Ben Bates graduated from college six years ago with a finance undergraduate degree. Although he is satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to achieve this goal. After examining schools, he has narrowed his choice to either Wilton University or Mount Perry College. Although internships are encouraged by both schools, to get class credit for the internship, no salary can be paid. Other than internships, neither school will allow its students to work while enrolled in its MBA program. Ben currently works at the money management firm of Dewey and Louis. His annual salary at the firm is $53,000 per year, and his salary is expected to increase at 3 percent per year until retirement. He is currently 28 years old and expects to work for 38 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26 percent. Ben has a savings account with enough money to cover the entire cost of his MBA program. The Ritter College of Business at Wilton University is one of the top MBA programs in the country. The MBA degree requires two years of full-time enrollment at the university. The annual tuition is $58,000, payable at the beginning of each school year. Books and other supplies are estimated to cost $2,000 per year. Ben expects that after graduation from Wilton, he will receive a job offer for about $87,000 per year, with a $10,000 signing bonus. The salary at this job will increase at 4 percent per year. Because of the higher salary, his average income tax rate will increase to 31 percent. The Bradley School of Business at Mount Perry College began its MBA program 16 years ago. The Bradley School is smaller and less well known than the Ritter College. Bradley offers an accelerated one-year program, with a tuition cost of $75,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $4,200. Ben thinks that he will receive an offer of $78,000 per year upon graduation, with an $8,000 signing bonus. The salary at this job will increase at 3.5 percent per year. His average tax rate at this level of income will be 29 percent. Both schools offer a health insurance plan that will cost $3,000 per year, payable at the beginning of the year. Ben has also found that both schools offer graduate housing. His room and board expenses will decrease by $4,000 per year at either school he attends. The appropriate discount rate is 5.5 percent.

1.

A)How does Ben’s age affect his decision to get an MBA?

B) What other, perhaps nonquantifiable, factors affect Ben’s decision to get an MBA?

C) Assuming all salaries are paid at the end of each year, what is the best option for Ben from a strictly financial standpoint?

Researchers selected a simple random sample of 4048 medical records of adults diagnosed with gum disease. In all, 2226 were current smokers, 891 were former smokers, and 931 never smoked regularly. Their research question is:

Do these data indicate that gum disease is equally likely regardless of smoking status?

Using a significance level of 0.05, what is the appropriate conclusion for this test?

The data are consistent with an equal representation of current, former, and never smokers among adults diagnosed with gum disease.

Current smokers make up a significantly greater proportion of adults diagnosed with gum disease than former or never smokers.

Current smokers are most likely to have gum disease.

There is significant evidence that current, former, and never smokers are not equally represented among adults diagnosed with gum disease.

1. In each of five focus areas (liquidity, profitability, …), provide your view/thoughts for the company's CEO consideration.
2. List, in order of priority (#1 being the highest), the three greatest concerns you have about the historical performance and explain your thoughts.
3. List, in order of priority, the three greatest concerns your group has with the one-year financial forecast (the year 2020 is forecast) provided by the CEO and explain your thoughts.
4. Use your answer in #4 (three greatest concerns about the forecast (the year 2020) to create your own forecast. In Excel, create a new, one-year forecast (balance sheet, income statement, and statement of cash flow) that combines the company’s forecast with your responses in #4 to reflect an adjusted forecast that you are more comfortable with.

On January 2, 20X8, Johnson Company acquired a 100% interest in the capital stock of Perth Company for $3,100,000. Any excess cost over book value is attributable to a patent with a 10-year remaining life. At the date of acquisition, Perth's balance sheet contained the following information (in Foreign Currency Units, FCU): Cash 40,000 Receivables 150,000 Inventories 500,000 Equipment 1,500,000 Payables 200,000 Capital stock 600,000 Retained earnings 1,390,000 Perth's income statement for 20X8 is as follows(in Foreign Currency Units, FCU): Sales revenue 1,010,000 Cost of goods sold 590,000 Operating expenses 120,000 Depreciation expense 200,000 Income tax expense 40,000 The balance sheet of Perth at December 31, 20X8, is as follows(in Foreign Currency Units, FCU): Cash 180,000 Receivables 210,000 Inventories 520,000 Equipment 1,300,000 Payables 180,000 Capital stock 600,000 Retained earnings 1,430,000 Perth declared and paid a dividend of 20,000 FCU on October 1, 20X8. Spot rates at various dates for 20X8 follow: January 2: 1 FCU = $1.50 October 1: 1 FCU = $1.60 December 31: 1 FCU = $1.70 Weighted average: 1 FCU = $1.55 Assume Perth's revenues, purchases, operating expenses, depreciation expense, and income taxes were incurred evenly throughout 20X8. Refer to the above information. Assuming the U.S. dollar is the functional currency, what is Johnson's gain (loss) for 20X8? (Assume the ending inventory was acquired on December 31, 20X8.)

Prepare a brief presentation that explains how using BI will bring success to the company.  

Why should a company invest in their business intelligence?

What does the CEO need to know about BI?

How does it give them a competitive advantage?

1. Offer some reasons that a company might choose to merge with or acquire another company.

2. Discuss some of the implications of overpaying for an acquired company?

Analyse the following case using the AAA decision making model. What are the ethical theories and principles. Apply codes of ethics for finance professionals.

You have graduated as a financial adviser and working for a company with many famous clients. The CEO takes time to mentor you personally. The CEO invites you to dinner at his place often and you help him out as a family friend. You are the only person who knows the CEO’s wife from the firm, she is a real estate agent. You later learn, the wife has a job as a real estate consultant for the firm. Both the CEO and his wife separate personal life for their job.

The wife uses her experience to satisfy clients. After 6 months of probation she is up for a promotion. The CEO (her husband) was part of the committee for promotion. Due to the firms great performance, the CEO was able to receive a bonus for his leadership. There have been no behavioural issues due to the relationship between the CEO and his wife.

The CEO and his wife become distant at work as no one knows about their relationship. While you believe they have worked professionally, their hidden relationship still troubles you. There is so much secrecy. While the firm has succeeded in many areas, some issues have gotten worse. The firm was subject to a joint investigation by two top media outlets, which uncovered a story that the firm had a number of elderly clients who had since faced financial difficulty due to being recommended riskier investment products by the firm. Many clients at retirement age have made complaints with their losses.

Executive remuneration had increased significantly in the last several years. The CEO was entitled to bonuses due to the successes of his wife. The CEO and other executives don’t feel concerned about media reports. You have a talk with another graduate regarding the relationship between the CEO and the wife and how that may be causing the issues. Your colleague felt like you should have spoke up and lodged an internal complaint.

You approach the CEO. The CEO feels the relationship is no ones business and to not bring his personal life into the business. If you filed an internal complaint you may risk the CEO losing reputation and credibility as a financial advisor.

The U.S. has placed a 200% tariff on airplanes produced by Bombardier, a Canadian company, after Boeing complained that Bombardier was able to sell their planes to Delta Airlines (an American company) at a lower price. How is Boeing affected by this tariff? How is Delta Airlines affected by this tariff? How is the U.S. government affected? Is the U.S. better off or worse off?

Stephenson Real Estate Company was founded 25 years ago by the current CEO, Robert Stephenson. The company purchases real estate, including land and buildings, and rents the property to tenants. The company has shown a profit every year for the past 18 years, and the shareholders are satisfied with the company’s management. Prior to founding Stephenson Real Estate, Robert was the founder and CEO of a failed alpaca farming operation. The resulting bankruptcy made him extremely averse to debt financing. As a result, the company is entirely equity financed, with 11 million shares of common stock outstanding. The stock currently trades at $48.50 per share.

Stephenson is evaluating a plan to purchase a huge tract of land in the southeastern United States for $45 million. The land will subsequently be leased to tenant farmers. This purchase is expected to increase Stephenson’s annual pretax earnings by $10 million in perpetuity. Kim Weyand, the company’s new CFO, has been put in charge of the project. Kim has determined that the company’s current cost of capital is 10.5 percent. She feels that the company would be more valuable if it included debt in its capital structure, so she is evaluating whether the company should issue debt to entirely finance the project. Based on some conversations with investment banks, she thinks that the company can issue bonds at par value with a coupon rate of 7 percent. Based on her analysis, she also believes that a capital structure in the range of 70 percent equity⁄30 percent debt would be optimal. If the company goes beyond 30 percent debt, its bonds would carry a lower rating and a much higher coupon because the possibility of financial distress and the associated costs would rise sharply. Stephenson has a 40 percent corporate tax rate (state and federal).

• If Stephenson wishes to maximize its total market value, would you recommend that it issue debt or equity to finance the land purchase? Explain.
• Review Stephenson's market value balance sheet before it announces the purchase.
• Suppose Stephenson decides to issue equity to finance the purchase.
• • What is the net present value of the project?
  • Review Stephenson's market value balance sheet after it announces that the firm will finance the purchase using equity. What would be the new price per share of the firm's stock? How many shares will Stephenson need to issue to finance the purchase?
  • Review Stephenson's market value balance sheet after the equity issue but before the purchase has been made. How many shares of common stock does Stephenson have outstanding? What is the price per share of the firm's stock?
  • Review Stephenson's market value balance sheet after the purchase has been made.
• Suppose Stephenson decides to issue debt to finance the purchase.
• • What will the market value of the Stephenson company be if the purchase is financed with debt?
  • Review Stephenson's market value balance sheet after both the debt issue and the land purchase. What is the price per share of the firm's stock?
• Which method of financing maximizes the per-share stock price of Stephenson's equity?

Stephenson Real Estate Company was founded 25 years ago by the current CEO, Robert Stephenson. The company purchases real estate, including land and buildings, and rents the property to tenants. The company has shown a profit every year for the past 18 years, and the shareholders are satisfied with the company’s management. Prior to founding Stephenson Real Estate, Robert was the founder and CEO of a failed alpaca farming operation. The resulting bankruptcy made him extremely averse to debt financing. As a result, the company is entirely equity financed, with 9 million shares of common stock outstanding. The stock currently trades at $37.80 per share.

Stephenson is evaluating a plan to purchase a huge tract of land in the southeastern United States for $95 million. The land will subsequently be leased to tenant farmers. This purchase is expected to increase Stephenson’s annual pretax earnings by $18.75 million in perpetuity. Jennifer Weyand, the company’s new CFO, has been put in charge of the project. Jennifer has determined that the company’s current cost of capital is 10.2 percent. She feels that the company would be more valuable if it included debt in its capital structure, so she is evaluating whether the company should issue debt to entirely finance the project. Based on some conversations with investment banks, she thinks that the company can issue bonds at par value with a 6 percent coupon rate. From her analysis, she also believes that a capital structure in the range of 70 percent equityy30 percent debt would be optimal. If the company goes beyond 30 percent debt, its bonds would carry a lower rating and a much higher coupon because the possibility of financial distress and the associated costs would rise sharply. Stephenson has a 40 percent corporate tax rate (state and federal).

1. If Stephenson wishes to maximize its total market value, would you recommend that it issue debt or equity to finance the land purchase? Explain.

2. Construct Stephenson’s market value balance sheet before it announces the purchase.

3. Suppose Stephenson decides to issue equity to finance the purchase.

What is the net present value of the project?

Construct Stephenson’s market value balance sheet after it announces that the firm will finance the purchase using equity. What would be the new price per share of the firm’s stock? How many shares will Stephenson need to issue to finance the purchase?

Construct Stephenson’s market value balance sheet after the equity issue but before the purchase has been made. How many shares of common stock does Stephenson have outstanding? What is the price per share of the firm’s stock?

Construct Stephenson’s market value balance sheet after the purchase has been made.

4. Suppose Stephenson decides to issue debt to finance the purchase. What will the market value of the Stephenson company be if the purchase is financed with debt?

Construct Stephenson’s market value balance sheet after both the debt issue and the land purchase. What is the price per share of the firm’s stock?

5. Which method of financing maximizes the per-share stock price of Stephenson’s equity?