeat business is coffee so strong in caffeine that customers become addicted to it like tobacco. Is this a good citizen?” Comment.
That’s when we discovered we were bringing people into the stores that hadn’t had coffee before.” These words of Michelle Gass have interesting implications. Evaluate them on several dimensions.
Debate this issue: Starbucks is reaching the limits of its growth without drastic change. (The side that espouses drastic change should give some attention to the most likely directions for such
Debate the issue of employee benefits during a time of falling profits and stock prices. One group should offer its arguments for dropping some or most of the employee health and profit-sharing
You are Jim Koch. You have just learned that it has taken Howard Schultz of Starbucks ten years from going public to reach $3.3 billion in revenues. It has taken you ten years to grow Boston Beer to
It is 1986, and Boston Beer is beginning its growth after hiring Pittsburgh Brewery to produce its beer. Jim Koch has charged you with coordinating the efforts at Pittsburgh Brewery, paying
A strategic window is an opportunity in the marketplace, an opportunity that no competitor has yet recognized, and one that fits well with the firm’s competencies. Strategic windows often last for
Have you have ever fallen victim to a price/quality misperception? How does one determine quality for an alcoholic beverage such as vodka, gin, and scotch, as well as beer? By the taste? The
Have you ever tried one of the Boston Beer brews? If so, how did you like the taste? Was it worth the higher price?
The investment community evidently thought Boston Beer had great growth potential to have bid up the initial price so quickly. Why do you suppose so many fell into this trap? Or was Jim Koch a poor
“The myriad specialty beers are but a fad. People will quickly tire of an expensive, strong-flavored beer. Much of it is just a gimmick.” Discuss.
What problems do you see retailers facing with the burgeoning number of different beers today? What might be the implications of this?
Playing the devil’s advocate (one who takes an opposing view for the sake of argument and deeper analysis), critique the strategy of charging some of the highest prices in the world for your beer.
We saw the detection of a problem with the freshness of a beer at a restaurant by Jim Koch himself. How can Boston Beer prevent such incidents from happening again? Can such distributor negligence or
Do you think Boston Beer can continue to compete effectively against the giant brewers who are moving with their infinitely greater resources into the specialty beer market with their own microbrews?
In 1998, Boston Beer produced more than two dozen styles of beer. Then a few years later it was down to just a few. Now it’s up to more than 21 again. Do you see any problems with this?
Debate how Boston Beer should commit the $100 million it received in late 1995 from the public stock offering. In particular, debate whether the bulk of the proceeds should go to building its own
Find the inverse of the givenmatrix
Oxon Ltd has ordinary shares in issue with a nominal value of $1. The dividend payout ratio is 20% and the gross dividend yield is 4%. The earnings per share is $0.60. What is the price/earnings
A stock you are evaluating just paid an annual dividend of $2.50. Dividends have grown at a constant rate of 1.5 percent over the last 15 years and you expect this to continue.a. If the required rate
Given that a portfolio’s return has a mean of 12% and a standard deviation of 14%, find the end points of its 95% confidence interval, assuming a normal distribution.""The answers may be:a) -2% and
What exactly does it mean to say that the goal is to maximize shareholder wealth?
The real risk-free rate is 3.55%, inflation is expected to be 2.55% this year, and the maturity risk premium is zero. Taking account of the cross-product term, i.e., not ignoring it, what is the
5-year Treasury bonds yield 6.4%. The inflation premium (IP) is 1.9%, and the maturity risk premium (MRP) on 5-year T-bonds is 0.4%. There is no liquidity premium on these bonds. What is the real
If the returns on two stocks are highly correlated, what does this mean? If they have no correlation? If they are negatively correlated?
You are an investment adviser and a client makes the following statement: I do not want a diversified portfolio since I will never get the highest possible return. How do you respond to your client?
You have a portfolio created from two assets. As you add more of the lower risk asset to your portfolio, the risk of your portfolio increases. What do you know about your current portfolio?
Why is the minimum variance portfolio important in regard to the Markowitz efficient frontier?
Repeat Questions 1 and 2 assuming that all three states are equally likely.
Calculate the expected returns for Roll and Ross by filling in the following table (verify your answer by expressing returns as percentages as well asdecimals):
Calculate the standard deviations for Roll and Ross by filling in the following table (verify your answer using returns expressed in percentages as well asdecimals):
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