What new and changed roles and responsibilities are required of an eBusiness that is not required by traditional business models? Provide a concrete example with a realistic scenario

1. The Super Bowl Indicator Theory suggests that the stock market will have a positive year if the team in the National Football Conference, or a team with an NFC origin, wins. If the American Football Conference team wins, the market will fall. According to the recent news (MarketWatch, 2/6/2017), it has accurately predicted the direction of the market for the year following 40 of the 50 Super Bowls since the first super bowl in 1967. Why do we have such phenomena? Is the finding consistent with market efficiency? Please discuss.

7.6

Stocks A and B have the following probability distributions of expected future returns:

1. Calculate the expected rate of return, , for Stock B ( = 12.30%.) Do not round intermediate calculations. Round your answer to two decimal places.

     %

2. Calculate the standard deviation of expected returns, σ_A, for Stock A (σ_B = 17.70%.) Do not round intermediate calculations. Round your answer to two decimal places.

     %

   Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places.

   Is it possible that most investors might regard Stock B as being less risky than Stock A?

   1. If Stock B is less highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense.
   2. If Stock B is less highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be more risky in a portfolio sense.
   3. If Stock B is more highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be less risky in a portfolio sense.
   4. If Stock B is more highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense.
   5. If Stock B is more highly correlated with the market than A, then it might have the same beta as Stock A, and hence be just as risky in a portfolio sense.

   -Select-IIIIIIIVVItem 4

3. Assume the risk-free rate is 3.5%. What are the Sharpe ratios for Stocks A and B? Do not round intermediate calculations. Round your answers to four decimal places.

   Stock A:

   Stock B:

   Are these calculations consistent with the information obtained from the coefficient of variation calculations in Part b?

   1. In a stand-alone risk sense A is less risky than B. If Stock B is less highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be more risky in a portfolio sense.
   2. In a stand-alone risk sense A is more risky than B. If Stock B is less highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense.
   3. In a stand-alone risk sense A is more risky than B. If Stock B is less highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be more risky in a portfolio sense.
   4. In a stand-alone risk sense A is less risky than B. If Stock B is more highly correlated with the market than A, then it might have the same beta as Stock A, and hence be just as risky in a portfolio sense.
   5. In a stand-alone risk sense A is less risky than B. If Stock B is less highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense.

   -Select-IIIIIIIVVItem 7

2. The stock repurchase is a decision by companies to buy their own shares in an effort to help boost earnings per share and stock prices. A recent article published on WSJ (https://www.wsj.com/articles/companies-mull-suspending-ramping-up-share-buyback-plans-amid-coronavirus-11584477343) reported that finance chiefs are debating whether to make share repurchases or hold on to cash as stock prices fall on fears surrounding the coronavirus pandemic since the S&P 500 has plummeted about 25% from Feb. 18. Some companies appear to be taking advantage of the down market, announcing plans to scoop up shares. Others, however, have said they would suspend share buyback plans to preserve cash and exercise caution in an uncertain period. They argue that they need to stay sufficiently capitalized to resist financial hits from economic conditions spurred by the pandemic. In some instances, businesses have opted to raise cash by drawing down credit facilities with lenders. Why have selected companies decided to suspend their share repurchases? Why have other companies authorized share repurchases? If you were the CFO of a retail business like the Gap, what would you do? If you were the CFO of Oracle, what would you do?

List the key eBusiness enablers and technologies, prioritize them, and explain the significance of the top three with concrete supporting references

The preferred response will include an explanation in your own words, and a good example.

Please explain how a company computes their weighted average cost of capital, and why is it important? Compare the various components of the cost of capital, and include the tax advantages, if any, in the explanation.

1. This week we discuss capital budgeting methods and processes. Could you apply the knowledge you learn this week to make better decisions in your personal life or professional duties? Please elaborate on your answer with examples.

Briefly discuss the methods available for a company to buy back its shares and explain why you might expect the share price reaction to the announcement of each of these methods to differ.

7.7

Suppose you are the money manager of a $4.22 million investment fund. The fund consists of four stocks with the following investments and betas:

If the market's required rate of return is 11% and the risk-free rate is 4%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.

Find the critical value(s) for the type of t-test with level of significance α and sample size n. Ha: μ < 20, α = 0.005, n = 25.

3. The preferred response will include an explanation in your own words, and a good example.

From the point of view of an issuing corporation, please describe the primary advantages and disadvantages of issuing preferred stock.

Martin Technologies Inc., a large electronics company, is evaluating the possible acquisition of Columbia Electronics, a regional electronics company. Martin’s analysts project the following post-merger data for Columbia (in millions of dollars): 2015 2016 2017 2018 Net sales $300 $425 $475 $550 Selling and administrative expense 40 50 60 75 Interest 25 30 35 40 Tax rate after merger 35% Cost of goods sold as a percent of sales 75% Beta after merger 1.2000 Risk-free rate 4% Market risk premium 5% Continuing growth rate of cash flow available to Martin 4% If the acquisition is made, it will occur on January 1, 2015. All cash flows shown in the income statements are assumed to occur at the end of the year. Columbia currently has a capital structure of 40% debt, but Martin would increase that to 50% if the acquisition were made. Columbia, if independent, would pay taxes at 20%; but its income would be taxed at 35% if it were consolidated. Columbia’s current market-determined beta is 1.15, and its investment bankers think that its beta would rise to 1.2000 if the debt ratio were increased to 50%. The cost of goods sold is expected to be 75% of sales, but it could vary somewhat. Depreciation-generated funds would be used to replace worn-out equipment, so they would not be available to Martin’s shareholders. The risk-free rate is 4%, and the market risk premium is 5%. What is the appropriate discount rate for valuing the acquisition? % (to 4 decimals)

Estelle Corporation owns assets worth $ 6.00 billion. For each of the next two years, asset values will either go up by $42% or go down by $33%. The risk-free interest rate is 3.0%. Estelle has a debt of $ 7.00 billion maturing in 2 years. Compute the price of 1 share of Estelle, given it has 200 million shares outstanding.

Use the following 5-year sample on annual returns on S&P500 index and XYZ to calculate XYZ's Coecient of Variation, Sharpe ratio, and Beta. The yield-to-maturity on one-year T-Bills is 2%.

Year S&P500 XYZ
2014 0.01 0.02
2015 0.06 0.11
2016 0.02 0.05
2017 0.005 -0.01
2018 0.01 0.02