Discounted Cash Flow Valuation

You and your spouse begin immediately saving for retirement and the dreamy “ever after” that you need to fund. At this point, your “ever after” fund has a balance of $0. You begin depositing $300 each month, starting one month from now, for the next 30 years. Your spouse begins depositing $5,000 each year, starting one year from now, into the same account for the next 30 years. The joint account earns 9 percent APR, compounded monthly. How much will you two have in your joint account 30 years from now, immediately after your last deposits?

Part B Your “ever after” is expected to be funded by monthly withdrawals, starting one month after your last deposits, and it is expected to last for 35 years. How much will you two (collectively) have to happily spend each month, assuming your accounts continue to earn the same rate as before?

Amortize a 30-year, $120,000 loan with end-of-month payments. The APR is 12%. What is the monthly payment? What are the interest and repayment portions of the payment in month 12? What is the ending balance after one year (month 12)?  

Part A: You make a cash purchase of 100 shares of a stock at $55 per share. You hold the stock for one year, during which dividends of $5 a share are distributed. Commissions are 2 percent of the value of a purchase or sale.

Assume all of the same conditions of the transaction as in part a (i.e. stock purchase price, dividends, commission) but now you make the purchase using margin. If the Margin Requirement is 60% and the interest rate on borrowed funds is 10%, what is your percentage earned at the following prices:

1. $60

2. $70

You have $12,500 you want to invest for the next 30 years. You are offered an investment plan that will pay you 7 percent per year for the next 10 years and 9.5 percent per year for the last 20 years. How much will you have at the end of the 45 years?

Please provide an Office Excel formula in your answer.

Amount of annuity-$32,000

Interest rate-9%

Period (years)-11

a. Calculate the present value of the annuity assuming that it is ​(1) An ordinary annuity. ​(2) An annuity due.

b. Compare your findings in parts a​(1) and a​(2). All else being​ identical, which type of annuity—ordinary or annuity due—is ​preferable? Explain why.

Marian Kirk wishes to select the better of two 9​-year annuities. Annuity 1 is an ordinary annuity of ​$2810 per year for 9 years. Annuity 2 is an annuity due of ​$2600 per year for 9 years.

a. Find the future value of both annuities at the end of year 9​, assuming that Marian can earn​ (1) 8​% annual interest and​ (2) 16​% annual interest.

b. Use your findings in part a to indicate which annuity has the greater future value at the end of year 9 for both the​ (1) 8 % and​ (2) 16​% interest rates..

c. Find the present value of both​ annuities, assuming that Marian can earn ​(1) 8​% annual interest and​ (2) 16​% annual interest.

d. Use your findings in part c to indicate which annuity has the greater present value for both the​ (1) 8​% and​ (2) 16​% interest rates.

e. Briefly​ compare, contrast, and explain any differences between your findings using the 8​% and 16​% interest rates in parts b and d.

Why is marketing research important to the development of a marketing strategy?

Uber has had phenomenal growth, going from four people in 2009 to the two kinds of workers it deals with today: (1) 12,000 full-time nondriver employees, such as those working in its San Francisco headquarters, and (2) about 2 million active drivers globally, the independent contractors it calls “partners.”

Uber’s Employees

Former CEO Travis Kalanick viewed human resources (HR) as having one function—recruiting. Other HR functions were not a priority for Uber. For example, the company had fewer than 10 HR representatives in 2016 who were responsible for training managers and handling issues such as sexual harassment for the 6,000 employees it had at the time. “When HR becomes solely a talent race, boards and CEOs can miss the less obvious but equally vital value of managing both new hires and leaders who are facing increasing demands,” says John Boudreau in a Harvard Business Review article.

Kalanick’s lack of focus on HR created a toxic atmosphere at the organization. Much of this became evident with Susan Fowler, a former Uber engineer. Fowler claimed in a February 2017 blog that she was sexually harassed by her supervisor and that HR ignored her claims. Other employees have since reported that a premium was placed on workers who delivered strong performance and aggressive growth, and that their inappropriate workplace behavior was overlooked, according to the New York Times.

Uber attempted to improve this situation by focusing on the accuracy of its performance evaluations. In the past, performance reviews were subjective with managers simply meeting behind closed doors and rating their employees. This obviously increased the potential for managerial bias. The process also was deficient in that employees did not have individual goals to be evaluated against, making it hard to hold employees and managers accountable for objective results.

Uber implemented two significant changes in 2017 to overcome problems with its appraisal system. First, the company established measurable goals for all employees, and they were transparent for all to see. Second, Uber implemented something similar to a 360-degree performance appraisal system as evaluations needed to take into account more than a manager’s direct observation of subordinates. The system consisted of committees reviewing employees’ self-evaluations, peer evaluations, and manager evaluations to make sure bonuses were given out fairly, according to Uber Chief People Officer Liane Hornsey.

While these changes may have improved the human resource process at Uber, employee issues still persist. For example, HR Chief Hornsey resigned in July 2018 amid continuing employee dissatisfaction. “Disgruntled employees still don’t trust Uber’s systems, and they are turning to the media to air their grievances. This suggests that Khosrowshahi’s attempt to build trust among employees, an assurance that the company can address challenges internally, has not taken hold,” says Wired Magazine.

Uber’s Drivers

Uber isn’t only failing its employees; it’s also failing its drivers. The company seems to offer very little in human resource development for its contractors. Drivers are given the option of watching a 13-minute training video covering such topics as how to provide good service and get five-star ratings from customers. “The only safety thing they tell us,” says one driver, “is to have a hands-free phone holder and to keep your eyes on the road.” Drivers who want additional training will have to pay for it on their own. Uber has contracted with 7x7 Experience to offer quality improvement courses at a rate of $49 per course. They can also take a course on “Tip Maximization” for another $29.

Uber drivers may not be happy about having to pay for quality improvement courses, especially because a recent study found they aren’t making that much. The Economic Policy Institute released a 2018 analysis showing that Uber drivers take home around $9.21 an hour. This means drivers are making less than the minimum wage of some of Uber’s biggest markets, such as Chicago, Los Angeles, and New York. The $9.21 figure actually “puts Uber drivers at the bottom 10 percent of wage earners” according to the Chicago Tribune.

Drivers, often undertrained, are also victims of an automated performance appraisal system in which passengers rate drivers on a scale of from 1 to 5 stars. Each driver then receives a weekly average rating for all passengers, and this average is used to make personnel decisions. In Atlanta, for example, a driver receiving less than 4.6 stars may be kicked out of the program. Uber did update its ratings system in July 2017 by introducing a “ratings protection” initiative. This system was designed to protect drivers from complaints that are unrelated to their actual performance. For example, when a rider selects a rating below 5 stars, a screen will pop up asking “what could be improved?” Options include “route by Uber” and “co-rider,” and only one option goes back to the driver.

Uber drivers may not have much power to fight back against the company’s HR policies. The company is resisting unionization because it wants its app-based drivers to be “business partners”—that is, contractors not subject to employee-protection laws. The issue of unionization is being fought in the courts. In 2015, Seattle passed an ordinance allowing Uber (and Lyft) drivers to unionize, which the U.S. Chamber of Commerce and Uber have sought to overturn. In May 2018, the Ninth Circuit Court of Appeals reversed a lower court’s 2017 decision to uphold the law, continuing the legal saga by sending the case back to the lower court for further review.

Uber has worked to improve and safeguard its driver performance appraisal rating system, yet it still lacks some of the basic components of traditional employee performance management systems. Based on the case, which of the following is not part of Uber’s performance appraisal system for drivers?

A: Rewards

B: Feedback

C: Expectations

D: Monitoring

E: Punishment

Question 2. Upon starting your new job after college, you've been confronted with selecting the investments for your 401(k) retirement plan. You have four choices for investing your money:

• a money market fund that has historically returned about 0.50% per year.
• A long-term bond fund that has earned an average annual return of 4.0%
• A conservative common-stock fund that has earned 6.0% per year.
• An aggressive common-stock fund that has earned 9.0% per year.

a. If you were to contribute $5,500 per year for the next 35 years, how much would you accumulate in each of the above funds?

b. Now, change your worksheet so that it allows for less than annual investments (monthly, weekly, etc.). The annual investment will be the same, but it will be made in smaller, more frequent, amounts.

Given the following income statement and balance sheet data, select which items would be included in presenting the cash flow from operating activities section of the statement of cash flows using the indirect method:

Assume your firm has multiple investments to consider each with differing risk levels. How can differing risk levels be incorporated into NPV analysis? How can they be incorporated into IRR analysis?

Between 2011 and 2016, Williams purchased a number of household items on credit from the Penguin Furniture Co., a retail furniture store. Penguine retained the right in its contracts to repossess an item if Williams defaulted on an installment payment. Each contract also provided that each installment payment by Williams would be credited pro rata to all outstanding accounts or bills owed to Penguin. As a result of this provision, an unpaid balance would remain on every item purchased until the entire balance due on all items, whenever purchased, was paid in full. Williams defaulted on a monthly installment payment in 2016, and Penguin sought to repossess all the items the Williams has purchased since 2011.

1. Is the bargaining power of Penguin too great to assume that the terms of the agreement resulted from a fair negotiation process?

2. Do the terms of this agreement appear fair and reasonable to both parties?

3. Has Penguin acted unethically?

XYZ just paid a dividend of $ 2.65 on its shares. The dividend growth rate is expected to be constant 4% per annum forever. Investors demand a return of 16% for the first three years, a return of 14% for the next three years and a return of 11% thereafter. What is the current price of this financial instrument?