Need help with these discussion postings (in a document) and assignments (all in separate files), all directions are included as well.

FINANCE DIRECTIONS Need to provide 1 original post substantial response for the questions presented. (Minimum 250 words) In addition, you need to provide at 2 more Secondary responses to the original post regarding the question. (Minimum 150 words) APA FORMAT with 1 in text Citation and Reference each post. NO COPY AND PASTE PLEASE!!! D1 What "lessons" do you believe we "should have learned" from the record setting decline in the financial markets since the Dow Jones Industrial Average fell from a "high of 14,000+ index points" in mid-year 2007, to the low in the vicinity of 5,400 in late November, 2008? Original 1 Secondary 1 Secondary 2 D2 "The goal of financial management is to take actions which maximize the value of a firm's stock. Those actions will eventually appear in the firm's financial statement, so a general understanding of financial statements is very important for the manager." Given the recent failure of many financial institutions, do you believe business leaders really understand and use all of the concepts and principles we teach in accounting, finance, and economics? In addition, do you believe financial managers are truly concerned about maximizing the value of a firm's stock? Why or why not? Original 1 Secondary 1 Secondary 2 D3 Ratio analysis can provide one with very useful information; however, there are limitations to ratio analysis. What are some of these limitations? In addition, what qualitative factors should analyst consider when evaluating a company's likely future financial performance? Original 1 Secondary 1 Secondary 2 D4 Explain why this statement is true: \"A dollar today is worth more than a dollar received next year\". Is this statement always true? If not, when would it not be true? Finally, provide an example that illustrates this idea of a dollar today being worth more than a dollar received next year? Original 1 Secondary 1 Secondary 2 D5 Do you think that the Federal Government has set a precedence for dealing with future financial crisis given the recent bailouts of our "financial institutions," our "companies," and a "stimulus package" for the general public? Why or why not? Original 1 Secondary 1 Secondary 2 D6 Describe some factors that are generally beyond the firm's control but still affect its cost of capital? In addition, explain how a change in interest rates in the economy would be expected to affect each component of the weighted average cost of capital. Original 1 Secondary 1 Secondary 2 D7 If a firm can structure a project such that expenditures can be made in stages rather than all at the beginning, how would this affect the project's risk and expected NPV? Explain. Original 1 Secondary 1 Secondary 2 FIN 612 Managerial Finance Week One Assignment Your assignment for this week is to complete the following questions and problems from Chapter 1. Please submit your complete assignment in the course room by the due date. Chapter 1 Questions (1.1) Define each of the following terms: a. Limited partnership; limited liability partnership b. Stockholder wealth maximization c. Money market; capital market; primary market; secondary market e. Private markets; public markets g. Mutual fund; money market fund h. Physical location exchanges; computer/telephone networks (1-2) What are the three principal forms of business organization? What are the advantages and disadvantages of each? (1-3) What is a firm's fundamental, or intrinsic, value? What might cause a firm's intrinsic value to be different from its actual market value? (1-4) Edmund Enterprises recently made a large investment to upgrade its technology. Although these improvements won't have much of an impact on performance in the short run, they are expected to reduce future costs significantly. What impact will this investment have on Edmund Enterprises's earnings per share this year? What impact might this investment have on the company's intrinsic value and stock price? (1-5) Describe the ways in which capital can be transferred from suppliers of capital to those who are demanding capital. (1-6) What are financial intermediaries, and what economic functions do they perform? (1-7) Is an initial public offering an example of a primary or a secondary market transaction? (1-8) Contrast and compare trading in face-to-face auctions, dealer markets, and automated trading platforms. (1-10) What are some similarities and differences between the NYSE and the NASDAQ Stock Market? FIN 612 Managerial Finance Week Two Assignment Your assignment for this week is to complete the following questions and problems from Chapter 2. Please submit your complete assignment in the course room by the due date. Chapter 2 Problems 2-1) An investor recently purchased a corporate bond that yields 9%. The investor is in the 36% combined federal and state tax bracket. What is the bond's after-tax yield? 2-2) Corporate bonds issued by Johnson Corporation currently yield 8%. Municipal bonds of equal risk currently yield 6%. At what tax rate would an investor be indifferent between these two bonds? 2-7) The Talley Corporation had a taxable income of $365,000 from operations after all operating costs but before (1) interest charges of $50,000, (2) dividends received of $15,000, (3) dividends paid of $25,000, and (4) income taxes. What are the firm's income tax liability and its after-tax income? What are the company's marginal and average tax rates on taxable income? 2-9) The Shrieves Corporation has $10,000 that it plans to invest in marketable securities. It is choosing among AT&T bonds, which yield 7.5%, state of Florida muni bonds, which yield 5% (but are not taxable), and AT&T preferred stock, with a dividend yield of 6%. Shrieves's corporate tax rate is 35%, and 70% of the dividends received are tax exempt. Find the after-tax rates of return on all three securities. 2-13) The Bookbinder Company has made $150,000 before taxes during each of the last 15 years, and it expects to make $150,000 a year before taxes in the future. However, in 2013 the firm incurred a loss of $650,000. The firm will claim a tax credit at the time it files its 2013 income tax return, and it will receive a check from the U.S. Treasury. Show how it calculates this credit, and then indicate the firm's tax liability for each of the next 5 years. Assume a 40% tax rate on all income to ease the calculations. 1) Prepare an ending 2015 Income Statement and Balance Sheet from the following information: Sales $800,000; Cost of Goods Sold $300,000; Accounts Receivables $20,000; Bonds Outstanding $160,000; Accounts Payable $20,000; Advertising Expense $1,000; Administrative Expenses $35,000; Interest Expense $24,000; Depreciation Expense $40,000; Dividends Paid $137,000; Rent Expense $5,000; Accruals $20,000; Common Stock $100,000; Retained Earnings $245,000 (Beginning 0f 2015); Cash $20,000; Inventory $45,000; Net Fixed Assets $600,000 (Beginning of 2015). (Assume a 40% Tax Rate) FIN 612 Managerial Finance Week Three Assignment Your assignment for this week is to complete the following questions and problems from Chapter 3. Please submit your complete assignment in the course room by the due date. Chapter 3 Questions (3-3) Over the past year, M. D. Ryngaert & Co. has realized an increase in its current ratio and a drop in its total assets turnover ratio. However, the company's sales, quick ratio, and fixed assets turnover ratio have remained constant. What explains these changes? (3-5) How might (a) seasonal factors and (b) different growth rates distort a comparative ratio analysis? Give some examples. How might these problems be alleviated? (3-6) Why is it sometimes misleading to compare a company's financial ratios with those of other firms that operate in the same industry? Chapter 3 Problems (3-1) Greene Sisters has a DSO of 20 days. The company's average daily sales are $20,000. What is the level of its accounts receivable? Assume there are 365 days in a year. (3-2) Vigo Vacations has $200 million in total assets, $5 million in notes payable, and $25 million in long-term debt. What is the debt ratio? (3-3) Winston Watch's stock price is $75 per share. Winston has $10 billion in total assets. Its balance sheet shows $1 billion in current liabilities, $3 billion in long-term debt, and $6 billion in common equity. It has 800 million shares of common stock outstanding. What is Winston's market/book ratio? (3-7) Ace Industries has current assets equal to $3 million. The company's current ratio is 1.5, and its quick ratio is 1.0. What is the firm's level of current liabilities? What is the firm's level of inventories? (3-11) Complete the balance sheet and sales information in the table that follows for J. White Industries using the following financial data: Total assets turnover: 1.5 Gross profit margin on sales: (Sales - Cost of goods sold)/Sales = 25% Total liabilities-to-assets ratio: 40% Quick ratio: 0.80 Days sales outstanding (based on 365-day year): 36.5 days Inventory turnover ratio: 3.75 Partial Income Statement Information Sales _______ Cost of goods sold _______ Balance Sheet Cash _______ Accounts receivable _______ Inventories _______ Fixed assets _______ Total assets $400,000 Accounts payable Long-term debt Common stock Retained earnings Total liabilities and equity ______ 50,000 ______ 100,000 ______ (3-13) Data for Lozano Chip Company and its industry averages follow. a. Calculate the indicated ratios for Lozano. b. Construct the extended Du Pont equation for both Lozano and the industry. c. Outline Lozano's strengths and weaknesses as revealed by your analysis. Lozano Chip Company: Balance Sheet as of December 31, 2013 (Thousands of Dollars) Cash Receivables Inventories Total current assets Net fixed assets Total assets $ 225,000 1,575,000 1,125,000 $2,950,000 1,350,000 __________ $4,275,000 Accounts payable $ 601,866 Notes payable 326,634 Other current liabilities 525,000 Total current liabilities $1,453,500 Long-term debt 1,068,750 Common equity 1,752,750 Total liabilities and equity $4,275,000 Lozano Chip Company: Income Statement for Year Ended December 31, 2013 (Thousands of Dollars) Sales $ 7,500,000 Cost of goods sold 6,375,000 Selling, general, and administrative expenses 825,000 Earnings before interest and taxes (EBIT) $ 300,000 Interest expense 111,631 Earnings before taxes (EBT) $ 188,369 Federal and state income taxes (40%) 75,348 Net income $ 113,022 Ratio Lozano Current assets/Current liabilities __________ Days sales outstanding (365-day year) __________ COGS/Inventory __________ Sales/Fixed assets __________ Sales/Total assets __________ Net income/Sales __________ Net income/Total assets __________ Net income/Common equity __________ Total debt/Total assets __________ Total liabilities/Total assets __________ Industry Average 2.0 35.0 days 6.7 12.1 3.0 1.2% 3.6% 9.0% 30.0% 60.0% FIN 612 Managerial Finance Week Four Assignment Your assignment for this week is to complete the following questions and problems from Chapter 4. Please submit your complete assignment in the course room by the due date. Chapter 4 Questions (4-2) What is an opportunity cost rate? How is this rate used in discounted cash flow analysis, and where is it shown on a time line? Is the opportunity rate a single number that is used to evaluate all potential investments? (4-5) Would you rather have a savings account that pays 5% interest compounded semiannually or one that pays 5% interest compounded daily? Explain. Chapter 4 Problems (4-1) If you deposit $10,000 in a bank account that pays 10% interest annually, how much will be in your account after 5 years? (4-2) What is the present value of a security that will pay $5,000 in 20 years if securities of equal risk pay 7% annually? (4-6) What is the future value of a 7%, 5-year ordinary annuity that pays $300 each year? If this were an annuity due, what would its future value be? (4-7) An investment will pay $100 at the end of each of the next 3 years, $200 at the end of Year 4, $300 at the end of Year 5, and $500 at the end of Year 6. If other investments of equal risk earn 8% annually, what is this investment's present value? Its future value? (4-8) You want to buy a car, and a local bank will lend you $20,000. The loan would be fully amortized over 5 years (60 months), and the nominal interest rate would be 12%, with interest paid monthly. What is the monthly loan payment? What is the loan's EFF%? (4-16) Find the amount to which $500 will grow under each of the following conditions. a. 12% compounded annually for 5 years b. 12% compounded semiannually for 5 years c. 12% compounded quarterly for 5 years d. 12% compounded monthly for 5 years (4-17) Find the present value of $500 due in the future under each of the following conditions. a. 12% nominal rate, semiannual compounding, discounted back 5 years b. 12% nominal rate, quarterly compounding, discounted back 5 years c. 12% nominal rate, monthly compounding, discounted back 1 year (4-18) Find the future values of the following ordinary annuities. a. FV of $400 each 6 months for 5 years at a nominal rate of 12%, compounded semiannually b. FV of $200 each 3 months for 5 years at a nominal rate of 12%, compounded quarterly c. The annuities described in parts a and b have the same total amount of money paid into them during the 5-year period, and both earn interest at the same nominal rate, yet the annuity in part b earns $101.75 more than the one in part a over the 5 years. Why does this occur? (4-19) Universal Bank pays 7% interest, compounded annually, on time deposits. Regional Bank pays 6% interest, compounded quarterly. a. Based on effective interest rates, in which bank would you prefer to deposit your money? b. Could your choice of banks be influenced by the fact that you might want to withdraw your funds during the year as opposed to at the end of the year? In answering this question, assume that funds must be left on deposit during an entire compounding period in order for you to receive any interest. (4-22) Washington-Pacific invested $4 million to buy a tract of land and plant some young pine trees. The trees can be harvested in 10 years, at which time W-P plans to sell the forest at an expected price of $8 million. What is W-P's expected rate of return? (4-25) While Mary Corens was a student at the University of Tennessee, she borrowed $12,000 in student loans at an annual interest rate of 9%. If Mary repays $1,500 per year, then how long (to the nearest year) will it take her to repay the loan? (4-28) Assume that you inherited some money. A friend of yours is working as an unpaid intern at a local brokerage firm, and her boss is selling securities that call for 4 payments of $50 (1 payment at the end of each of the next 4 years) plus an extra payment of $1,000 at the end of Year 4. Your friend says she can get you some of these securities at a cost of $900 each. Your money is now invested in a bank that pays an 8% nominal (quoted) interest rate but with quarterly compounding. You regard the securities as being just as safe, and as liquid, as your bank deposit, so your required effective annual rate of return on the securities is the same as that on your bank deposit. You must calculate the value of the securities to decide whether they are a good investment. What is their present value to you? FIN 612 Managerial Finance Week Five Assignment Your assignment for this week is to complete the following questions and problems from Chapter 5. Please submit your complete assignment in the course room by the due date. Chapter 5 Questions (5-2) \"Short-term interest rates are more volatile than long-term interest rates, so short-term bond prices are more sensitive to interest rate changes than are long-term bond prices.\" Is this statement true or false? Explain. (5-3) The rate of return on a bond held to its maturity date is called the bond's yield to maturity. If interest rates in the economy rise after a bond has been issued, what will happen to the bond's price and to its YTM? Does the length of time to maturity affect the extent to which a given change in interest rates will affect the bond's price? Why or why not? (5-4) If you buy a callable bond and interest rates decline, will the value of your bond rise by as much as it would have risen if the bond had not been callable? Explain. (5-5) A sinking fund can be set up in one of two ways. Discuss the advantages and disadvantages of each procedure from the viewpoint of both the firm and its bondholders. Chapter 5 Problems (5-1) Jackson Corporation's bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds? (5-2) Wilson Corporation's bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $850. What is their yield to maturity? (5-5) A Treasury bond that matures in 10 years has a yield of 6%. A 10-year corporate bond has a yield of 9%. Assume that the liquidity premium on the corporate bond is 0.5%. What is the default risk premium on the corporate bond? (5-6) The real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years. A 2-year Treasury security yields 6.3%. What is the maturity risk premium for the 2-year security? (5-7) Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds? (5-8) Thatcher Corporation's bonds will mature in 10 years. The bonds have a face value of $1,000 and an 8% coupon rate, paid semiannually. The price of the bonds is $1,100. The bonds are callable in 5 years at a call price of $1,050. What is their yield to maturity? What is their yield to call? (5-10) The Brownstone Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 9%. a. What is the yield to maturity at a current market price of (1) $829 or (2) $1,104? b. Would you pay $829 for one of these bonds if you thought that the appropriate rate of interest was 12%that is, if rd = 12%? Explain your answer. (5-14) A bond that matures in 7 years sells for $1,020. The bond has a face value of $1,000 and a yield to maturity of 10.5883%. The bond pays coupons semiannually. What is the bond's current yield? (5-18) The real risk-free rate is 2%. Inflation is expected to be 3% this year, 4% next year, and then 3.5% thereafter. The maturity risk premium is estimated to be 0.0005 (t 1), where t = number of years to maturity. What is the nominal interest rate on a 7-year Treasury security? (5-21) Suppose Hillard Manufacturing sold an issue of bonds with a 10-year maturity, a $1,000 par value, a 10% coupon rate, and semiannual interest payments. a. Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 6%. At what price would the bonds sell? b. Suppose that 2 years after the initial offering, the going interest rate had risen to 12%. At what price would the bonds sell? c. Suppose that 2 years after the issue date (as in part a) interest rates fell to 6%. Suppose further that the interest rate remained at 6% for the next 8 years. What would happen to the price of the bonds over time? FIN 612 Managerial Finance Week Six Assignment Your assignment for this week is to complete the following questions and problems from Chapters 9 and 10. Please submit your complete assignment in the course room by the due date. Chapter 9 Problems (9-1) Calculate the after-tax cost of debt under each of the following conditions: a. rd of 13%, tax rate of 0% b. rd of 13%, tax rate of 20% c. rd of 13%, tax rate of 35% (9-3) Duggins Veterinary Supplies can issue perpetual preferred stock at a price of $50 a share with an annual dividend of $4.50 a share. Ignoring flotation costs, what is the company's cost of preferred stock, rps? (9-6) Booher Book Stores has a beta of 0.8. The yield on a 3-month T-bill is 4%, and the yield on a 10-year T-bond is 6%. The market risk premium is 5.5%, and the return on an average stock in the market last year was 15%. What is the estimated cost of common equity using the CAPM? (9-8) David Ortiz Motors has a target capital structure of 40% debt and 60% equity. The yield to maturity on the company's outstanding bonds is 9%, and the company's tax rate is 40%. Ortiz's CFO has calculated the company's WACC as 9.96%. What is the company's cost of equity capital? (9-9) A company's 6% coupon rate, semiannual payment, $1,000 par value bond that matures in 30 years sells at a price of $515.16. The company's federal-plus-state tax rate is 40%. What is the firm's after-tax component cost of debt for purposes of calculating the WACC? (Hint: Base your answer on the nominal rate.) Chapter 10 Questions (10-2) What types of projects require the least detailed and the most detailed analysis in the capital budgeting process? (10-4) When two mutually exclusive projects are being compared, explain why the short-term project might be ranked higher under the NPV criterion if the cost of capital is high whereas the long-term project might be deemed better if the cost of capital is low. Would changes in the cost of capital ever cause a change in the IRR ranking of two such projects? Why or why not? Chapter 10 Problems (10-7) Your division is considering two investment projects, each of which requires an up-front expenditure of $15 million. You estimate that the investments will produce the following net cash flows: Year Project A Project B 1 2 3 $5,000,000 10,000,000 20,000,000 $20,000,000 10,000,000 6,000,000 a. What are the two projects' net present values, assuming the cost of capital is 5%? 10%? 15%? b. What are the two projects' IRRs at these same costs of capital? (10-9) Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Because both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments.) The electric-powered truck will cost more, but it will be less expensive to operate; it will cost $22,000, whereas the gas-powered truck will cost $17,500. The cost of capital that applies to both investments is 12%. The life for both types of truck is estimated to be 6 years, during which time the net cash flows for the electric-powered truck will be $6,290 per year and those for the gas-powered truck will be $5,000 per year. Annual net cash flows include depreciation expenses. Calculate the NPV and IRR for each type of truck, and decide which to recommend. (10-12) After discovering a new gold vein in the Colorado mountains, CTC Mining Corporation must decide whether to go ahead and develop the deposit. The most cost-effective method of mining gold is sulfuric acid extraction, a process that could result in environmental damage. Before proceeding with the extraction, CTC must spend $900,000 for new mining equipment and pay $165,000 for its installation. The gold mined will net the firm an estimated $350,000 each year for the 5-year life of the vein. CTC's cost of capital is 14%. For the purposes of this problem, assume that the cash inflows occur at the end of the year. a. What are the project's NPV and IRR? b. Should this project be undertaken if environmental impacts were not a consideration? c. How should environmental effects be considered when evaluating this, or any other, project? How might these concepts affect the decision in part b? FIN 612 Managerial Finance Week Seven Assignment Your assignment for this week is to complete the following questions and problems from Chapters 11 and 12. Please submit your complete assignment in the course room by the due date. Chapter 11 Questions (11-2) Operating cash flows, rather than accounting profits, are used in project analysis. What is the basis for this emphasis on cash flows as opposed to net income? (11-4) Explain why sunk costs should not be included in a capital budgeting analysis but opportunity costs and externalities should be included. (11-5) Explain how net operating working capital is recovered at the end of a project's life and why it is included in a capital budgeting analysis. (11-7) Why are interest charges not deducted when a project's cash flows are calculated for use in a capital budgeting analysis? (11-8) Most firms generate cash inflows every day, not just once at the end of the year. In capital budgeting, should we recognize this fact by estimating daily project cash flows and then using them in the analysis? If we do not, will this bias our results? If it does, would the NPV be biased up or down? Explain. (11-11) In theory, market risk should be the only \"relevant\" risk. However, companies focus as much on stand-alone risk as on market risk. What are the reasons for the focus on standalone risk? Chapter 11 Problems (11-3) Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $12 million, of which 75% has been depreciated. The used equipment can be sold today for $4 million, and its tax rate is 40%. What is the equipment's after-tax net salvage value? (11-4) Although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The firm's WACC is 10%, and its marginal tax rate is 35%. Should Chen buy the new machine? (11-6) The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,080,000, and it would cost another $22,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $605,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $15,500. The sprayer would not change revenues, but it is expected to save the firm $380,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 35%. a. What is the Year 0 net cash flow? b. What are the net operating cash flows in Years 1, 2, and 3? c. What is the additional Year-3 cash flow (i.e., the after-tax salvage and the return of working capital)? d. Based on your IRR analysis, if the project's cost of capital is 12%, should the machine be purchased? Chapter 12 Problems (12-1) Broussard Skateboard's sales are expected to increase by 15% from $8 million in 2013 to $9.2 million in 2014. Its assets totaled $5 million at the end of 2013. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2013, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 6%, and the forecasted payout ratio is 40%. Use the AFN equation to forecast Broussard's additional funds needed for the coming year. (12-8) Stevens Textile Corporation's 2016 financial statements are shown below: Balance Sheet as of December 31, 2016 (Thousands of Dollars) Cash Receivables Inventories Total current assets Net fixed assets Total assets $ 1,080 6,480 9,000 $16,560 12,600 ______ $29,160 Accounts payable Accruals Line of credit Notes payable Total current liabilities Mortgage bonds Common stock Retained earnings Total liabilities and equity $ 4,320 2,880 0 2,100 $ 9,300 3,500 3,500 12,860 $ 29,160 Income Statement for December 31, 2016 (Thousands of Dollars) Sales Operating costs Earnings before interest and taxes Interest Pre-tax earnings Taxes (40%) Net income Dividends (45%) Addition to retained earnings $36,000 32,440 $ 3,560 460 $ 3,100 1,240 $ 1,860 $ 837 $ 1,023 a. Suppose 2017 sales are projected to increase by 15% over 2016 sales. Use the forecasted financial statement method to forecast a balance sheet and income statement for December 31, 2017. The interest rate on all debt is 10%, and cash earns no interest income. Assume that all additional debt in the form of a line of credit is added at the end of the year, which means that you should base the forecasted interest expense on the balance of debt at the beginning of the year. Use the forecasted income statement to determine the addition to retained earnings. Assume that the company was operating at full capacity in 2016, that it cannot sell off any of its fixed assets, and that any required financing will be borrowed as notes payable. Also, assume that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales. Determine the additional funds needed. b. What is the resulting total forecasted amount of the line of credit? Running Head: FINANCE 1 Finance Name Institutional Affiliation FINANCE 2 D1 What "lessons" do you believe we "should have learned" from the record setting decline in the financial markets since the Dow Jones Industrial Average fell from a "high of 14,000+ index points" in mid-year 2007, to the low in the vicinity of 5,400 in late November, 2008? When financial markets decline, this signals a wake-up call for companies. After Dow Jones Industrial Average fell from a "high of 14,000+ index points" in mid-year 2007, to the low in the vicinity of 5,400 in late November 2008, a variety of lessons can be taken away from this situation. Many investors were frightened by the crash and prompted many advisors to make poor reactionary decisions. The main reason stock market crashes is that the prices of stocks are higher than what the stocks are worth. As a result, it is important to make sure that the prices of the stocks are equal to how much they are worth. To ensure similar situations like Dow Jones doesn't occur again there are four lessons I have discovered that \"should have been learned.\" The first one is never to let this type of situation happen again by recognizing the warning signs. Recognizing the warning signs allows a problem or situation to be taken care of before it worsens. Although the crash was building for a long time when Congress rejected the bailout bill, everything went downhill (Amadeo, 2016). Thus, bailouts should not be refused because they cause a hectic problem that puts the market in an unfortunate predicament. Even though it may be evident that a crisis is coming, it is hard to predict the impact on the stock market (Marotta, 2015). You have to be prepared at all times and develop a plan to overcome the crash. The market cannot go to zero, which they drop because there FINANCE 3 are more buyers than sellers (Marotta, 2015). One thing to do is make sure that there is an equal number of businesses to sellers. Lastly, when the stock market crashes, it is not always a negative thing. In fact, a stock market crash is considered a time when it is best to invest (Marotta, 2015). Nice gains occur during the time market dropped and appreciated. D2 "The goal of financial management is to take actions which maximize the value of a firm's stock. Those actions will eventually appear in the firm's financial statement, so a general understanding of financial statements is very important for the manager." Given the recent failure of many financial institutions, do you believe business leaders really understand and use all of the concepts and principles we teach in accounting, finance, and economics? In addition, do you believe financial managers are truly concerned about maximizing the value of a firm's stock? Why or why not? No, I don't think that most non accounting managers understand and use many much less all of the concepts and principles that is taught in accounting, finance or economics. I do however believe that this fundamental understand, at least from a theoretical perspective is very important. Understanding at least the concepts and theories of accounting can help the non-accountant to maximize the utility for which financial information will to help decision makers make more informed decisions in other areas of business operations. At minimum the non-accountant manager should have a fundamental understanding of the financial statements and conclusions the information can assist with. Non-accountant managers can use this information to forecast and budget business operations, investments for growth and the financial position of the organization. There is FINANCE 4 information that is provided by the financial statements that are relevant to every stakeholder in the organization, examples include the efficacy and liquidity. It is important to know that operations are efficient and there is enough cash flow to cover debts at every level of management. Respond I do believe for the most part financial managers are primarily concerned with the maximizing the value of the firms stock in the right ways. This is what shareholders expect, however it should be noted that it is how managers attain maximization that is usually what sparks some controversy. D3 Ratio analysis can provide one with very useful information; however, there are limitations to ratio analysis. What are some of these limitations? In addition, what qualitative factors should analyst consider when evaluating a company's likely future financial performance? Limitations of the ratio analysis include but not limited to: Comparison with industry averages is difficult for a conglomerate firm that operates in many different divisions. Different operating and accounting practices can distort comparisons. Sometimes it is hard to tell if a ratio is "good" or "bad." Difficult to tell whether a company is, on balance, in a strong or weak position. "Average" performance is not necessarily good, perhaps the firm should aim higher. Seasonal factors can distort ratios. Window dressing" techniques can make statements and ratios look better than they actually are. Inflation has distorted many firms' balance sheets, so analyses must be interpreted with judgment. Some of the qualitative factors should analyst consider when evaluating a company's likely future FINANCE 5 financial performance include Are the firm's revenues tied to one key customer, product, or supplier? What percentage of the firm's business is generated overseas? Firm's competitive environment, Future prospects, Legal and regulatory environment ratios. D4 Explain why this statement is true: \"A dollar today is worth more than a dollar received next year\". Is this statement always true? If not, when would it not be true? Finally, provide an example that illustrates this idea of a dollar today being worth more than a dollar received next year? A dollar today is worth more than a dollar received next year due to Inflation, due to the Time Value of Money (TVM). It is to say that money in hand today is worth more than money that is expected to be received in the future. The Time Value of Money mathematics quantifies the value of a dollar through time. This, of course, depends on the rate of return or interest rate which can be earned on the investment. Through a simple way to explain this as: Imagine the value of one dollar one year ago. Can people buy the same amount of grocery for the same one dollar today? It is because of inflation. Inflation has the reverse effect on the time value of money (Timothy, 2016). That is why people do not keep their cash idle, and they keep it in a bank so that they earn interest on it in order to meet his inflation. So this statement is generally true but maybe not. When the rate of inflation has fallen, then a dollar today will be worth less than a dollar received next year. In such cases, people would often be better off if they hide the dollar in own locker. Respond FINANCE Hello, you really post a nice idea. I agree with you, and I have some personal ideas want to share about this week's discussion. Inflation has the reverse effect on the time value of money. Because of the constant decline in the purchasing power of money, a no-invested dollar is worth more in the present than the same no-invested dollar will be in the future. Since the interest rates are assumed to be positive therefore we can say that statement is true. D5 Do you think that the Federal Government has set a precedence for dealing with future financial crisis given the recent bailouts of our "financial institutions," our "companies," and a "stimulus package" for the general public? Why or why not? The outcome of this Zero interest rate policy was quite positive and significant. The federal government response to recession through monetary policies was able to address the challenges that were brought about by recession. The impact of great recession would have exceeded the one caused by great depression when it comes to unemployment, inflation and general economic decline. Without this response, the GDP of the US would have gone downwards and majority of people would have been rendered jobless. The government of the US through their congress was able to come up with fiscal policies by setting up Troubled Assets Relief Program (TARP) in 2008(Labonte, 2016). This enabled the treasury to allocate necessary capital to financial institution to enable them run their operations smoothly. The US treasury as well as Federal Reserve was able to compel the leading financial institution in the US to conduct stress test in the year 2009 to ascertain if they had adequate capital to run their operations effectively and to withstand economic 6 FINANCE 7 crisis. Banks that did not have enough capital were required to raise their capital as a standard requirement. The results of this exercise were communicated to the members of the public. The outcome of this government response is that it was able to restore public confidence in the banking systems in the US (Labonte, 2016). D6 Describe some factors that are generally beyond the firm's control but still affect its cost of capital? In addition, explain how a change in interest rates in the economy would be expected to affect each component of the weighted average cost of capital. Stock and Bond Markets. The stock and bond markets, and the market for shortterm debt, are normally in equilibrium and thus fairly stable. However, at times the markets are disrupted, making it virtually impossible for a firm to raise capital at reasonable rates. This happened in 2008 and 2009, before the U.S. Treasury and the Federal Reserve intervened to open up the capital markets. During such times, firms tend to cut back on growth plans; if they must raise capital, its cost can be extraordinarily high. Note also that if interest rates in the economy rise, the costs of both debt and equity will increase. The firm will have to pay bondholders a higher interest rate to obtain debt capital; and, as indicated in our discussion of the CAPM, higher interest rates also increase the cost of equity. Interest rates are heavily influenced by inflation. When inflation hit historic highs in the early 1980s, interest rates followed, but they trended down until the financial crisis in 2008 led to an upward spike. However, strong actions by the federal government in the spring of 2009 brought rates back down. These actions should encourage FINANCE 8 investment, and there is little doubt that they will eventually lead the economy out of its recession. However, many observers fear that the government's actions will also reignite long-run inflation, which would lead to higher interest rates. Market Risk Premium. Investors' aversion to risk determines the market risk premium. Individual firms have no control over the RPM, which affects the cost of equity and thus the WACC. Tax Rates. Tax rates, which are influenced by the president and set by Congress, have an important effect on the cost of capital. They are used when we calculate the aftertax cost of debt for use in the WACC. D7 If a firm can structure a project such that expenditures can be made in stages rather than all at the beginning, how would this affect the project's risk and expected NPV? Explain. According to Elmaghraby & Herroelen (1990), the term capital expenditure is utilized in conjunction with a sum of money that may have been earmarked by a business entity for the execution of a project that is projected to yield a steady cash flow that will last beyond a stated period, usually a year. Businesses generally have many projects included in their capital expenditure for a financial or business period, and the process of deciding the particular projects to undertake versus the available resources at hand is known as capital budgeting. The relationship between Net Present Value (NPV) and capital budgeting is derived from the importance of using the analysis of NPV to determine the profitability for a potential capital project with the aim of allowing the management in a business entity to decide the best type of capital project in which to channel its resources (IElmaghraby & Herroelen, 1990). FINANCE 9 References Marotta, D. J. (2015, October 26). What You Can Learn From The 2008 Crash. Retrieved March 05, 2017, from https://www.google.com/amp/s/www.forbes.com/sites/davidmarotta/2015/10/26/lessons-from-th ecrash-of-2007-2008/amp/ Timothy, R. 2016. Time Value of Money: Concepts and Calculations. Retrieved from: http://www.tvmcalcs.com/index.php/tvm/tvm_intro Labonte, M. (2016). Monetary Policy and the Federal Reserve: Current Policy and Conditions. Retrieved from http: //fpc.state.gov/documents/organization/185900.pdf Elmaghraby, S. E., & Herroelen, W. S. (1990). The scheduling of activities to maximize the net present value of projects. European Journal of Operational Research, 49(1), 35-49