Business Finance Principles Of Microeconomics

Business Finance Principles Of Microeconomics

Instructions/Descriptions

Business Finance Principles Of Microeconomics

Remember to submit your work following the file naming convention FirstInitial.LastName_M01.docx. For example, J.Smith_M01.docx. Remember that it is not necessary to manually type in the file extension; it will automatically append.

Start by reading and following these instructions:

1. Quickly skim the questions or assignment below and the assignment rubric to help you focus.
2. Read the required chapter(s) of the textbook and any additional recommended resources. Some answers may require you to do additional research on the Internet or in other reference sources. Choose your sources carefully.
3. Consider the course discussions so far and any insights gained from it.
4. Create your Assignment submission and be sure to cite your sources if needed, use APA style as required, and check your spelling.

WEEK 1

Assignment:

1. What are the four major types of firm in the U.S, how are they defined, and what are the key differences between them?
2. How can corporate bankruptcy be viewed as a change in firm ownership? Describe why a corporation would want to file for bankruptcy as well as the benefits and drawbacks of such a decision.
3. List the four major financial statements required by the SEC for publicly traded firms, define each and explain why they are valuable.
4. Define what is included in a management discussion and analysis section of a financial statement (that cannot be found elsewhere).

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Essay:

1. Click the link below to view the latest Microsoft Corporation’s (MSFT) Annual Balance Sheet: http://finance.yahoo.com/q/bs?s=msft+Balance+Sheet&annual. Choose and compute 5 of the following from the Microsoft balance sheet.

Explain how they are useful tools in assessing firm performance and then give your own assessment of Microsoft’s performance for the most recent year. debt-equity ratio, enterprise value, earnings per share, operating margin, net profit margin, accounts receivable days, accounts payable days, inventory days interest coverage ratio, return on equity, return on assets, price-earnings ratio, market-to-book ratio

2. Discuss the Sarbanes-Oxley Act in wake of the financial reporting misdeeds of Enron and WorldCom. Compare and contrast the two companies, discuss what led to the fraud being discovered, and describe how policies have changed for companies today. You can use examples of other companies to help in your discussion.

WEEK 2

Assignment:

Questions

1. Why is the Net present value (NPV) decision rule the most recommended in the finance profession and why are projects with the highest NPV chosen?
2. Define the time value of money principle, explaining how it works, and construct at timeline for the following: You must pay off a loan for a new car of $18,000 over the next 3 years.
3.  Define the three rules of time travel and discuss why they are important. How can you use them to compare and combine cash flows?
4.  Compute the n-period effective annual rate in the following problem and give the best answer: Tim plans to open a new bank account and calls several banks to find out where he can earn the most interest on his money. After talking with several banks, Tim has three options. Which bank account should he choose to earn the highest return on his money?

• 8% compounded daily
• 8.25% compounded quarterly
• 8.4% compounded annually

Essay

1. Apply the valuation principle to the following situation and make an argument for the best opportunity:

You are a financial manager for a wholesale children’s toy distributor. The suppliers are from China, Japan, and the Netherlands. A customer offers $14 million for a 1000 lb shipment. Buying the particular shipment the customer wishes to purchase from China would cost you $9 million plus shipping costs of $125.00 per pound. Japan offers to sell you the same shipment for a flat rate of $9,090,000. From the Netherlands, you can buy the same shipment for $ 9,050,000 plus shipping of $95.00 per pound.

1. Explain why Treasury securities are considered risk free, and describe the impact of default risk on interest rates.

WEEK 3

Assignment:

Points will be deducted for failure to follow APA formatting guidelines or repeated use of improper formatting. Choose 4 of the following and discuss:

1. For the given cash flows below, assume the cash flow is the same in the next 2 years. Compute the NPV for each project, and compute the incremental IRR. Compare and explain why NPV always gives the correct decision.                  Project     Initial Investment     Year 1 Cash Flow                            A             500,000              125,000                                                    B             500,000              120,000
2. In what ways can the IRR make you give a flawed decision and what relationship the NVP have with the IRR?
3. What is the best way to select a project that has resource restrictions? Explain.
4. Why must opportunity costs be included in cash flows, while sunk costs and interest expense must not?
5. Compare and contrast the uses of break-even analysis and sensitivity analysis in evaluating project risk.
6. What are the effects of coupon rate to the sensitivity of a bond price and to changes in interest rates?
7. What is the relation between a corporate bond’s expected return and the yield to maturity? In your answer, define default risk and explain how these rates incorporate default risk
8. Why should investors who identify positive-NPV trades be skeptical about their findings if they don’t inside information or a competitive advantage? What return should the average investor expect to receive?

WEEK 4

Assignment:

Questions:

1. Define and discuss the volatility and return characteristics of large stocks versus large stocks and bonds and what affects they have on pricing risk? Give examples to support your answer.
2. Why, in an efficient capital market, does the cost of capital depend on systematic risk rather than diversifiable risk? Explain your answer using an example from the text.
3. What is an expected return and why must it equal a required return? In what circumstances are these two important?
4. What are the three main assumptions of the CAPM and what are their effects on a portfolio. Give examples of your explanation.

Essays:

Responses to essay questions should be a minimum of 250 words, using APA format. Please refer to the APA Style Guide for more information on formatting requirements.

Points will be deducted for failure to follow APA formatting guidelines or repeated use of improper formatting.

1. Define and contrast idiosyncratic and systematic risk and the risk premium required for taking each on. Can beta be helpful in this instance? Explain your answer.
2. Define the following terms and explain how they affect one another. More specifically, for what purposes are they used and how do they relate to one another: efficient portfolio, individual investor, short selling, Sharpe ratio, beta and CAPM.

WEEK 5

Assignment:

Questions:

1. What is operating leverage and how does it influence a project?
2. What are the two methods for estimating debit cost of capital, and what do you do when there is default risk? Explain the circumstances in which you would use each method.
3. Why would an investor want to “beat the market” versus “hold the market”? Discuss the strategies for each and their dependence on an investor’s information and trading skills.
4. Do uninformed investors trade too much? Discuss how uninformed investors use the CAPM and how their behaviors deviate.

Essays:

Responses to essay questions should be a minimum of 250 words, using APA format. Please refer to the APA Style Guide for more information on formatting requirements.

Points will be deducted for failure to follow APA formatting guidelines or repeated use of improper formatting.

1. What additional assumptions (to the main three) are important when applying the Capital Asset Pricing Model and what are the underlying strengths and weaknesses of this application? Discuss the reliability of the model and give examples in your explanation.
2. Discuss the Arbitrage Pricing Theory and the Fama-French factor and the “preciseness” of techniques used to calculate cost of capital. How does one decide on which technique is best to use?

WEEK 6

Assignment:

Questions:

1. What type of capital structure should a firm choose and why? In you answer, be sure to include capital structure fallacies and their effects on a firm’s decision.
2. Define and discuss MM Proposition I with its implications, and the roles of homemade leverage and the Law of One Price in the development of the proposition.
3. What is leveraged recapitalization and what effects does it have on the value of equity?
4. Define the optimal fraction of debt and the growth rate of a firm. What is the relationship between the two?

Essays:

Responses to essay questions should be a minimum of 250 words, using APA format. Please refer to the APA Style Guide for more information on formatting requirements.

Points will be deducted for failure to follow APA formatting guidelines or repeated use of improper formatting.

1. Define the three conditions that make up a perfect capital market, and then compare and contrast the effects of perfect capital markets and imperfect capital markets on value. Can they create or destroy value? Explain.
2. Define EBIT and discuss why the optimal level of leverage from a tax-saving perspective is the level at which interest equals EBIT. Does this have a connection with under-leveraging corporations–both domestically and internationally?

WEEK 7

Assignment:

Questions:

1. What are agency costs, and how are agency costs of financial distress different from agency benefits of leverage? Explain their impact on calculating the value of a firm with financial distress.
2. When securities are priced fairly, why would the original shareholders of a firm pay the present value of bankruptcy and financial distress costs?
3. What are the dividend payment process and the open-market repurchase process? In your answer, be sure to explain the effects they have in a perfect world.
4. What are the benefits and drawbacks of accumulating cash balances rather than paying dividends and what effects do dividend policy have on this type of decision?

Essays:

Responses to essay questions should be a minimum of 250 words, using APA format. Please refer to the APA Style Guide for more information on formatting requirements.

Points will be deducted for failure to follow APA formatting guidelines or repeated use of improper formatting.

1. What impact does asymmetric information have on the optimal level of leverage? In your answer, be sure to describe the implications of adverse selection and the lemons principle for equity issuance, as well as the empirical implications.
2. Compare and contrast mature profitable firms that exhibit stable cash flows with firms that offer higher risk (dependencies on economy) with unstable cash flows. What risks do they take in regards to leverage use, tax shields, and trading information between managers and investors?

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WEEK 8

Signature Assignment Title: Responsive Essay

Signature Assignment Description/Directions:

Essay:

Responses to essay questions should be a minimum of 1000 words for each question, using APA format. Please refer to the APA Style Guide for more information on formatting requirements.

Points will be deducted for failure to follow APA formatting guidelines or repeated use of improper formatting.

1. When should the WACC and the APV be used? How do personal taxes affect the use of these two methods? Use examples when explaining your answer.
2. Explain the use of IRR and cash multiples as alternative valuation metrics, and discuss the drawbacks of those methods. In your answer, include how sensitivity analysis affects the evaluation process.

Business Finance Principles Of Microeconomics

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